Question 1

U.S. citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

Accepted Answer

A) True 
 B)False

Question 2

Brenda has $15,000 in U.S. Series EE savings bonds and she is considering whether to cash in the bonds. Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?

Accepted Answer

A) Brenda can exclude the interest if she uses the proceeds to pay for college tuition. 
B) Brenda's modified AGI must be below a phase-out range for the exclusion. 
C) The proceeds must be used for higher education expenses of Brenda, her spouse, or Brenda's dependent. 
D) All of these are necessary conditions for Brenda to exclude the interest. 
E) None of these are correct - the interest is always included in gross income. 
A) Brenda can exclude the interest if she uses the proceeds to pay for college tuition. 
B) Brenda's modified AGI must be below a phase-out range for the exclusion. 
C) The proceeds must be used for higher education expenses of Brenda, her spouse, or Brenda's dependent. 
D) All of these are necessary conditions for Brenda to exclude the interest. 
E) None of these are correct - the interest is always included in gross income.

Question 3

The cash method of accounting requires taxpayers to recognize income only when income is received as cash.

Accepted Answer

A) True 
 B)False

Question 4

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives. Later this year Harold will recover the remainder of his cost of the annuity. Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

Accepted Answer

A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income. 
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity. 
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity. 
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy. 
E) All of these choices are correct. 
A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income. 
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity. 
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity. 
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy. 
E) All of these choices are correct.

Question 5

Bernie is a former executive who is retired. This year Bernie received $180,000 in pension payments and $10,600 of Social Security payments. What amount must Bernie include in his gross income?

Accepted Answer

A) $180,000 
B) $185,300 
C) $189,010 
D) $190,600 
E) $0 
A) $180,000 
B) $185,300 
C) $189,010 
D) $190,600 
E) $0

Question 6

Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services rendered. Which of the following is a true statement?

Accepted Answer

A) Hillary is taxed on the $5,000 of service income in the year she cashes the check. 
B) Hillary is taxed on the $5,000 of service income in the year the check was mailed. 
C) Hillary is taxed on the $5,000 of service income in the year she receives the check. 
D) Hillary is taxed on the $5,000 of service income in the year she provides the services. 
E) None of the choices are correct. 
A) Hillary is taxed on the $5,000 of service income in the year she cashes the check. 
B) Hillary is taxed on the $5,000 of service income in the year the check was mailed. 
C) Hillary is taxed on the $5,000 of service income in the year she receives the check. 
D) Hillary is taxed on the $5,000 of service income in the year she provides the services. 
E) None of the choices are correct.

Question 7

Sally is a cash-basis taxpayer and a member of the Valley Barter club. This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. Which of the following is a true statement?

Accepted Answer

A) Sally need not recognize any gross income unless she sells the football tickets. 
B) Sally's exchange does not result in taxable income. 
C) Sally is taxed on the value of the football tickets even if she cannot attend the game. 
D) Sally is taxed on the value of her sewing services only if she is a professional seamstress. 
E) None of the choices are correct. 
A) Sally need not recognize any gross income unless she sells the football tickets. 
B) Sally's exchange does not result in taxable income. 
C) Sally is taxed on the value of the football tickets even if she cannot attend the game. 
D) Sally is taxed on the value of her sewing services only if she is a professional seamstress. 
E) None of the choices are correct.

Question 8

Jack and Jill are married. This year Jack earned $90,500, Jill earned $99,250, and they received $12,200 of interest income from a joint savings account. How much gross income would Jack report if he files married filing separately from Jill?

Accepted Answer

A) $90,500 if they reside in a common law state. 
B) $94,875 if they reside in a community property law state. 
C) $111,450 if they reside in a common law state. 
D) $100,975 if they reside in a community property law state. 
E) None of the choices are correct. 
A) $90,500 if they reside in a common law state. 
B) $94,875 if they reside in a community property law state. 
C) $111,450 if they reside in a common law state. 
D) $100,975 if they reside in a community property law state. 
E) None of the choices are correct.

Question 9

Wilma has a $42,500 certificate of deposit (CD)at the local bank. The interest on this certificate, $2,550, was credited to her account this year, but she must pay an early withdrawal penalty if she cashes in the CD before next year. Which of the following is a true statement?

Accepted Answer

A) Wilma must include the $2,550 of interest in her income this year. 
B) Wilma must include the $2,550 of interest in her income when she cashes the CD. 
C) Wilma must include the $2,550 of interest in her income this year only if the bank waives the early withdrawal penalty. 
D) Wilma must include the $2,550 of interest in her income next year if she does not pay the early withdrawal penalty. 
E) All of the choices are correct. 
A) Wilma must include the $2,550 of interest in her income this year. 
B) Wilma must include the $2,550 of interest in her income when she cashes the CD. 
C) Wilma must include the $2,550 of interest in her income this year only if the bank waives the early withdrawal penalty. 
D) Wilma must include the $2,550 of interest in her income next year if she does not pay the early withdrawal penalty. 
E) All of the choices are correct.

Question 10

Trevor received a gift of $25,000 in cash from his rich uncle. Trevor must include $15,000 of this gift in his gross income this year.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Loretta received $6,200 from a disability insurance policy that she purchased directly this year. Loretta must include all $6,200 in her gross income.

Accepted Answer

A) True 
 B)False

Question 13

Helen is a U.S. citizen and a CPA who moved to London, England, three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $140,800. How much of her salary will she be allowed to exclude from gross income in the United States?

Accepted Answer

A) $113,800 
B) $107,600 
C) $137,800 
D) $130,800 
E) All of her salary is included in gross income. 
A) $113,800 
B) $107,600 
C) $137,800 
D) $130,800 
E) All of her salary is included in gross income.

Question 14

This fall Angelina, age 35, plans to attend college. To fund her tuition she cashed in Series EE savings bonds with a redemption value of $24,000 and an original cost of $16,800. Angelina plans on spending $7,200 of the proceeds to pay tuition. The redemption proceeds are Angelina's only source of income. What amount of interest must Angelina include in gross income this year?

Accepted Answer

$5,040Angelina has realized interest of

Question 15

When an asset is sold, the taxpayer calculates the gain or loss on the sale of the asset by subtracting the tax basis of the asset from the proceeds of the sale.

Accepted Answer

A) True 
 B)False

Question 16

Deb has found it very difficult to repay her loans. Because of these difficulties, the bank decided to forgive one of her most recent loans, an amount of $45,000. After the loan was discharged, Deb had total assets of $232,000 and her remaining loans totaled $217,000. What amount must Deb include in her gross income?

Accepted Answer

A) $15,000 
B) $45,000 
C) $30,000 
D) $28,000 
E) $0-Deb was not solvent when the loan was discharged 
A) $15,000 
B) $45,000 
C) $30,000 
D) $28,000 
E) $0-Deb was not solvent when the loan was discharged

Question 17

Realized income is included in gross income unless a tax provision specifies that it can be deferred or excluded.

Accepted Answer

A) True 
 B)False

Question 18

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Accepted Answer

A) True 
 B)False

Question 19

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE savings bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income?

Accepted Answer

A) $7,200 
B) $6,500 
C) A maximum of $350 if Sam uses the proceeds to pay for his college tuition and fees. 
D) $700 unless Sam uses at least some portion of the proceeds to pay for his college tuition and fees. 
E) $0-proceeds from cashing bonds sold at a discount are not realized income. 
A) $7,200 
B) $6,500 
C) A maximum of $350 if Sam uses the proceeds to pay for his college tuition and fees. 
D) $700 unless Sam uses at least some portion of the proceeds to pay for his college tuition and fees. 
E) $0-proceeds from cashing bonds sold at a discount are not realized income.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 5: Gross Income and Exclusions

U.S. citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

Brenda has $15,000 in U.S. Series EE savings bonds and she is considering whether to cash in the bonds. Under what conditions can Brenda exclude the interest on the savings bonds from her gross income?

The cash method of accounting requires taxpayers to recognize income only when income is received as cash.

Bernie is a former executive who is retired. This year Bernie received $180,000 in pension payments and $10,600 of Social Security payments. What amount must Bernie include in his gross income?

Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services rendered. Which of the following is a true statement?

Sally is a cash-basis taxpayer and a member of the Valley Barter club. This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. Which of the following is a true statement?

Jack and Jill are married. This year Jack earned $90,500, Jill earned $99,250, and they received $12,200 of interest income from a joint savings account. How much gross income would Jack report if he files married filing separately from Jill?

Wilma has a $42,500 certificate of deposit (CD)at the local bank. The interest on this certificate, $2,550, was credited to her account this year, but she must pay an early withdrawal penalty if she cashes in the CD before next year. Which of the following is a true statement?

Trevor received a gift of $25,000 in cash from his rich uncle. Trevor must include $15,000 of this gift in his gross income this year.

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?

Loretta received $6,200 from a disability insurance policy that she purchased directly this year. Loretta must include all $6,200 in her gross income.

Helen is a U.S. citizen and a CPA who moved to London, England, three years ago to work for a British company. This year, she spent the entire year in London and earned a salary of $140,800. How much of her salary will she be allowed to exclude from gross income in the United States?

When an asset is sold, the taxpayer calculates the gain or loss on the sale of the asset by subtracting the tax basis of the asset from the proceeds of the sale.

Realized income is included in gross income unless a tax provision specifies that it can be deferred or excluded.

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE savings bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income?

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

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 Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters