Question 1

Travis and Andrea were divorced.Their only marital property consisted of a personal residence (fair market value of $400,000,cost of $200,000) ,and publicly-traded stocks (fair market value of $800,000,cost basis of $500,000) .Under the terms of the divorce agreement,Andrea received the personal residence and Travis received the stocks.In addition,Andrea was to receive $50,000 for eight years.

Accepted Answer

A)  Only III is true.
B)  Only I and III are true.
C)  Only I and II are true.
D)  I,II,and III are true.
E)  None of these are true.F) B) and E)
G) B) and D)

Question 2

For purposes of determining gross income,which of the following is true?

Accepted Answer

A)  A mechanic completed repairs on an automobile during the year and collects money from the customer.The customer was not satisfied with the repairs and sued the mechanic for a refund.The mechanic can defer recognition of the income until the suit has been settled.
B)  A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.
C)  Embezzlement proceeds are not included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)  All of these are false.
E)  All of these are true.F) D) and E)
G) A) and E)

Question 3

Gordon,an employee,is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year.According to the IRS Uniform Premium Table (based on Gordon's age) ,the amount is $12 per year for $1,000 of protection.The cost of an individual policy would be $15 per year for $1,000 of protection.Since Gordon paid nothing towards the cost of the $250,000 protection,Gordon must include in his 2014 gross income which of the following amounts?

Accepted Answer

A)  $1,350.
B)  $2,400.
C)  $3,000.
D)  $3,750.
E)  None of these.F) A) and E)
G) A) and C)

Question 4

The annual increase in the cash surrender value of a life insurance policy:

Accepted Answer

A)  Is taxed when the individual dies and the heirs collect the insurance proceeds.
B)  Must be included in gross income each year under the original issue discount rules.
C)  Reduces the deduction for life insurance expense.
D)  Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
E)  None of these.F) C) and E)
G) A) and B)

Question 5

Theresa,a cash basis taxpayer,purchased a bond on July 1,2010,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2014,she sold the bond for $9,800,which included $200 of accrued interest.

Accepted Answer

A)  Theresa has $200 interest income and a $400 loss from the bond in 2014.
B)  Theresa has $200 interest income and a $200 gain from the bond in 2014.
C)  Theresa has a $100 loss from the sale of the bond and no interest income.
D)  Theresa's loss on the sale of the bond is $600.
E)  None of these.F) C) and D)
G) None of the above

Question 6

When a business is operated as an S corporation,a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

Accepted Answer

A) True 
 B)False

Question 7

Under the alimony rules:

Accepted Answer

A)  To determine whether a cash payment is alimony,one must consult the state laws that define alimony.
B)  A person who receives a property division has experienced an increase in wealth and thus should be subject to tax.
C)  The income is included in the gross income of the recipient of the payments.
D)  A person who earns $90,000 and pays $20,000 in alimony is taxed on $90,000 because the $20,000 alimony is income assigned to the former spouse.
E)  None of these.F) A) and B)
G) A) and E)

Question 8

Norma's income for 2014 is $27,000 from part-time work and $9,000 of Social Security benefits.Norma is not married.A portion of her Social Security benefits must be included in her gross income.

Accepted Answer

A) True 
 B)False

Question 9

Rachel,who is in the 35% marginal tax bracket,is considering purchasing an annuity that will pay her $10,000 per year for the remainder of her life.Her life expectancy is 15 years.The cost of the annuity is $97,120,and the cost is calculated to yield her an expected 6% return on her investment.As an alternative,Rachel could place the $97,120 in a savings account yielding 6% and she could withdraw $10,000 each year for 15 years (reducing the value of the account to zero at the end of 15 years).How might the tax laws applicable to annuities affect Rachel's decision?

Accepted Answer

The tax laws favor the purchase of the a...

Question 10

In December 2013,Mary collected the December 2013 and January 2014 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2013 for the 2014 rent should be included in her 2014 gross income.

Accepted Answer

A) True 
 B)False

Question 11

Jake is the sole shareholder of an S corporation that earned $60,000 in 2014.The corporation was short on cash and therefore distributed only $15,000 to Jake in 2014.Jake is required to recognize $60,000 of income from the S corporation in 2014.

Accepted Answer

A) True 
 B)False

Question 12

If the alimony recapture rules apply,the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

Accepted Answer

A) True 
 B)False

Question 13

In the case of a person with other income of $300,000,15% of his or her Social Security benefits received are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 14

In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

Accepted Answer

A) True 
 B)False

Question 15

Turner,a successful executive,is negotiating a compensation plan with his potential employer.The employer has offered to pay Turner a $600,000 annual salary,payable at the rate of $50,000 per month.Turner counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in 5 years when Turner will be age 65.

Accepted Answer

A)  If the employer accepts Turner's counteroffer,Turner will recognize $660,000 at the time the offer is accepted.
B)  If the employer accepts Turner's counteroffer,Turner will recognize as gross income $55,000 per month [($480,000 + $180,000) /12].
C)  If the employer accepts Turner's counteroffer,Turner will recognize $40,000 income each month for the year and $180,000 in year 5.
D)  If the employer accepts Turner's counteroffer,Turner must recognize imputed interest income on the $180,000 to be received in 5 years.
E)  None of these.F) C) and E)
G) A) and E)

Question 16

Teal company is an accrual basis taxpayer.On December 1,2014,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2015.Teal delivered the item on January 4,2015.Teal included the sale in its 2014 income for financial accounting purposes.

Accepted Answer

A)  Teal must recognize the income in 2014.
B)  Teal must recognize the income in the year title to the goods passed to the customer,as determined under the state laws in which the store is located.
C)  Teal can elect to recognize the income in either 2014 or 2015.
D)  Teal must recognize the income in 2015.
E)  None of these.F) None of the above
G) A) and E)

Question 17

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Accepted Answer

A)  Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B)  Sue is not required to recognize gross income from the receipt of the funds,but she must reduce her cost basis in the land by $2,000.
C)  Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D)  Sue must recognize $2,000 gross income in the current year,and when the cable is installed,she must reduce her cost basis in the land by $2,000.
E)  None of these.F) A) and E)
G) B) and C)

Question 18

Jerry purchased a U.S.Series EE savings bond for $744.The bond has a maturity value in 10 years of $1,000 and yields 3% interest.This is the first Series EE bond that Jerry has ever owned.

Accepted Answer

A)  Jerry can defer the interest income until the bond matures in 10 years.
B)  Jerry must report ($1,000 - $744) /10 = $25.60 interest income each year he owns the bond.
C)  The interest on the bonds is exempt from Federal income tax.
D)  Jerry can report all of the $256 as a capital gain in the year it matures.
E)  None of these.F) All of the above
G) C) and D)

Question 19

Sarah,a majority shareholder in Teal,Inc. ,made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.

Accepted Answer

A)  Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
B)  Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
C)  Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
D)  Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
E)  None of these.F) B) and D)
G) A) and B)

Question 20

In the case of a zero interest below-market loan by a corporation to a shareholder-employee,what difference does it make to the corporation and the shareholder whether the loan is characterized as a corporation's loan to its shareholder or a corporation's loan to its employee?

Accepted Answer

Imputed interest on the loan to an emplo...

Exam 4: Gross Income: Concepts and Inclusions

Teal company is an accrual basis taxpayer.On December 1,2014,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2015.Teal delivered the item on January 4,2015.Teal included the sale in its 2014 income for financial accounting purposes.

Correct Answer
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In the case of a person with other income of $300,000,15% of his or her Social Security benefits received are excluded from gross income.

Correct Answer
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If the alimony recapture rules apply,the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

Correct Answer
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In the case of a zero interest below-market loan by a corporation to a shareholder-employee,what difference does it make to the corporation and the shareholder whether the loan is characterized as a corporation's loan to its shareholder or a corporation's loan to its employee?

Correct Answer
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Imputed interest on the loan to an emplo...
View Answer

In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

Correct Answer
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Theresa,a cash basis taxpayer,purchased a bond on July 1,2010,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2014,she sold the bond for $9,800,which included $200 of accrued interest.

Correct Answer
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Under the alimony rules:

Correct Answer
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The annual increase in the cash surrender value of a life insurance policy:

Correct Answer
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The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Correct Answer
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When a business is operated as an S corporation,a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

Correct Answer
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For purposes of determining gross income,which of the following is true?

Correct Answer
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Sarah,a majority shareholder in Teal,Inc. ,made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.

Correct Answer
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Norma's income for 2014 is $27,000 from part-time work and $9,000 of Social Security benefits.Norma is not married.A portion of her Social Security benefits must be included in her gross income.

Correct Answer
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Jerry purchased a U.S.Series EE savings bond for $744.The bond has a maturity value in 10 years of $1,000 and yields 3% interest.This is the first Series EE bond that Jerry has ever owned.

Correct Answer
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Correct Answer
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In December 2013,Mary collected the December 2013 and January 2014 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2013 for the 2014 rent should be included in her 2014 gross income.

Correct Answer
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Correct Answer
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The tax laws favor the purchase of the a...
View Answer

Jake is the sole shareholder of an S corporation that earned $60,000 in 2014.The corporation was short on cash and therefore distributed only $15,000 to Jake in 2014.Jake is required to recognize $60,000 of income from the S corporation in 2014.

Correct Answer
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Correct Answer
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Exam 4: Gross Income: Concepts and Inclusions

Teal company is an accrual basis taxpayer.On December 1,2014,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2015.Teal delivered the item on January 4,2015.Teal included the sale in its 2014 income for financial accounting purposes.

Correct AnswerverifiedShow Answer

In the case of a person with other income of $300,000,15% of his or her Social Security benefits received are excluded from gross income.

Correct AnswerverifiedShow Answer

If the alimony recapture rules apply,the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

Correct AnswerverifiedShow Answer

In the case of a zero interest below-market loan by a corporation to a shareholder-employee,what difference does it make to the corporation and the shareholder whether the loan is characterized as a corporation's loan to its shareholder or a corporation's loan to its employee?

Correct AnswerverifiedImputed interest on the loan to an emplo...View AnswerShow Answer

In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

Correct AnswerverifiedShow Answer

Theresa,a cash basis taxpayer,purchased a bond on July 1,2010,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2014,she sold the bond for $9,800,which included $200 of accrued interest.

Correct AnswerverifiedShow Answer

Under the alimony rules:

Correct AnswerverifiedShow Answer

The annual increase in the cash surrender value of a life insurance policy:

Correct AnswerverifiedShow Answer

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Correct AnswerverifiedShow Answer

When a business is operated as an S corporation,a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

Correct AnswerverifiedShow Answer

For purposes of determining gross income,which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Sarah,a majority shareholder in Teal,Inc. ,made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.

Correct AnswerverifiedShow Answer

Norma's income for 2014 is $27,000 from part-time work and $9,000 of Social Security benefits.Norma is not married.A portion of her Social Security benefits must be included in her gross income.

Correct AnswerverifiedShow Answer

Jerry purchased a U.S.Series EE savings bond for $744.The bond has a maturity value in 10 years of $1,000 and yields 3% interest.This is the first Series EE bond that Jerry has ever owned.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In December 2013,Mary collected the December 2013 and January 2014 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2013 for the 2014 rent should be included in her 2014 gross income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe tax laws favor the purchase of the a...View AnswerShow Answer

Jake is the sole shareholder of an S corporation that earned $60,000 in 2014.The corporation was short on cash and therefore distributed only $15,000 to Jake in 2014.Jake is required to recognize $60,000 of income from the S corporation in 2014.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Imputed interest on the loan to an emplo...
View Answer

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The tax laws favor the purchase of the a...
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Correct Answer
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