Reference no: EM131303102

1. Paragraph 2 states that Carrie used the hybrid method of accounting for tax reporting purposes. The hybrid method requires Carrie to report:
a. Inventory on the accrual basis for inventory transactions realized, while reporting all other aspects of the business on the cash basis for transactions realized.
b. Inventory on the accrual basis for inventory transactions not realized, while reporting all other aspects of the business on the cash basis for transactions realized.
c. Inventory on the accrual basis for inventory transactions realized, while reporting all other aspects of the business on the cash basis for transactions not realized.
d. Inventory on the cash basis for inventory transactions realized, while reporting all other aspects of the business on the accrual basis for transactions realized.
e. None of the other choices are correct.

2. Paragraph 2 provides inventory information which is necessary to determine:
a. Cost of goods sold on Sch. C, Part I, Line 4
b. Gross receipts or sales on Sch. C, Part I, Line 1
c. Supplies on Sch. C, Part II, Line 22
d. Other expenses on Sch. C, Part II, Line 27a
e. None of the other choices are correct.

3. Paragraph 1states that Carrie is a licensed hairstylist and operates her own business. If Carrie had business expenses as a drug dealer,instead of as a licensed hairstylist, then:
a. Carrie, as a drug dealer, would be legally entitled to deduct only cost of goods sold, not any other business expenses, because gross income is defined as sales minus cost of goods sold, and IRC section 280E prohibits any deductions for drug dealers.
b. Carrie, as a drug dealer, would be legally entitled to deduct cost of goods sold and any other business expenses.
c. Carrie, as a drug dealer, would be legally entitled to deduct only business expenses other than cost of goods sold, because the tax law prohibits deductions for the cost of drugs that a dealer purchases as inventory.
d. Carrie, as a drug dealer, would not be legally entitled to deduct cost of goods sold, nor any other business expenses, because gross income is defined as sales minus cost of goods sold, and IRC section 280E prohibits any deductions for drug dealers.
e. None of the other choices are correct.

4. Paragraph 5 states that Carrie paid a fine of $500 for improper disposal of certain waste chemicals, and attorney's fee of $600 in 2015. Which of the following, if any, is/are true:
a. Carrie can legally deduct the $500 fine because the origin and character of the claim are directly related to her trade or business.
b. Carrie can legally deduct the $600 attorney's fee because the legal representation was for criminal defense associated with Carrie's trade or business.
c. Carrie can legally deduct the $600 attorney's fee because she can itemize on Schedule A.
d. Carrie can legally deduct neither the $600 attorney's fee nor the $500 fine because the offense of improper disposal of certain waste chemicals is actively enforced by local law enforcement.
e. None of the other choices are correct.

5. If Carrie is on the cash basis of accounting and receives $1,000.00 cash on December 31, 2015, for styling services which she will perform in January of 2016, then which of the following, if any, is/are true:
a. Carrie realized $1,000.00 of sales in 2015 that is recognized in 2015.
b. Carrie realized $1,000.00 of sales in 2015 that is recognized in 2016.
c. Carrie did not realize $1,000.00 of sales in 2015, but must recognize $1,000.00 of sales in 2016.
d. Carrie did not recognize $1,000.00 of sales in 2015, but must recognize $1,000.00 of sales in 2016.
e. None of the other choices are correct.

6. If Carrie is on the accrual basis of accounting and receives $1,000.00 cash on December 31, 2015, for styling services which she will perform in January of 2016, then which of the following, if any, is/are true:
a. Carrie realized $1,000.00 of sales in 2015 that is recognized in 2015.
b. Carrie realized $1,000.00 of sales in 2015 that is recognized in 2016.
c. Carrie did not realize $1,000.00 of sales in 2015, but must recognize $1,000.00 of sales in 2016.
d. Carrie did not recognize $1,000.00 of sales in 2015, but must recognize $1,000.00 of sales in 2016.
e. None of the other choices are correct.

7. Paragraph 10 states that Carrie received $200,000.00 in 2015 in settlement for her physical pain and suffering. If $60,000.00 of this $200,000.00 was specified as payment for lost income that she would have earned in 2016, then which of the following, if any, is/are true:
a. Carrie does not recognize this $60,000.00 on her tax return for 2015 or 2016.
b. Carrie does not recognize this $60,000.00 on her tax return for 2015, but does recognize this $60,000.00 for 2016.
c. Carrie recognizes this $60,000.00 on her tax return for 2015 because she is on the cash basis and she realized this $60,000.00 in 2015.
d. Carrie recognizes this $60,000.00 on her tax return for 2016 because this $60,000.00 represents lost income for 2016.
e. None of the other choices are correct.

8. Paragraph 10 states that Carrie received $200,000.00 in 2015 in settlement for her physical pain and suffering. If an additional $60,000.00 was specified as payment of punitive damages, and was also paid in 2015, then which of the following, if any, is/are true:
a. Carrie recognizes this $60,000.00 in 2015. Also, the $200,000.00 is not recognized even though it was realized.
b. Carrie recognizes this $60,000.00 in 2015.Also, the $200,000.00 is recognized in 2015.
c. Carrie does not recognize this $60,000.00 in 2015. Also, the $200,000.00 is not recognized.
d. Carrie does not recognize this $60,000.00 in 2015. Also, the $200,000.00 is recognized in 2016.
e. None of the other choices are correct.

9. Paragraph 17 states that the dividends Carrie received from General Motors and AT&T common are "qualified" dividends.Which of the following, if any, is/are true:
a. If a dividend is "qualified", then the dividend is taxed at capital gains rates.
b. If a dividend is "qualified", then the dividend is included in other capital gains and losses that must be netted against each other.
c. If a dividend is "qualified", then it is taxed at ordinary income tax rates.
d. In order for the dividend to be "qualified", the taxpayer must own the stock for more than a year since the "qualified" dividend qualifies for capital gains tax rates.
e. None of the other choices are correct.

10. Paragraph 17 states that the dividends Carrie received from General Motors and AT&T common are "qualified" dividends. Which of the following, if any, is/are true:
a. In order for the dividend to be "qualified", the shareholder must own the stock more than 60 days within a 121 day period which begins 60 days before the ex-dividend date.
b. In order for the dividend to be "qualified", the shareholder must own the stock more than 60 days within a 121 day period which begins 60 days before the date of record.
c. In order for the dividend to be "qualified", the shareholder must own the stock more than 60 days within a 121 day period which begins 60 days before date of declaration.
d. In order for the dividend to be "qualified", the shareholder must own the stock more than 90 days within a 181 day period which begins 90 days before the ex-dividend date.
e. None of the other choices are correct.