QUESTION NO: 1
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.
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.
Correct Answer: C
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QUESTION NO: 2
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:
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:
Correct Answer: A
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QUESTION NO: 3
Don Wolf became a general partner in Gata Associates on January 1, 1989, 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, 1989, 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 1989 is:
Don Wolf became a general partner in Gata Associates on January 1, 1989, 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, 1989, 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 1989 is:
Correct Answer: A
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QUESTION NO: 4
A cash basis taxpayer should report gross income:
A cash basis taxpayer should report gross income:
Correct Answer: C
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QUESTION NO: 5
For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the:
For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the:
Correct Answer: D
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QUESTION NO: 6
Doris and Lydia are equal partners in the capital and profits of Agee & Nolan, but are otherwise unrelated.
The following information pertains to 300 shares of Mast Corp. stock sold by Lydia to Agee & Nolan:
The amount of long-term capital loss that Lydia realized in 1988 on the sale of this stock was:
Doris and Lydia are equal partners in the capital and profits of Agee & Nolan, but are otherwise unrelated.
The following information pertains to 300 shares of Mast Corp. stock sold by Lydia to Agee & Nolan:
The amount of long-term capital loss that Lydia realized in 1988 on the sale of this stock was:
Correct Answer: A
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QUESTION NO: 7
Wallace purchased 500 shares of Kingpin, Inc. 15 years ago for $25,000. Wallace has worked as an
owner/employee and owned 40% of the company throughout this time. This year, Kingpin, which is not an
S corporation, redeemed 100% of Wallace's stock for $200,000. What is the treatment and amount of
income or gain that Wallace should report?
Wallace purchased 500 shares of Kingpin, Inc. 15 years ago for $25,000. Wallace has worked as an
owner/employee and owned 40% of the company throughout this time. This year, Kingpin, which is not an
S corporation, redeemed 100% of Wallace's stock for $200,000. What is the treatment and amount of
income or gain that Wallace should report?
Correct Answer: D
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