Free AICPA CPA-Regulation Exam Dumps

Choice 'c' is correct. The receipt of a nontaxable stock dividend will require the shareholder to spread the basis of his original shares over both the original shares and the new shares received, resulting in the same total basis but a lower basis per share of stock helD. Therefore, Allen's total basis remains the same, $10,000, but is now split between 200 shares (a 2-for-1 split and he originally owned 100 shares).

Therefore, his basis per share goes from $100/share ($10,000/100) to $50/share ($10,000/200).

Consequently, his basis in the 100 shares sold is 100 x $50 = $5,000. Calculate his gain as follows:

Choices 'a', 'b', and 'd' are incorrect.

Choice 'a' is correct. Deductions to arrive at net self-employed income include all necessary and ordinary expenses connected with the business. Estimated federal income tax payments are not an expense. Charitable contributions by an individual are only deductible as an itemized deduction on Schedule A. This assumes the contribution was not made with the 'expectation of commensurate financial return.'

Choice 'b' is incorrect. Charitable contributions are an itemized deduction unless there is an expectation of commensurate financial return.

Choice 'c' is incorrect. Federal income taxes paid are not a deductible expense.

Choice 'd' is incorrect. Charitable contributions are an itemized deduction unless there is an expectation of commensurate financial return. Federal income taxes paid are not a deductible expense.