Question 1

Jake sold his car for $2,400 in cash this year.He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

Accepted Answer

A) True 
 B)False

Question 2

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

Accepted Answer

A) True 
 B)False

Question 3

The all-inclusive definition of income means that gross income is defined very broadly.

Accepted Answer

A) True 
 B)False

Question 4

This year Kevin provided services to several clients,each of whom paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Accepted Answer

A) Cash 
B) Shares of stock listed on the New York Stock Exchange. 
C) A used car 
D) Gold coins 
E) All of these are included in gross income 
A) Cash 
B) Shares of stock listed on the New York Stock Exchange. 
C) A used car 
D) Gold coins 
E) All of these are included in gross income

Question 5

Which of the following describes how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Accepted Answer

A) The expected return is divided by the number of payments. 
B) The original investment is divided by the prevailing interest rate. 
C) The original investment is divided by the number of payments. 
D) The expected return is divided by the prevailing interest rate. 
E) None of the choices are correct. 
A) The expected return is divided by the number of payments. 
B) The original investment is divided by the prevailing interest rate. 
C) The original investment is divided by the number of payments. 
D) The expected return is divided by the prevailing interest rate. 
E) None of the choices are correct.

Question 6

Interest earned on a federal Treasury bond is excluded from gross income (for federal tax purposes).

Accepted Answer

A) True 
 B)False

Question 7

Andres has received the following benefits this year.
   Besides these benefits Andres missed work for two months due to an illness.During his illness Andres received $6,500 in sick pay from a disability insurance policy.Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit.What amount,if any,must Andres include in gross income this year?

Accepted Answer

$115,920 = $92,000 + $15,000 +

Question 8

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year.Mary included a total of $4,000 of state income taxes when she itemized deductions last year.What amount of the refund,if any,should Mary include in her gross income this year?

Accepted Answer

A) $200 is included because Mary itemized her deductions last year. 
B) $200 is included if itemized deductions exceeded the standard deduction by $200. 
C) $200 is included because itemized deductions exceeded the standard deduction. 
D) $200 is included even if Mary claimed the standard deduction. 
E) None of the choices are correct - refunds of state income taxes are not included in gross income. 
A) $200 is included because Mary itemized her deductions last year. 
B) $200 is included if itemized deductions exceeded the standard deduction by $200. 
C) $200 is included because itemized deductions exceeded the standard deduction. 
D) $200 is included even if Mary claimed the standard deduction. 
E) None of the choices are correct - refunds of state income taxes are not included in gross income.

Question 9

This year Joseph joined the board of directors for a company.Besides his director's fees,Joseph received the following employee benefits:
   The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation.At the time of the transfer the stock was listed at $4 per share.What amounts,if any,should Joseph include in gross income this year?

Accepted Answer

$239,000 = $204,000 + $20,000

Question 10

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years.Charles paid $180,000 for the annuity.How much of the first $20,000 payment should Charles include in gross income?

Accepted Answer

$5,000 A part of each payment represents

Question 11

The tax law defines alimony to include transfers of property (but not cash)between former spouses.

Accepted Answer

A) True 
 B)False

Question 12

This year Kelsi received a $1,900 refund of state income taxes that she paid last year.Last year Kelsi claimed itemized deductions of $13,100,including $2,800 of state income taxes.How much of the refund,if any,must Kelsi include in gross income if the standard deduction last year was $12,000?

Accepted Answer

$1,100 The tax benefit is the lesser of

Question 13

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g.,no obligation to repay the amount).

Accepted Answer

A) Claim of right 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are correct 
A) Claim of right 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are correct

Question 14

Joyce's employer loaned her $50,000 this year (interest-free)to buy a new car.If the federal interest rate was 3 percent,which of the following is correct?

Accepted Answer

A) Joyce recognizes $1,500 of taxable interest income. 
B) Joyce's employer recognizes $1,500 of deductible interest expense. 
C) Joyce recognizes $1,500 of imputed compensation income. 
D) Joyce recognizes $1,500 of imputed dividend income. 
E) None of the choices are correct. 
A) Joyce recognizes $1,500 of taxable interest income. 
B) Joyce's employer recognizes $1,500 of deductible interest expense. 
C) Joyce recognizes $1,500 of imputed compensation income. 
D) Joyce recognizes $1,500 of imputed dividend income. 
E) None of the choices are correct.

Question 15

Regardless of when a divorce agreement is executed,alimony is included in gross income of the recipient and is deductible for AGI by the payer.

Accepted Answer

A) True 
 B)False

Question 16

This year Ann has the following stock transactions.What amount is included in her gross income if Ann paid a $200 selling commission for each sale?

Accepted Answer

$2,100.ATT: ($9,500 − $200)− $

Question 17

A portion of each payment received from a purchased annuity contract represents income.

Accepted Answer

A) True 
 B)False

Question 18

Bobby and Sissy got married two and a half years ago.Since that time,they have lived in Bobby's home.Sissy sold her previous home three years ago and excluded her entire gain ($80,000)at that time.Bobby and Sissy decided to move to a bigger home this year.As a result,they sold Bobby's home for $500,000 (original cost $150,000).How much of the gain from the sale is taxable?

Accepted Answer

$0.Because Bobby meets the own

Question 19

Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.

Accepted Answer

A) True 
 B)False

Question 20

Gross income includes:

Accepted Answer

A) all income from whatever source derived unless excluded by law 
B) excluded income 
C) deferred income 
D) all realized income 
E) all of these choices are correct. 
A) all income from whatever source derived unless excluded by law 
B) excluded income 
C) deferred income 
D) all realized income 
E) all of these choices are correct.

Exam 5: Gross Income and Exclusions

Jake sold his car for $2,400 in cash this year.He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

The all-inclusive definition of income means that gross income is defined very broadly.

This year Kevin provided services to several clients,each of whom paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Which of the following describes how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Interest earned on a federal Treasury bond is excluded from gross income (for federal tax purposes).

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year.Mary included a total of $4,000 of state income taxes when she itemized deductions last year.What amount of the refund,if any,should Mary include in her gross income this year?

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years.Charles paid $180,000 for the annuity.How much of the first $20,000 payment should Charles include in gross income?

The tax law defines alimony to include transfers of property (but not cash)between former spouses.

This year Kelsi received a $1,900 refund of state income taxes that she paid last year.Last year Kelsi claimed itemized deductions of $13,100,including $2,800 of state income taxes.How much of the refund,if any,must Kelsi include in gross income if the standard deduction last year was $12,000?

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g.,no obligation to repay the amount).

Joyce's employer loaned her $50,000 this year (interest-free)to buy a new car.If the federal interest rate was 3 percent,which of the following is correct?

Regardless of when a divorce agreement is executed,alimony is included in gross income of the recipient and is deductible for AGI by the payer.

This year Ann has the following stock transactions.What amount is included in her gross income if Ann paid a $200 selling commission for each sale?

A portion of each payment received from a purchased annuity contract represents income.

Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.

Gross income includes:

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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