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QUESTION 20

Given below are Bart's capital gains and losses for two consecutive years. What is the effect of the capital gains and losses on Bart's taxable income for each year? Note: in choices a through d, amounts in parenthesis indicate a decrease in calculating adjusted gross income while those not in parenthesis indicate an increase in calculating adjusted gross income.

Year 1	Year 2
Short-term capital gain $12,000	Short-term capital gain $-0-
Short-term capital loss ($9,000)	Short-term capital loss ($2,000)
Long-term capital gain $11,000	Long-term capital gain $16,000
Long-term capital loss ($23,000)	Long-term capital loss ($5,000)

	a.	Year 1: decreases AGI (9,000); Year 2: increases AGI $ 9,000
	b.	Year 1: increases AGI $ 3,000; Year 2: increases AGI $ 1,000
	c.	Year 1: decreases AGI $(3,000); Year 2: increases AGI $ 3,000
	d.	Year 1: decreases AGI $(3,000); Year 2: decreases AGI $(3,000)
	e.	Year 1: decreases AGI $(3,000); Year 2: neither increases nor decreases AGI

QUESTION 21

Given below are Courtney's capital gains and losses for two consecutive years. What is the effect of the gains and losses on Courtney's adjusted gross income for each year? Note: in choices a through d, amounts in parenthesis indicate a decrease in calculating adjusted gross income while those not in parenthesis indicate an increase in calculating adjusted gross income.

Year 1	Year 2
Short-term capital gain $-0-	Short-term capital gain $4,000
Short-term capital loss ($3,000)	Short-term capital loss ($15,000)
Long-term capital gain $13,000	Long-term capital gain $6,000
Long-term capital loss ($12,000)	Long-term capital loss ($-0-)

	a.	Year 1: increases AGI $10,000; Year 2: increases AGI $7,000
	b.	Year 1: decreases AGI $(2,000); Year 2: decreases AGI $(3,000)
	c.	Year 1: decreases AGI $(3,000); Year 2: decreases AGI $(3,000)
	d.	Year 1: decreases AGI $(2,000); Year 2: decreases AGI $(5,000)
	e.	Year 1: decreases AGI $1,000; Year 2: increases AGI $3,000

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