Exam 5: Gross Income: Exclusions

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Flora Company owed $95,000, a debt incurred to purchase land that serves as security for the debt.

Nicole's employer pays her $150 per month toward the cost of parking near a railway station where Nicole catches the train to work.The employer also pays the cost of the rail pass, $75 per month.Nicole can exclude both of these payments from her gross income.

What Federal income tax benefits are provided for college students?

Ron, age 19, is a full-time graduate student at City University.During 2019, he received the following payments: Cash award for being the outstanding resident adviser \ 1,500 Resident adviser housing 2,500 State scholarship for ten months (tuition and books) 6,000 State scholarship (meals allowance) 2,400 Loan from college financial aid office 3,000 Cash support from parents Ron served as a resident adviser in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied.What is Ron's adjusted gross income for 2019?

Ashley received a scholarship to be used as follows: tuition, $6,000; room and board, $9,000; and books and laboratory supplies, $2,000.Ashley is required to include only $9,000 in her gross income.

Barry, a solvent individual but a recovering alcoholic, embezzled $6,000 from his employer.In the same year that he embezzled the funds, his employer discovered the theft.His employer did not fire him and told him he did not have to repay the $6,000 if he would attend Alcoholics Anonymous.Barry met the conditions and his employer canceled the debt.

Gull Corporation was undergoing reorganization under the bankruptcy laws.Its shareholders, who had made loans of $300,000 to the corporation, agreed to accept additional stock with a value of $200,000 instead of repayment on the debt.The Old Line Insurance Company, which had a $400,000 mortgage on the building, agreed to reduce the principal to $250,000.A trade creditor with a receivable of $150,000 from the company agreed to accept $70,000 in full payment for the debt incurred to purchase goods that were still on hand.Finally, the company transferred some equipment with an adjusted basis of $90,000 in satisfaction of a liability for $120,000.Compute the corporation's gross income and other adjustments necessary as a result of the above transactions.

Under Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the following benefits, but the total received by each employee cannot exceed $8,000 a year. I.Group medical and hospitalization insurance for the employee, $3,600 a year. II.Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III.Child care payments, actual cost but not more than $4,800 a year.IV.Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true?

Adam repairs power lines for the Egret Utilities Company.He is generally working on a power line during the lunch hour.He must eat when and where he can and still get his work done.He usually purchases something at a convenience store and eats in his truck.Egret reimburses Adam for the cost of his meals.

What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)

Carla is a deputy sheriff.Her employer requires that she live in the county where she is employed.Housing is very expensive; so the county agreed to pay her $4,800 per year to cover the higher cost of housing.Carla must include the housing supplement in her gross income.

Emily is in the 35% marginal tax bracket.She can purchase a York County school bond yielding 3.5% interest, which is not subject to a 5% state tax.But she is interested in earning a higher return for comparable risk.Which of the following is correct:

Evaluate the following statements: I.De minimis fringe benefits are those that are so immaterial that accounting for them is impractical. II)De minimis fringe benefits are subject to strict antidiscrimination requirements. III)Generally, a fringe benefit of less than $50 is considered de minimis and can be excluded from gross income.

A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:

Heather is a full-time employee of Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays when the number of players on the course is at its lowest.Tom, an employee of the country club, played 40 rounds of golf during the year at no charge when the nonemployee charge was $20 per round.

Zork Corporation was very profitable and had accumulated excess cash.The company decided to repurchase some of its bonds that had been issued for $1,000,000.Because of an increase in market interest rates, Zork was able to retire the bonds for $900,000.The company is not required to recognize $100,000 of income from the discharge of its indebtedness but must reduce the basis in its assets.

Early in the year, Marlon was in an automobile accident during the course of his employment.As a result of the physical injuries he sustained, he received the following payments during the year: Reimbursement of medical expenses Marlon paid by a medical insurance policy he purchased \ 10,000 Damage settlement to replace his lost salary 15,000 What is the amount that Marlon must include in gross income for the current year?

Doug and Pattie received the following interest income in the current year: Savings account opened at Greenbacks Bank \ 4,000 U.S.Treasury bonds 250 Interest on State of Iowa bonds 200 Interest on Federal tax refund 150 Interest on state income tax refund 75 Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?