The parents of a child subject to the kiddie tax are divorced. The father is unmarried. The mother is remarried. The child lives with the mother, who is the custodial parent, and her new spouse. Which parent can make an election on Form 8814? a. Incorrect. The father cannot make the election because he is not the custodial parent. b. Correct. The mother who files […]

Because the preparation of a tax return is covered by privilege, you need not turn over records to the IRS related to return preparation to the IRS. True or false? True. Incorrect. The preparation of a tax return is not covered by privilege. False. Correct. As a tax return preparer you do not create privilege by completing a tax return. Privilege may be created in […]

Making the election to report a child”s interest and dividends on the parent”s return (using Form 8814) can be favorable to the parent with respect to: a. Incorrect. The election increases the parent”s AGI, which can limit the deduction for student loan interest. b. Correct. The election increases the parent”s AGI, which can mean taxpayers who make large charitable contributions that were limited by the […]

Which is not a penalty tax related to qualified retirement plans and IRAs? a. Correct. A Coverdell ESA is an education account, not a retirement account, so the penalty on certain distributions from a Coverdell ESA does not relate to retirement plans or IRAs. b. Incorrect. The penalty on early distributions is from premature withdrawals from qualified retirement plans and IRAs. c. Incorrect. The penalty […]

Which of the following statements about household employment taxes is not correct? a. Incorrect. It is true that FICA only applies if the taxpayer pays $1,700 or more to a worker (other than a spouse, child under the age of 21, the taxpayer”s parent, or any employee under age 18). b. Correct. Household employment taxes are paid through estimated taxpayer or with the taxpayer”s return; […]

In 2008, a taxpayer claimed a $7,500 first-time homebuyer credit and continues to live in the home. Which of the following statements is correct? a. Correct. The taxpayer must report $500 ($7,500 ÷ 15 years) as recapture (additional tax) on his or her 2011 tax return. b. Incorrect. The ability to avoid recapture applies only if the home was purchased after 2008. c. Incorrect. A […]

In 2009, a taxpayer claimed the first-time homebuyer credit. Which situation would require recapture of the credit in 2012? a. Incorrect. There is no recapture of the credit if the home is sold at a loss. b. Incorrect. The transfer of the home to a former spouse incident to a divorce does not trigger the recapture unless that home is subsequently sold. c. Incorrect. The […]

The partners in Crawford Company decide to liquidate the firm when the balance sheet shows the following. CRAWFORD COMPANY Balance Sheet May 31, 2014 Assets Liabilities and Owners” Equity Cash $ 27,500 Notes payable $ 13,500 Accounts receivable 25,000 Accounts payable 27,000 Allowance for doubtful accounts (1,000) Salaries and wages payable 4,000 Inventory 34,500 A. Jamison, capital 33,000 Equipment 21,000 S. Moyer, capital 21,000 Accumulated […]

At April 30, partners’ capital balances in PDL Company are: G. Donley $52,000, C. Lamar $48,000, and J. Pinkston $18,000. The income sharing ratios are 5:4:1, respectively. On May 1, the PDLT Company is formed by admitting J. Terrell to the firm as a partner. Instructions (a)Journalize the admission of Terrell under each of the following independent assumptions. (1)Terrell purchases 50% of Pinkston”s ownership interest […]

On December 31, the capital balances and income ratios in TEP Company are as follows. Partner Capital Balance Income Ratio Brayer $60,000 50% Emig 40,000 30% Posada 30,000 20% Instructions (a)Journalize the withdrawal of Posada under each of the following assumptions. (1)Each of the continuing partners agrees to pay $18,000 in cash from personal funds to purchase Posada”s ownership equity. Each receives 50% of Posada”s […]