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Question 1

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?

A. $4,000
B. $0
C. $5,500
D. $2,500

Question 2

Hall, a divorced person and custodian of her 12-year old child, filed her 1990 federal income tax return as
head of a household. She submitted the following information to the CPA who prepared her 1990 return:
. In 1990, Hall sold an antique that she bought in 1980 to display in her home. Hall paid $800 for the
antique and sold it for $1,400, using the proceeds to pay a court ordered judgment.
The $600 gain that Hall realized on the sale of the antique should be treated as:

A. An involuntary conversion.
B. Long-term capital gain.
C. Ordinary income.
D. A nontaxable antiquities transaction.

Question 3

Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable
income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own
and was Tom's dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994
Form 1040.
The Moores had no capital loss carryovers from prior years. During 1994, the Moores had the following
stock transactions, which resulted in a net capital loss:

A. $0
B. $75,000
C. $1,000
D. $1,250
E. $500
F. $900
G. $2,000
H. $1,500
I. $10,000
J. $55,000
K. $2,500
L. $3,000
M. $25,000
N. $50,000
O. $1,300

Question 4

An individual had the following capital gains and losses for the year:

What will be the net gain (loss) reported by the individual and at what applicable tax rate(s)?

A. Short-term loss of $3,000 at the ordinary rate and long-term capital gain of $86,000 at the 15% rate.
B. Long-term gain of $16,000 at the 15% rate.
C. Long-term capital gain of $3,000 at the 15% rate, collectibles gain of $10,000 at the 28% rate, and
Section 1250 gain of $56,000 at the 25% rate.
D. Short-term loss of $3,000 at the ordinary rate, long-term capital gain of $10,000 at the 15% rate,
collectibles gain of $10,000 at the 28% rate, and Section 1250 gain of $56,000 at the 25% rate.

Question 5

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:

A. $4,000
B. $4,500
C. $0
D. $500

Solutions: