ACTG 3400 - Taxation of Individuals Exam 2 Study Guide

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ACTG 3400 – Taxation of Individuals

Exam 2 Study Guide

Exam 2 consists of 14 multiple-choice questions worth three points each and 10 short answer/application
problems worth varying points.
14 multiple-choice questions:

 3 questions from Chapter 6/20


 3 questions from Chapter 7
 3 questions from Chapter 8
 4 questions from Chapter 9
 1 question from Chapter 10
13 short answer/application problems:

 1 question from Chapter 6/20 worth 6 total points


 3 questions from Chapter 7 worth 17 total points
 3 questions from Chapter 8 worth 6 total points
 5 questions from Chapter 21 worth 24 points
 1 question from Chapter 10 worth 5 points
Important topics from each chapter
Chapter 6/20:

 Understand when a taxpayer must recognize income on his/her federal income tax return
(economic benefit, income is realized, income is not excluded)
 Understand the following concepts: assignment of income doctrine, wherewithal-to-pay concept,
and constructive receipt
 Understand when social security benefits are taxable – just the basic rules (0% is taxable for low-
income taxpayers, 50% is taxable for middle-income taxpayers, and 85% is taxable for high-
income taxpayers)
 Understand when cash basis taxpayers are able to deduct prepaid expenses (12 month rule)
 Understand, at a basic level, the installment method of reporting and tax accounting rules for
long-term contracts
Chapter 7:

 Study the individual income tax formula (from Chapter 2) – same basic formula you should have
known for Exam 1
 Know how different types of investment income are taxed – which types of investment income
are taxed at ordinary/marginal tax rates and which types are taxed at preferred rates
 Understand the rules for capital gains/losses – everything discussed in class will likely show up
on Exam 2.
 Understand the complete tax consequences of a wash sale
Chapter 8:

 This chapter is short – everything discussed in class is fair game for the exam
 Study the entire lecture note packet
Chapter 9:

 Know how to calculate realized gain or loss


 Understand what is included in amount realized
 Understand the concepts of tax/cost basis and adjusted basis
 Know the difference between capital, ordinary, and Section 1231 assets
Chapter 21:

 Study the two types of recapture we covered in detail as we discussed Chapter 21 (Section 1245
depreciation recapture and the Section 1231 look-back rule)
 Understand how to incorporate capital gains/losses and Section 1231 gains/losses into a
taxpayer’s gross income
 Understand the complete tax consequences of a like-kind exchange that involves boot, including
realized gain/loss, recognized gain/loss, and adjusted basis in the newly acquired property. The
exam will not cover involuntary conversions.
Chapter 10:

 Understand the following exclusions from gross income: gifts and inheritances, life insurance
proceeds, tax-exempt interest, scholarships, workers’ compensation, and income from the
discharge of debt.

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