Individual Taxation Paper 7

1

Under the uniform capitalization rules applicable to property acquired for resale, which of the following costs should be capitalized with respect to inventory if no exceptions are met? Marketing costs Off-site storage costs






2

In the case of a corporation that is not a financial institution, which of the following statements is correct with regard to the deduction for bad debts?






3

Ram Corp.’s operating income for the year ended December 31, 2012, amounted to $100,000. Included in Ram’s 2012 operating expenses is a $6,000 insurance premium on a policy insuring the life of Ram’s president. Ram is beneficiary of this policy. In Ram’s 2012 tax return, what amount should be deducted for the $6,000 life insurance premium?






4

Earl Cook, who worked as a machinist for Precision Corp., loaned Precision $1,000 in 2010. Cook did not own any of Precision’s stock, and the loan was not a condition of Cook’s employment by Precision. In 2013, Precision declared bankruptcy, and Cook’s note receivable from Precision became worthless. What loss can Cook claim on his 2013 income tax return?






5

During the 2012 holiday season, Palo Corp. gave business gifts to seventeen customers. These gifts, which were not of an advertising nature, had the following fair market values:
4 at $ 10
4 at 25
4 at 50
5 at 100
How much of these gifts was deductible as a business expense for 2012?






6

Cobb, an unmarried individual, had an adjusted gross income of $200,000 in 2012 before any IRA deduction, taxable social security benefits, or passive activity losses. Cobb incurred a loss of $30,000 in 2012 from rental real estate in which he actively participated. What amount of loss attributable to this rental real estate can be used in 2012 as an offset against income from nonpassive sources?






7

The rule limiting the deductibility of passive activity losses and credits applies to






8

Don Wolf became a general partner in Gata Associates on January 1, 2012, with a 5% interest in Gata’s profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the partnership business. For the year ended December 31, 2012, Gata had an operating loss of $100,000. In addition, Gata earned interest of $20,000 on a temporary investment. Gata has kept the principal temporarily invested while awaiting delivery of equipment that is presently on order. The principal will be used to pay for this equipment. Wolf’s passive loss for 2012 is






9

With regard to the passive loss rules involving rental real estate activities, which one of the following statements is correct?






10

If an individual taxpayer’s passive losses relating to rental real estate activities cannot be used in the current year, then they may be carried






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