, TESTBANK FOR Fundamentals of Taxation for
Individuals and Business Entities A Practical
Approach, 2026 Edition Gregory A. Carnes
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, 1-1
Fundamentals of Taxation for Individuals and Business Entities, 2026
Test Bank
Chapter 1: The Professional Practice of Taxation
1) Which of the following is false about tax planning?
A) The appropriate goal for tax planning is to maximize after-tax income.
B) The appropriate goal for tax planning is to minimize a taxpayer's tax liability for the year.
C) Once a taxpayer understands the tax consequences of a particular transaction, they can move
on to the tax planning stage.
D) Tax evasion is not a tax planning strategy.
Answer: B
Explanation: Minimizing a taxpayer's liability is not the appropriate goal for tax planning
because if that were the goal, it could be met by reducing a taxpayer's income to zero–actually an
easy goal to meet. If a taxpayer has no income for the year, then there will be no tax liability, and
you will have minimized their taxes. But your client will also be a very poor and hungry person,
so this cannot be the proper goal.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.1
Time on Task: 5 min
2) Jessica has received several job offers from various accounting firms located in 4 different
states. She has performed an analysis to determine her income, her non-income tax costs (e.g.
cost of living, etc.) and income tax. Jessica is trying to make a decision on which offer to accept,
and she has asked for your advice. Based on the appropriate goal of tax planning, which of the
following states would you advise Jessica to choose?
Gross Wages Non-Income Tax Costs Income Tax
California 120,000 52,000 24,000
New York 100,000 37,000 20,000
Virginia 70,000 10,800 10,500
Texas 50,000 6,000 5,000
A) Texas
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-2
B) California
C) Virginia
D) New York
Answer: C
Explanation: The appropriate goal for tax planning is to maximize after-tax income. After-tax
income is net income after reducing revenue for all expenses, including federal income taxes.
See table below for calculation of after-tax income for each state. With that in mind, you should
advise Jessica to choose Virginia because doing so maximizes her after-tax income. The state
with the lowest income tax (i.e., Texas) is not the right answer because minimizing a taxpayer's
liability is not the appropriate goal for tax planning because if that were the goal, then the
ultimate success would be to reduce a taxpayer's tax liability to zero–an easy goal to meet. If a
taxpayer has no income for the year, then there will be no tax liability, and you will have
minimized their taxes. But your client will also be a very poor and hungry person, so this cannot
be the proper goal.
Gross Non-Income After-Tax
Wages Tax Costs Income Tax Income
(A) (B) (C) (D) = (A) - (B) - (C)
California 120,000 52,000 24,000 44,000
New York 100,000 37,000 20,000 43,000
Virginia 70,000 10,800 10,500 48,700
Texas 50,000 6,000 5,000 39,000
Diff: 2
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 8 min
3) Which of the following is not correct regarding tax and non-tax costs?
A) Both tax and non-tax costs must be considered when making financial and investment
decisions.
B) Tax costs include any type of tax paid to a local, state, federal, or foreign government.
C) Non-tax costs are all costs other than tax costs.
D) Effective tax planning requires prioritizing tax costs.
Answer: D
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-3
Explanation: Effective tax planning requires consideration of both tax and non-tax costs.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.1
Time on Task: 5 min
4) Samson's wages are $100,000. He lives in Maryland and his expenses include $25,000 rent,
$12,000 other living expenses, $27,000 income tax, $6,200 payroll tax and $5,500 property tax.
What are Samson's tax costs?
A) $27,000
B) $33,200
C) $61,300
D) $38,700
Answer: D
Explanation: $38,700 = $27,000 + $6,200 + $5,500. Tax costs include any type of tax paid to a
local, state, federal, or foreign government.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 5 min
5) Samson's wages are $100,000. He lives in Maryland and his expenses include $25,000
mortgage interest, $12,000 other living expenses, $27,000 income tax, $6,200 payroll tax and
$5,500 property tax. What are Samson's non-tax costs?
A) $37,000
B) $12,000
C) $61,300
D) $38,700
Answer: A
Explanation: $37,000 = $25,000 + $12,000. Non-tax costs are all costs other than tax costs.
Tax costs include any type of tax paid to a local, state, federal, or foreign government.
Diff: 1
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-4
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 5 min
6) Samson's wages are $100,000. He lives in Maryland and his non-tax costs include $25,000
rent and $12,000 other living expenses. His tax costs include $27,000 income tax, $6,200 payroll
tax and $5,500 property tax. What is Samson's after-tax income?
A) $73,000
B) $24,300
C) $61,300
D) $29,000
Answer: B
Explanation: $24,300 = $100,000 - $25,000 - $12,000 - $27,000 - $6,200 - $5,500. After-tax
income is net income after reducing revenue for all expenses, including federal income taxes.
Diff: 2
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 8 min
7) Which of the following statements is false?
A) Individuals file their individual income taxes on Form 1040.
B) Income lines on the Form 1040 are Line 1 - 9
C) Deduction lines on Form 1040 are Line 10, 12 - 13
D) Demographic information is included on the second page of the Form 1040
Answer: D
Explanation: The top half of page 1 of Form 1040 is for demographic information.
Diff: 1
Learning Objective: LO 1.2
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.2
Time on Task: 5 min
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-5
8) Which of the following are reported on Schedule 1 of the 1040?
A) Student loan interest deduction
B) Self-employment tax
C) Repayment of first-time homebuyer credit
D) Foreign tax credit
Answer: A
Explanation: Schedule 1 is used to report additional income and adjustments to income.
Student loan interest deduction is reported on Schedule 1. Foreign tax credits are reported on
Schedule 3. Self-employment tax and repayment of first-time homebuyer credit are reported on
Schedule 2.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
9) Which of the following are reported on Schedule 2 of the 1040?
A) Student loan interest deduction
B) Taxable refunds or credits
C) Repayment of first-time homebuyer credit
D) Foreign tax credit
Answer: C
Explanation: Schedule 2 is used to report additional taxes. Repayment of first-time homebuyer
credit is reported on Schedule 2. Student loan interest deduction and Taxable refunds or credits
are reported on Schedule 1. Foreign tax credits are reported on Schedule 3.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
10) Which of the following are reported on Schedule 3 of the 1040?
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-6
A) Student loan interest deduction
B) Self-employment tax
C) Repayment of first-time homebuyer credit
D) Foreign tax credit
Answer: D
Explanation: Schedule 3 is used to report additional payments and credits. Foreign tax credits
are reported on Schedule 3. Student loan interest deduction is reported on Schedule 1. Self-
employment tax and repayment of first-time homebuyer credit are reported on Schedule 2.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
11) Which of the following is false?
A) Schedule 2 is used to report additional taxes.
B) Repayment of first-time homebuyer credit is reported on Schedule 3.
C) The Schedule 3 is used to report additional payments and credits.
D) Adoption credit is reported on Schedule 3.
Answer: B
Explanation: Repayment of first-time homebuyer credit is reported on Schedule 2.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
12) Tariq has a mortgage interest credit of $7,000 and taxable state refund of $3,000. On what
schedules of the 1040 should Tariq report the mortgage interest credit and the taxable state
refund?
A) Both the mortgage interest credit and the Taxable state refund should be reported on Schedule
2.
B) The mortgage interest credit is reported on Schedule 3 while the Taxable State refund is
reported on Schedule 1.
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-7
C) The mortgage interest credit is reported on Schedule 1 while the Taxable State refund is
reported on Schedule 2.
D) Both the mortgage interest credit and the Taxable state refund should be reported on Schedule
3.
Answer: B
Explanation: The mortgage interest credit is reported on Schedule 3 while the Taxable State
refund is reported on Schedule 1. Schedule 1 is used to report additional income and adjustments
to income. Schedule 2 is used to report additional taxes. Schedule 3 is used to report additional
payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
13) Tariq has a mortgage interest credit of $1,400, unemployment compensation of $400, and
taxable state refund of $3,000. What is the total amount to be reported on schedule 1 of the
1040?
A) $400
B) $2,000
C) $3,000
D) $3,400
Answer: D
Explanation: $3,400 = $3,000 + $400. The mortgage interest credit is reported on Schedule 3
while the Taxable State refund and unemployment compensation are reported on Schedule 1.
Schedule 1 is used to report additional income and adjustments to income. Schedule 2 is used to
report additional taxes. Schedule 3 is used to report additional payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
14) Tariq has a mortgage interest credit of $1,400, unemployment compensation of $400, and
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-8
taxable state refund of $3,000. What is the total amount to be reported on schedule 2 of the
1040?
A) $400
B) $2,000
C) $0
D) $3,400
Answer: C
Explanation: $0. The mortgage interest credit is reported on Schedule 3 while the Taxable State
refund and unemployment compensation are reported on Schedule 1. Schedule 1 is used to report
additional income and adjustments to income. Schedule 2 is used to report additional taxes.
Schedule 3 is used to report additional payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
15) Tariq has a mortgage interest credit of $1,400, unemployment compensation of $400, and
taxable state refund of $3,000. What is the total amount to be reported on schedule 3 of the
1040?
A) $1,400
B) $2,000
C) $3,000
D) $3,400
Answer: A
Explanation: $1,400. The mortgage interest credit is reported on Schedule 3 while the Taxable
State refund and unemployment compensation are reported on Schedule 1. Schedule 1 is used to
report additional income and adjustments to income. Schedule 2 is used to report additional
taxes. Schedule 3 is used to report additional payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
Individuals and Business Entities A Practical
Approach, 2026 Edition Gregory A. Carnes
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, 1-1
Fundamentals of Taxation for Individuals and Business Entities, 2026
Test Bank
Chapter 1: The Professional Practice of Taxation
1) Which of the following is false about tax planning?
A) The appropriate goal for tax planning is to maximize after-tax income.
B) The appropriate goal for tax planning is to minimize a taxpayer's tax liability for the year.
C) Once a taxpayer understands the tax consequences of a particular transaction, they can move
on to the tax planning stage.
D) Tax evasion is not a tax planning strategy.
Answer: B
Explanation: Minimizing a taxpayer's liability is not the appropriate goal for tax planning
because if that were the goal, it could be met by reducing a taxpayer's income to zero–actually an
easy goal to meet. If a taxpayer has no income for the year, then there will be no tax liability, and
you will have minimized their taxes. But your client will also be a very poor and hungry person,
so this cannot be the proper goal.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.1
Time on Task: 5 min
2) Jessica has received several job offers from various accounting firms located in 4 different
states. She has performed an analysis to determine her income, her non-income tax costs (e.g.
cost of living, etc.) and income tax. Jessica is trying to make a decision on which offer to accept,
and she has asked for your advice. Based on the appropriate goal of tax planning, which of the
following states would you advise Jessica to choose?
Gross Wages Non-Income Tax Costs Income Tax
California 120,000 52,000 24,000
New York 100,000 37,000 20,000
Virginia 70,000 10,800 10,500
Texas 50,000 6,000 5,000
A) Texas
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-2
B) California
C) Virginia
D) New York
Answer: C
Explanation: The appropriate goal for tax planning is to maximize after-tax income. After-tax
income is net income after reducing revenue for all expenses, including federal income taxes.
See table below for calculation of after-tax income for each state. With that in mind, you should
advise Jessica to choose Virginia because doing so maximizes her after-tax income. The state
with the lowest income tax (i.e., Texas) is not the right answer because minimizing a taxpayer's
liability is not the appropriate goal for tax planning because if that were the goal, then the
ultimate success would be to reduce a taxpayer's tax liability to zero–an easy goal to meet. If a
taxpayer has no income for the year, then there will be no tax liability, and you will have
minimized their taxes. But your client will also be a very poor and hungry person, so this cannot
be the proper goal.
Gross Non-Income After-Tax
Wages Tax Costs Income Tax Income
(A) (B) (C) (D) = (A) - (B) - (C)
California 120,000 52,000 24,000 44,000
New York 100,000 37,000 20,000 43,000
Virginia 70,000 10,800 10,500 48,700
Texas 50,000 6,000 5,000 39,000
Diff: 2
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 8 min
3) Which of the following is not correct regarding tax and non-tax costs?
A) Both tax and non-tax costs must be considered when making financial and investment
decisions.
B) Tax costs include any type of tax paid to a local, state, federal, or foreign government.
C) Non-tax costs are all costs other than tax costs.
D) Effective tax planning requires prioritizing tax costs.
Answer: D
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-3
Explanation: Effective tax planning requires consideration of both tax and non-tax costs.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.1
Time on Task: 5 min
4) Samson's wages are $100,000. He lives in Maryland and his expenses include $25,000 rent,
$12,000 other living expenses, $27,000 income tax, $6,200 payroll tax and $5,500 property tax.
What are Samson's tax costs?
A) $27,000
B) $33,200
C) $61,300
D) $38,700
Answer: D
Explanation: $38,700 = $27,000 + $6,200 + $5,500. Tax costs include any type of tax paid to a
local, state, federal, or foreign government.
Diff: 1
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 5 min
5) Samson's wages are $100,000. He lives in Maryland and his expenses include $25,000
mortgage interest, $12,000 other living expenses, $27,000 income tax, $6,200 payroll tax and
$5,500 property tax. What are Samson's non-tax costs?
A) $37,000
B) $12,000
C) $61,300
D) $38,700
Answer: A
Explanation: $37,000 = $25,000 + $12,000. Non-tax costs are all costs other than tax costs.
Tax costs include any type of tax paid to a local, state, federal, or foreign government.
Diff: 1
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-4
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 5 min
6) Samson's wages are $100,000. He lives in Maryland and his non-tax costs include $25,000
rent and $12,000 other living expenses. His tax costs include $27,000 income tax, $6,200 payroll
tax and $5,500 property tax. What is Samson's after-tax income?
A) $73,000
B) $24,300
C) $61,300
D) $29,000
Answer: B
Explanation: $24,300 = $100,000 - $25,000 - $12,000 - $27,000 - $6,200 - $5,500. After-tax
income is net income after reducing revenue for all expenses, including federal income taxes.
Diff: 2
Learning Objective: LO 1.1
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.1
Time on Task: 8 min
7) Which of the following statements is false?
A) Individuals file their individual income taxes on Form 1040.
B) Income lines on the Form 1040 are Line 1 - 9
C) Deduction lines on Form 1040 are Line 10, 12 - 13
D) Demographic information is included on the second page of the Form 1040
Answer: D
Explanation: The top half of page 1 of Form 1040 is for demographic information.
Diff: 1
Learning Objective: LO 1.2
AACSB / AICPA: Analytic / Accounting Competencies
Bloom's: Application
Section Reference: Sec. 1.2
Time on Task: 5 min
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-5
8) Which of the following are reported on Schedule 1 of the 1040?
A) Student loan interest deduction
B) Self-employment tax
C) Repayment of first-time homebuyer credit
D) Foreign tax credit
Answer: A
Explanation: Schedule 1 is used to report additional income and adjustments to income.
Student loan interest deduction is reported on Schedule 1. Foreign tax credits are reported on
Schedule 3. Self-employment tax and repayment of first-time homebuyer credit are reported on
Schedule 2.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
9) Which of the following are reported on Schedule 2 of the 1040?
A) Student loan interest deduction
B) Taxable refunds or credits
C) Repayment of first-time homebuyer credit
D) Foreign tax credit
Answer: C
Explanation: Schedule 2 is used to report additional taxes. Repayment of first-time homebuyer
credit is reported on Schedule 2. Student loan interest deduction and Taxable refunds or credits
are reported on Schedule 1. Foreign tax credits are reported on Schedule 3.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
10) Which of the following are reported on Schedule 3 of the 1040?
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-6
A) Student loan interest deduction
B) Self-employment tax
C) Repayment of first-time homebuyer credit
D) Foreign tax credit
Answer: D
Explanation: Schedule 3 is used to report additional payments and credits. Foreign tax credits
are reported on Schedule 3. Student loan interest deduction is reported on Schedule 1. Self-
employment tax and repayment of first-time homebuyer credit are reported on Schedule 2.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
11) Which of the following is false?
A) Schedule 2 is used to report additional taxes.
B) Repayment of first-time homebuyer credit is reported on Schedule 3.
C) The Schedule 3 is used to report additional payments and credits.
D) Adoption credit is reported on Schedule 3.
Answer: B
Explanation: Repayment of first-time homebuyer credit is reported on Schedule 2.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
12) Tariq has a mortgage interest credit of $7,000 and taxable state refund of $3,000. On what
schedules of the 1040 should Tariq report the mortgage interest credit and the taxable state
refund?
A) Both the mortgage interest credit and the Taxable state refund should be reported on Schedule
2.
B) The mortgage interest credit is reported on Schedule 3 while the Taxable State refund is
reported on Schedule 1.
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-7
C) The mortgage interest credit is reported on Schedule 1 while the Taxable State refund is
reported on Schedule 2.
D) Both the mortgage interest credit and the Taxable state refund should be reported on Schedule
3.
Answer: B
Explanation: The mortgage interest credit is reported on Schedule 3 while the Taxable State
refund is reported on Schedule 1. Schedule 1 is used to report additional income and adjustments
to income. Schedule 2 is used to report additional taxes. Schedule 3 is used to report additional
payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
13) Tariq has a mortgage interest credit of $1,400, unemployment compensation of $400, and
taxable state refund of $3,000. What is the total amount to be reported on schedule 1 of the
1040?
A) $400
B) $2,000
C) $3,000
D) $3,400
Answer: D
Explanation: $3,400 = $3,000 + $400. The mortgage interest credit is reported on Schedule 3
while the Taxable State refund and unemployment compensation are reported on Schedule 1.
Schedule 1 is used to report additional income and adjustments to income. Schedule 2 is used to
report additional taxes. Schedule 3 is used to report additional payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
14) Tariq has a mortgage interest credit of $1,400, unemployment compensation of $400, and
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
, 1-8
taxable state refund of $3,000. What is the total amount to be reported on schedule 2 of the
1040?
A) $400
B) $2,000
C) $0
D) $3,400
Answer: C
Explanation: $0. The mortgage interest credit is reported on Schedule 3 while the Taxable State
refund and unemployment compensation are reported on Schedule 1. Schedule 1 is used to report
additional income and adjustments to income. Schedule 2 is used to report additional taxes.
Schedule 3 is used to report additional payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
15) Tariq has a mortgage interest credit of $1,400, unemployment compensation of $400, and
taxable state refund of $3,000. What is the total amount to be reported on schedule 3 of the
1040?
A) $1,400
B) $2,000
C) $3,000
D) $3,400
Answer: A
Explanation: $1,400. The mortgage interest credit is reported on Schedule 3 while the Taxable
State refund and unemployment compensation are reported on Schedule 1. Schedule 1 is used to
report additional income and adjustments to income. Schedule 2 is used to report additional
taxes. Schedule 3 is used to report additional payments and credits.
Diff: 2
Learning Objective: LO 1.2
AACSB / AICPA: Knowledge / Accounting Competencies
Bloom's: Knowledge
Section Reference: Sec. 1.2
Time on Task: 5 min
© 2025 John Wiley & Sons, Inc. All rights reserved. Instructors who are authorized users of this course are permitted to download these materials
and use them in connection with the course. Except as permitted herein or by law, no part of these materials should be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise.
