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25 Cards in this Set
- Front
- Back
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A corporation is in the 34% tax bracket. Which of the following would provide the best return if the corporation wanted to invest some of its surplus cash?
(A) A preferred stock paying an 8 1/2% dividend (B) A corporate bond yielding 8% (C) A common stock yielding 6% (D) A municipal bond yielding 5% |
A
Common and preferred dividends received by a corporation from another corporation are 70% excluded from taxable income. Therefore, only 30% is subject to tax. The preferred stock paying an 8 1/2% dividend would provide the best return for a corporation. |
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An investor's portfolio has decreased in value from $250,000 to $200,000 in this tax year. No security positions have been sold. The investor's write off against ordinary income on this year's tax return is equal to which of the following?
(A) Zero (B) $3,000 (C) $25,000 (D) $50,000 |
A
Since the investor did not sell securities at a net loss there would not be a "realized" loss only a paper loss, therefore there would be nothing to write-off. |
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Which of the following items would a corporation be allowed to use as deductions for federal tax purposes?
I. Dividends paid on Real Estate Investment Trusts owned by the corporation II. Capital gains distributions paid by mutual funds owned by the corporation III. Dividends received by the corporation from other corporations common stock owned by the corporation IV. Dividends received by the corporation from other corporations preferred stock owned by the corporation (A) I & II only (B) III & IV only (C) II, III & IV (D) I, II, III, IV |
B
Under Federal tax law corporations that own securities issued by other corporations (common and preferred stock) are allowed to deduct 70% of the dividend income received from ownership of those securities. REITs and capital gains DO NOT qualify for the deduction. |
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A customer buys 400 shares of XYZ and then receives a 10% stock dividend. Which of the following is true?
(A) The stock dividend is taxable to the customer as ordinary income. (B) The stock dividend is taxable as a long-term capital gain. (C) The stock dividend is taxable as a short-term capital gain. (D) The stock dividend is used to reduce the customer's cost basis. |
D
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The Intra Corporation earned $3 million plus received $200,000 in preferred dividends. The Corporation is in the 30% tax bracket. Taxes on its entire amount of taxable income would be:
(A) $900,000 (B) $918,000 (C) $930,000 (D) $960,000 |
B
$200,000 dividend income x .30 taxable portion (70% exempt) $ 60,000 taxable portion of Div income $3,060,000 taxable x .30 tax rate $918,000 tax liability |
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Over the last six years Mr. Jones has purchased 600 shares of ABC by making purchases of 100 shares at a time. Mr. Jones calls his Registered Representative and enters an order to sell 100 of the 600 ABC shares. Before entering the order the Registered Representative should:
(A) determine the average purchase price of the 600 shares owned (B) determine the median cost basis of the 600 shares owned (C) identify the specific shares that Mr. Jones wants to sell of the 600 owned and indicate on the order ticket the date of purchase of the shares being sold (D) advise Mr. Jones that the IRS will use LIFO to determine the amount of actual gain or loss on the sale |
C
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What are the tax consequences of the following transactions?
01-10-98 Buy 100 ABC @ 10 11-10-98 Buy 100 ABC @ 4 10-29-98 Sell 100 ABC @ 6 (A) A $400 long-term loss (B) A $400 short-term loss (C) A $600 short-term loss (D) No gain or loss |
D
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One of your new clients with little investing experience is trying to figure out their capital gains and losses for the year. They had capital gains of $6,000 for the year, but had capital losses totaling $10,000 as well. What can the client do in this situation?
(A) The client can deduct the total amount of capital losses, $10,000, from their income and carry a percentage of that forward to the following year as a capital loss. (B) The client may make a deduction of $10,000 from gross income only. (C) The client can offset the gains with the losses for a total deduction of $4,000. (D) The client can deduct $3,000 from gross income and carry $1,000 forward as a capital loss. |
D
$200,000 dividend income x .30 taxable portion (70% exempt) $ 60,000 taxable portion of Div income $3,060,000 taxable x .30 tax rate $918,000 tax liability |
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Which of the following types of income would taxes normally be withheld by a foreign entity?
Dividends Interest Capital gains Distributions (A) I and II (B) III only (C) I and III (D) II and III |
A
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Which of the following may a U.S. investor use to offset taxes paid on dividend income earned from owning foreign stocks?
(A) Tax Exempt Status (B) Foreign Tax Credit (C) Tax Lien (D) Residual Value |
B
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A person in the 28% tax bracket incurs a long term capital gain of $8,000 and a capital loss of $3,000. What is his tax liability?
(A) $750 (B) $1,200 (C) $1,400 (D) $2,240 |
A
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In order to avoid coverage by Wash Sale rules, a customer who has sold a stock and wishes to report the loss in the year of the sale must wait how long before buying that same stock again in their account?
(A) The customer must wait until the 91th day following the sale. (B) The customer must wait until the 90st day following the sale. (C) The customer must wait until the 31st day following the sale. (D) The customer must wait until the 30th day following the sale. |
C
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When a corporation is investing funds, which of the following types of securities provides the best tax incentives for the corporation?
(A) Investments in convertible fixed income debt securities (B) Investments in Treasury Securities (C) Investments in corporate debt securities (D) Investments in corporate preferred stock |
D
When a corporation invests in the equity securities of other corporations, the dividends from those securities are 70% excluded from taxable income. Therefore, only 30% is subject to income tax. This provides the greatest level of income and appreciation, along with tax benefits. |
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An investor has $20,000 of capital gains and $25,000 of capital losses in a particular tax year. What is the maximum that the investor can deduct on the current year's tax return?
(A) $3,000 (B) $5,000 (C) $20,000 (D) $25,000 |
A
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For tax purposes, ownership of most securities is determined from the:
(A) date of receipt of the certificates (B) settlement date (C) trade date (D) record date |
C
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A client sells bonds at 96. The bonds were purchased five years ago at 85. The client would report a gain on the difference between the sale price and the
(A) original cost. (B) book value at the time of the sale. (C) par value. (D) premium. |
A
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A person in the 28% tax bracket has a short-term capital gain of $1,000. The tax liability is?
(A) $150 (B) $280 (C) $400 (D) $500 |
B
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The Widget Manufacturing Corporation recently distributed a 10% stock dividend to its shareholders. The federal tax consequence of this distribution is that the:
(A) Cost basis of shares held is increased by approximately 10%. (B) Cost basis of shares held is reduced by approximately 10%. (C) Distribution is tax-exempt. (D) Cash value of the new shares is treated as a cash dividend. |
B
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All of the following are methods of Depreciation EXCEPT:
(A) Double Declining Balance (B) Straight Line (C) Amortization (D) Modified Accelerated Cost Recovery System (MACRS) |
C
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An investor purchases $10,000 worth of XYZ common stock over a two-year period. He subsequently sells $5,000 of the stock and does not identify or specify which shares he sold. Which of the following statements is true with regard to this situation?
(A) His gain is $5,000. (B) The IRS requires that LIFO be used to identify the shares sold. (C) The IRS requires that FIFO be used to identify the shares sold. (D) The investor is allowed to specify which shares are being sold when he files his tax return. |
C
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In which of the following scenarios would the investor have a tax liability associated with capital gains?
(A) An investor purchases a stock and later receives a dividend from the issuer. (B) An investor purchases a stock and later gifts the stock to their child after it has significantly increased in value. (C) An investor sells a stock that was purchased for significantly less than the sale price. (D) An investor who has invested in a limited partnership receives a distribution of cash. |
C
Capital gains result from the purchase and subsequent sale of a security at a higher price. When receiving a dividend or cash distribution from a limited parnterhsip, the money received is treated as income to the investor and taxed as ordinary income, not capital gains. When gifting securities, the party gifting the securities does not have a tax liability for any gains while they owned the security and the person receiving the gift will be responsible for gains from the original owners cost up to the current market price. |
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Which of the following provide 70% tax exempt income to corporations?
Municipal bonds Industrial convertible bonds Industrial convertible preferred stock Common stocks (A) I and II (B) I and IV (C) II and III (D) III and IV |
D
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An investor purchases securities and holds them for a period of years. For Federal Tax purposes, what does he report as his cost basis on the shares?
(A) The market value of the securities when he acquired them. (B) The market value of the securities when he acquired them plus the commissions he paid to acquire them. (C) The market value of the securities when he acquired them minus the commissions he paid to acquire them. (D) The market value of the securities on the last business day in the year in which they were acquired. |
B
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An investor sells a security at a loss and buys substantially the same security within a 30 day period. For federal income tax purposes, the loss is:
(A) allowed if the security was held for more than one year (B) allowed regardless of how long the security was held (C) allowed but only if there are taxable gains (D) disallowed as a loss but can be carried over and added to the cost basis of the new position |
D
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A client sells a stock from their account for a loss. Within 30 days, the customer buys the same stock back into their account. The broker/dealer informs the client that this is considered a wash sale. How is this scenario treated for tax purposes?
(A) The client will have to defer the loss until the tax year following the year during which the wash sale took place. (B) The new position's cost basis will be adjusted based on the amount of the loss. (C) The client will not be able to use the loss in any way, including not using it in the year it was taken, or offsetting the cost basis of the second purchase. (D) The client will be forced to report half of the loss in the year in which the wash sale occurred and half of the losses in the year which follows the sale of the second acquisition of the stock. |
B
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