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ACCT 3200 Midterm: Exam Review

Course Code
ACCT 3200
Study Guide

of 75
In terms of meeting the distance test for purposes of deducting moving expenses, which is the following
statements is correct?
- The taxpayer’s new job must be at least 50 miles farther from his hold residence than his old
residence was from his old job.
The amount of taxable profit on Schedule C:
- Includes: commissions income, legal commissions, travel and transportation, office expenses,
office and phone
- Does not include: illegal expenses and parking tickets
Joseph and Sandra, married taxpayers, took out a $350,000 mortgage to purchase their $400,000 home
in 1999. In May of this year, when their home had appreciated in value to $600,000 and their mortgage
balance had reduced down to $300,000 they obtained a home equity loan in the amount of $220,000.
Joseph used these funds to purchase a single engine airplane used for recreational travel. What is the
maximum amount of the home equity loan debt on which interest is deductible?
- $100,000 --- ceiling
Jim had a car accident in 2011 in which his car was completely destroyed. At the time of the accident,
the car had a FMV of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for
personal use. Jim received insurance recovery of 70% ($21,000) of the value of the car at the time of the
accident. If Jim’s AGI is $60,000, determine his deductible casualty loss.
- The casualty loss is the lesser of the adjusted basis of your property, or the decrease in FMV as a
result of the casualty
- The amount of your theft loss is generally the adjusted basis of your property
- Once the amount has been determined, take a $100 haircut for each event and then 10% of AGI
after insurance payments
- Change in VMF = $30,000; adjusted basis = $40,000; $30,000-$21,000=9,000-100= 8900
- 10% AGI = 6,000
- 8900-6000 = $2900
In 2007, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too
busy to work on the car and gives it to his daughter in 2011. At this time, the FMV of the car declined to
$10,000. Julia completes some of the restoration herself with out-of-pocket costs of $5,000 and then
sells it for $30,000. What is her recognized gain/loss on the sale of the car?
- Selling price -Basis (donor’s basis) - restoration additions = Gain/loss
- $13,000 gain
Over the past 25 years, Alfred has purchased 380 shares of Green Inc. common stock. His first purchase
was in 1986 when he acquired 30 shares for $20 a share. In 1998, Alfred bought 150 shares at $10 a
share. In 2007, Alfred acquired 200 shares at $50 a share. Alfred intends to sell 125 shares at $60 per
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share in the current year. If Alfred’s objective is to minimize his gain and he is able to specifically identify
which shares are being sold, what is his recognized gain?
- Sell shares purchased in 2007 at $50 per share to minimize gain; gain will be $1250
In 2011, Grant’s personal residence was damaged by fire. Grant had insurance that covered 90% or
$171,000 of his actual loss, and he received the insurance settlement in 2011. Grant had an adjusted
income, before considering the casualty item, of $30,000. What is his allowable casualty loss for 2011?
- Change in FMV: 190,000 ; basis: 170,000; use 170,000 – 100- 171,000 =$0 deductible can be
Micheal is the city sales manager for “Chick-Stock,” a national fast food franchise. Every working day,
Michael drives his car as follows:
- Home to office: 20mi
- Office to #1: 15
- #1 to #2: 18
- #2-#3: 14
- #3 to home: 30
- Deductible mileage is: 47
Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering her
hobby is $40,000. During the year, she sold bedspreads for $10,000. She incurred expenses of the
following: Fabric and thread: $4000, sewing $500, $6500. How would she report these on a tax return?
- Include $10,000 in income, deduct nothing for AGI, and claim the $10,000 of the expenses as
itemized deductions, subject to the 2% of AGI limitation.
- Can only deduct hobby losses to the extent in which they equal revenues
Which of the following statements is correct?
- If a personal residence is rented for more than 14 days and the personal use days exceed 14
days and 10% of the rental days, the rent income must be included in gross income, but the
expense deductions are limited to the amount of gross rental income.
Corey performs services for Sophie. Which, if any, of the following factors indicate that Corey is an
independent contractor, rather than an employee?
- Corey is based on the tasks performed
Andrea, who lives in Ohio, volunteered to travel to Arizona in February to work on a home-building
project for Habitat for Humanity (a qualified charitable organizations). She was in Arizona for one
month. She normally makes $1,800 per month as a carpenter’s assistant. In addition, she incurred the
following costs in connection with the trip: $700 for transportation, $820 for lodging, and $340 for
supplies that she furnished at the job site. The cost of providing for all of Andrea’s meals were donated
by local Arizona businesses. What is Andrea’s deduction associated with this charitable activity?
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- $1860; all costs associated with this activity are deductible. However, meals would not be and
neither is the cost of her service.
During the year, Walt went from Louisville to Hawaii on a business trip, (his primary purpose). Preceding
a five-day business meeting, he spent three days vacationing at the beach. Excluding his vacation costs,
his other expenses for the trip were: air fare $3200; lodging $900; meal $800; entertainment on
business days $600.
- $4800; airfare $3200, lodging $900, 50% haircut meals $400, 50% haircut $300
Tom is advised by his family physician that he needs back surgery to correct a problem from his last back
surgery. Since Tom is in a wheel chair, he needs his wife, Jean, to accompany him on his trip to
Rochester Minnesota, for a full in-patient treatment at Mayo Clinic. Tom incurred the following costs:
$700 airfare, Jean’s hotel $380), Jean’s meals $105, Tom’s medical treatment: $3,500, Tom’s medicine
$600. What are Tom’s medical expenses before any “haircut” limitation?
- $5000; hotels are limited to $50 per night, ($200), medical treatment $3900, meds $600, airfare
Cher, a widow, decided to sell her primary residence which had a basis of $600,000. She owned and
occupied her home for 20 years with her husband, Sonny, who was killed in an accident in 2012. Cher
sold the house in May 2014 for $1,900,000. Broker’s commissions and other selling expenses amounted
to $100,000. What is her recognized gain on the sale?
- $700,000; Sale 1900000- selling expenses 100,000– basis 600,000– exclusion 500,000 MFJ lasts
two years = 700,000
Alicia, who is single, buys a beach house for $314,000 which she uses as her personal vacation home
with no rental activity. She builds an additional room and gazebo on the house for $45,000. She sells the
property for $650,000 and pays $33,000 in real estate commissions and $4,000 to an attorney in legal
fees in connection with the sale. What is Alicia’s recognized gain or loss on the sale of the house?
- $254,000
Carolyn is single and has a college degree in finance. She is employed as a loan officer at a bank; her
yearly AGI approximates $50,000. During 2009, she enrolled in a weekend MBA program to improve her
skills as a loan officer and incurred the following non-reimbursed expenses: $3900 (tuition), $300
(books), $100 (other school supplies), $200 (transportation), and $100 (meals).
- Deduction for AGI (required tuition and fees) $3900; and deduction from AGI for $600 (books,
transportation, and other school supplies)
Valerie, the regional sales director for a manufacturer of sporting goods, pays $2,000 to rent a skybox
for a visiting performance of the Harlem Globetrotters. The skybox holds 10 seats and Valerie invites 9
clients to join her at the event. Comparable non-luxury box seats are priced at $100. Refreshments
provided cost $500. If Valerie meets all of the requirements for deductibility, she may deduct:
- $750; 50% haircut for meals and 50% haircut for comparable seats= $250+ $500
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