ACTG 3400 - Taxation of Individuals Exam 2 Study Guide
ACTG 3400 - Taxation of Individuals Exam 2 Study Guide
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:
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:
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.