Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Acme published a story about Paul and as a result Paul sued Acme for damage to hisreputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?

Accepted Answer

A)  $50,000 
B)  $70,000 
C)  $5,500 
D)  $20,000 
E)  All of the benefits are included in gross income. 
A)  $50,000 
B)  $70,000 
C)  $5,500 
D)  $20,000 
E)  All of the benefits are included in gross income.

Question 3

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

Accepted Answer

A)  Tax benefit rule. 
B)  Return of capital principle. 
C)  Tax refund rule. 
D)  Constructive receipt. 
E)  None of the choices are correct. 
A)  Tax benefit rule. 
B)  Return of capital principle. 
C)  Tax refund rule. 
D)  Constructive receipt. 
E)  None of the choices are correct.

Question 4

Juan works as a landscaper for local businesses on weekends, and he often provides services inexchange for property. This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services, $3,570 of groceries, and a certificate of deposit (C.D.) for $4,050. The C.D. matures next year with interest. Finally, Juan received a gift card that can only be applied for $850 ofclothing at a local mall. Juan has only applied the gift card to purchase $100 of clothing. ComputeJuan's gross income assuming that he uses the cash basis of accounting.

Accepted Answer

$1,275 + $

Question 5

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

Question 6

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Accepted Answer

A)  Zero 
B)  $260,000 
C)  $255,000 
D)  $258,500 
E)  $250,000 
A)  Zero 
B)  $260,000 
C)  $255,000 
D)  $258,500 
E)  $250,000

Question 7

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

Accepted Answer

A) True 
 B)False

Question 8

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Accepted Answer

A) True 
 B)False

Question 9

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karlinclude in his gross income?

Accepted Answer

A)  $46,600 
B)  $49,000 
C)  $43,400 
D)  $47,000 
E)  $45,500 
A)  $46,600 
B)  $49,000 
C)  $43,400 
D)  $47,000 
E)  $45,500

Question 10

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Accepted Answer

A) True 
 B)False

Question 11

Shaun is a student who has received an academic scholarship to State University. The scholarship paid $14,000 for tuition, $2,500 for fees, and $1,000 for books. In addition, Shaun's dormitory fees of $8,500 were paid by the University when he agreed as a condition of receiving the dormitory fees to counsel freshman on campus living. What amount must Shaun include in his gross income?

Accepted Answer

A)  $8,500 
B)  $11,000 
C)  $2,500 
D)  $9,500 
E)  Zero - none of the benefits are included in gross income. 
A)  $8,500 
B)  $11,000 
C)  $2,500 
D)  $9,500 
E)  Zero - none of the benefits are included in gross income.

Question 12

Recognized income may be in the form of cash or property received (but not services received).

Accepted Answer

A) True 
 B)False

Question 13

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Accepted Answer

A)  $250,000 
B)  $300,000 
C)  $50,000 
D)  $550,000 
E)  None of the choices are correct. 
A)  $250,000 
B)  $300,000 
C)  $50,000 
D)  $550,000 
E)  None of the choices are correct.

Question 14

Desai and Lucy divorced this year. Lucy has custody of their child, Andrea, and under the divorce decree Desai pays Lucy $120,000 per year. The payments must be made in cash and will cease if Lucy dies or remarries. The payments drop to $100,000 per year once Andrea reaches the age of 18. How much of the payments should Lucy include in gross income this year?

Accepted Answer

The answer of Desai and Lucy divorced this year. Lucy...

Question 15

Which of the following statements about alimony payments is true?

Accepted Answer

A)  To qualify as alimony, payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child
Support. 
B)  To qualify as alimony, payments must be made in cash. 
C)  Alimony payments are includible in the gross income of the recipient. 
D)  To qualify as alimony, payments cannot continue after the death of the recipient. 
E)  All of the choices are correct. 
A)  To qualify as alimony, payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child
Support. 
B)  To qualify as alimony, payments must be made in cash. 
C)  Alimony payments are includible in the gross income of the recipient. 
D)  To qualify as alimony, payments cannot continue after the death of the recipient. 
E)  All of the choices are correct.

Question 16

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a true statement about the first payment received from a purchased annuity?

Accepted Answer

A)  The payment can only be taxed in the year after the annuity was purchased. 
B)  The payment is not taxed until the annuity payments cease altogether. 
C)  A portion of the payment is a return of capital. 
D)  The payment is included in gross income. 
E)  None of the choices are a true statement. 
A)  The payment can only be taxed in the year after the annuity was purchased. 
B)  The payment is not taxed until the annuity payments cease altogether. 
C)  A portion of the payment is a return of capital. 
D)  The payment is included in gross income. 
E)  None of the choices are a true statement.

Question 18

To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

Accepted Answer

A)  Tax basis of the property. 
B)  Tax basis of the property and selling expenses. 
C)  Selling expenses. 
D)  Amount realized. 
E)  All of the choices are correct. 
A)  Tax basis of the property. 
B)  Tax basis of the property and selling expenses. 
C)  Selling expenses. 
D)  Amount realized. 
E)  All of the choices are correct.

Question 19

Generally, 85 percent of Social Security benefits are included in income of high income taxpayers.

Accepted Answer

A) True 
 B)False

Question 20

Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex alsoreceived $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.

Accepted Answer

$230,200 =

Exam 5: Gross Income and Exclusions

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

Acme published a story about Paul and as a result Paul sued Acme for damage to hisreputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

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?

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karlinclude in his gross income?

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Recognized income may be in the form of cash or property received (but not services received).

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for18 months. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Which of the following statements about alimony payments is true?

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Which of the following is a true statement about the first payment received from a purchased annuity?

To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

Generally, 85 percent of Social Security benefits are included in income of high income taxpayers.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, 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 US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters