Question

On January 1, 2014, Bullitt Corporation sold a machine to Sting Corporation and simultaneously leased it back for ten years. The following information is available regarding the lease:

Estimated remaining useful life at December 31, 2013 10 years

Sales price $ ,90,000

Carrying value at December 31, 2103 $ 52,500

Annual rental under leaseback $14,600

Interest rate implicit in the lease 10%

Present value of the lease rentals $ 89,711

(14,600 for 10 years at 10%)

How much profit should Bullitt recognize on January 1, 2014, on the sale of the machine?

a. $0

b. $37,211

c. $90,000

d. $37,500

Selected financial date of Nicholas Corporation for the year ended December 31, 2014 is presented below

Operating income $800,000

Interest expense (150,000)

Income before income tax $650,000

Net income $430,000

Preferred stock dividends (200,000)

Net income available to common stockholders $230,000

Common stock dividends were $120,000. The times-interest-earned ratio is

a 2.9 to 1

b 3.6 to 1

c. 4.3 to 1

d. 5.3 to 1

Form 1040 allows a taxpayer to report which of the following items that are not allowed for taxpayers who field Form 1040A

a. Salary income

b. Joint return status

c. Withholding on wages

d. Self-employment income

Oscar and Mary have no dependents and file a joint income tax return for 2016. They have adjusted gross income of $140,000 and itemized deductions of $30,000. What is the amount of taxable income that Oscare and Mary must report on their 2016 income tax return?

a. $97,400

b. $101,900

c. $102,000

d. $110,000

e. $136,000

As a Christmas thank you for being a good employee, Ed's TV Repair gave a 62 year old Edwina three shares of its stock worth $20 per share. Edwina then received dividends of $1 per share related to the stock. How much shold be included in Edwina's gross income?

a. $0

b. $3

c. $60

d. $63

e. None of the above

Elmer received the following distribution from Virginia Mutual Fund for the calendar year 2016:

Ordinary dividends $250

Capital gain distributions $170

Nontaxable distributions $80

Elise, Elmer's wife, did not own any of the Virginia Mutual Fund shares, but she did receive $1,475 in interest and Elsie field a joint income tax retrun for 2016. What amount is reportable as taxable interest income?

a. $0

b. $175

c. $1,475

d. $1,650

e. None of the above

Marie had a good year. She received the following prizes and awards:

an Ipad from the Famous Daytime Talk Show with a fair market value of $500

lottery winnings of $1,000 received in cash

a plague worth $25 plus $100 of Godiva in chocolate in recognition for 100 days on the jobs without an accident

a $10,000 cash prize from American Idol

How much of her prizes and awards should Marie report on her tax return?

a. None, they are all excluded from income

b. $11,000; only cash prizes and awards are included

c. $11,500; the award from her job is excluded

d. $11,700; the plaque may be excluded

e. $11,725; everything is included at the highest amount

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?

a. $5,000 given to the taxpayer by his friend

b. A mobile home given to the taxpayer by his mother

c. A ski boat won by the taxpayer on the Price is Right game show

d. A Mustang GT given to the taxpayer by his brother

e. None of the above would be considered taxable

Richard, who retired on April 30, 2016, receives a monthly employee annuity benefit of $1,400 payable for life, beginning May 1, 2016. During his years of employment, Richard contributed $29,400 to the company's plan. Richard's age on May 1 is 66. Using Simplified method, how much of the $11,200 annuity payment received during 2016 may Richard exclude from gross income?

a. $427

b. $1,120

c. $1,680

d. $11,200

e. None of the above

Answer 1

1.(d) Profit on sale of lease is difference between sale price and carrying value of an asset. In given case, sale price is $90,000 and carrying value is $52,500. Hence, profit on sale is $37,500.

2.(d) Interest earned ratio =    profit before income & taxes / Interest exp

                               =   800,000 /150,000

                               =   5.33 times

=5.3 to 1

3.(d) Form 1040 allows a taxpayer to report Self-employment income is not allowed for taxpayers who field Form 1040A

4.(b)$101,900
Feedback: ($140,000 - $30,000 - $8,100) Two exemptions at $4,050 each.

5.(d)63 (21X3)

6.e. None of the above

7.(c)$11,500; the award from her job is excludedRationale:($500 + $1,000 + $10,000)

8.c. A ski boat won by the taxpayer on the Price is Right game show

9.b. $1,120