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1. Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child.

What is Parker's most advantageous filing status?

2. In which of the following situations may taxpayers file as married filing jointly?

3. Barkley owns a vacation cabin that was rented to unrelated parties for 10 days during the year for $2,500. The cabin was used personally by Barkley for three months and left vacant for the rest of the year.

Expenses for the cabin were as follows:

Real estate taxes $1,000

Maintenance and utilities $2,000

How much rental income (loss) is included in Barkley's adjusted gross income?

4. In evaluating the hierarchy of authority in tax law, which of the following carries the greatest authoritative value for tax planning of transactions?

5. In 19X4, Smith, a divorced person, provided over one half the support for his widowed mother, Ruth, and his son, Clay, both of whom are U.S. citizens. During 19X4, Ruth did not live with Smith. She

received $9,000 in Social Security benefits. Clay, a 25 year-old full-time graduate student, and his wife lived with Smith. Clay had no income but filed a joint return for 19X4, owing an additional $500 in taxes on his wife's income.

How many exemptions was Smith entitled to claim on his 19X4 tax return?

6. Darr, an employee of Sorce C corporation, is not a shareholder.

Which of the following would be included in a taxpayer's gross income?

7. Adams owns a second residence that is used for both personal and rental purposes. During 2001, Adams used the second residence for 50 days and rented the residence for 200 days.

Which of the following statements is correct?

8. Baum, an unmarried optometrist and sole proprietor of Optics, buys and maintains a supply of

eyeglasses and frames to sell in the ordinary course of business. In 1999, Optics had $350,000 in

gross business receipts and its year-end inventory was not subject to the uniform capitalization rules.

Baum's 1999 adjusted gross income was $90,000 and Baum qualified to itemize deductions. During

1999, Baum recorded the following information:

Business expenses:

What amount should Baum report as 1999 net earnings from self-employment?

9. On December 1, 1997, Krest, a self-employed cash basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30, 1998. Krest paid the entire interest amount of $24,000 on December 1, 1997.

What amount of interest was deductible on Krest's 1997 income tax return?

10. Which payment(s) is(are) included in a recipient's gross income?

I. Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree.

II. A grant to a Ph.D. candidate for his participation in a university-sponsored research project for the benefit of the university.

11. 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?

12. In a tax year where the taxpayer pays qualified education expenses, interest income on the redemption of qualified U.S. Series EE Bonds may be excluded from gross income. The exclusion is subject to a modified gross income limitation and a limit of aggregate bond proceeds in excess of qualified higher education expenses.

Which of the following is (are) true?

I. The exclusion applies for education expenses incurred by the taxpayer, the taxpayer's spouse, or any person whom the taxpayer may claim as a dependent for the year.

II. "Otherwise qualified higher education expenses" must be reduced by qualified scholarships not includible in gross income.

13. During 1993 Kay received interest income as follows:

On U.S. Treasury certificates $4,000

On refund of 1991 federal income tax 500

The total amount of interest subject to tax in Kay's 1993 tax return is:

14. Rich is a cash basis self-employed air-conditioning repairman with 1993 gross business receipts of $20,000. Rich's cash disbursements were as follows:

What amount should Rich report as net self-employment income?

15. On December 1, 1992, Michaels, a self-employed cash basis taxpayer, borrowed $100,000 to use in her business. The loan was to be repaid on November 30, 1993. Michaels paid the entire interest of $12,000 on December 1, 1992.

What amount of interest was deductible on Michaels' 1993 income tax return?

16. On February 1, 1993, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in 1990. Fair market value of the stock on February 1, 1993, the date of his father's death, was $4,000 and had increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, 1993, the date that the executor distributed the stock to him.

How much income should Hall include in his 1993 individual income tax return for the inheritance of the 500 shares of stock, which he received from his father's estate?

17. John and Mary were divorced in 1991. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child's 18th birthday. During 1992, John paid $7,000 directly to Mary and $3,000 to Spring College for Mary's tuition.

What amount of these payments should be reported as income in Mary's 1992 income tax return?

18. Freeman, a single individual, reported the following income in the current year:

Guaranteed payment from services rendered to a partnership $50,000

Ordinary income from a S corporation $20,000

What amount of Freeman's income is subject to self-employment tax?

19. During 2001, Adler had the following cash receipts:

What is the total amount that must be included in gross income on Adler's 2001 income tax return?

20. DAC Foundation awarded Kent $75,000 in recognition of lifelong literary achievement. Kent was not required to render future services as a condition to receive the $75,000.

What condition(s) must have been met for the award to be excluded from Kent's gross income?

I. Kent was selected for the award by DAC without any action on Kent's part.

II. Pursuant to Kent's designation, DAC paid the amount of the award either to a governmental unit or to a charitable organization.