Question 1

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 2

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Accepted Answer

A) True 
 B)False

Question 3

Unemployment benefits are excluded from gross income.

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 
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

Question 5

Identify which of the items below help determine which taxpayer must recognize earned income:

Accepted Answer

A)  Residence in a community property law state 
B)  Assignment of income 
C)  Residence in a common law state 
D)  Both residence in a community property law state and assignment of income above 
E)  All of these 
A)  Residence in a community property law state 
B)  Assignment of income 
C)  Residence in a common law state 
D)  Both residence in a community property law state and assignment of income above 
E)  All of these

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 8

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)  Selling expenses 
C)  Amount realized 
D)  Tax basis of the property and Selling expenses 
E)  All of these 
A)  Tax basis of the property 
B)  Selling expenses 
C)  Amount realized 
D)  Tax basis of the property and Selling expenses 
E)  All of these

Question 9

Barney and Betty got divorced this year. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage). What amount (if any) is included in Barney's gross income this year?

Accepted Answer

A)  $24,000 
B)  $50,000 
C)  $74,000 
D)  $170,000 
E)  None of the payments are included in gross income 
A)  $24,000 
B)  $50,000 
C)  $74,000 
D)  $170,000 
E)  None of the payments are included in gross income

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Accepted Answer

A) True 
 B)False

Question 12

Qualified fringe benefits received by an employee can be excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 13

Worker's compensation benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 14

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 15

NeNe is an accountant and U.S. citizen, who has accepted a permanent position in Madrid, Spain for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?

Accepted Answer

A)  NeNe can exclude all of the housing payment because she worked more than 330 days overseas 
B)  15,872 
C)  24,128 
D)  13,888 
E)  None of her salary can be excluded from gross income. 
A)  NeNe can exclude all of the housing payment because she worked more than 330 days overseas 
B)  15,872 
C)  24,128 
D)  13,888 
E)  None of her salary can be excluded from gross income.

Question 16

Lisa and Collin are married. Lisa works as an engineer and earns a salary of $116,000. Collin works at a beauty salon and reported wages of $45,000. Lisa received $500 of interest from corporate bonds and $250 of interest from a municipal bond. Lisa acquired these bonds prior to her marriage to Collin. Collin's father passed away on April 14. He inherited cash of $50,000 and his baseball card collection, valued at $2,000. As beneficiary of his father's life insurance policy, Collin also received $150,000. The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $1,200. Collin was injured in an accident at the salon. He was unable to work for a month, but during this time he received $5,000 from disability insurance he purchased several years ago. Collin also received $2,000 in workman's compensation, and $1,500 from the salon for the emotional trauma he suffered from the accident. Calculate Lisa and Collin's gross income for this year assuming they will file married joint.

Accepted Answer

$162,700 =

Question 17

Kathryn is employed by Acme and they have been very pleased with her performance this year. In December Kathryn was granted an extra week off with pay (pay for the week totaled $2,000). In addition, Kathryn was given tickets to a football bowl game worth $800 (Kathryn didn't use the tickets - she hates football). At year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home. The office furniture was originally purchased for $7,000, but it was fully depreciated and only worth about $1,000. Determine the amount Kathryn should include in her gross income.

Accepted Answer

$2,000 + $

Question 18

Wilma has a $25,000 certificate of deposit (CD) at the local bank. The interest on this certificate, $1,000, 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 $1,000 of interest in her income this year. 
B)  Wilma must include the $1,000 of interest in her income when she cashes the CD. 
C)  Wilma must include the $1,000 of interest in her income this year only if the bank waives the early withdrawal penalty. 
D)  Wilma must include the $1,000 of interest in her income next year if she does not pay the early withdrawal penalty. 
E)  All of these 
A)  Wilma must include the $1,000 of interest in her income this year. 
B)  Wilma must include the $1,000 of interest in her income when she cashes the CD. 
C)  Wilma must include the $1,000 of interest in her income this year only if the bank waives the early withdrawal penalty. 
D)  Wilma must include the $1,000 of interest in her income next year if she does not pay the early withdrawal penalty. 
E)  All of these

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Juan works as a landscaper for local businesses on weekends, and he often provides services in exchange 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 of clothing at a local mall. Juan has only applied the gift card to purchase $100 of clothing. Compute Juan's gross income assuming that he uses the cash basis of accounting.
$1,275 + $3,570 + $4,050 + $850 = $9,745

Accepted Answer

$1,275 + $

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

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Unemployment benefits are excluded from gross income.

Identify which of the items below help determine which taxpayer must recognize earned income:

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

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

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

Barney and Betty got divorced this year. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage). What amount (if any) is included in Barney's gross income this year?

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

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Qualified fringe benefits received by an employee can be excluded from gross income.

Worker's compensation benefits are excluded from gross income.

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Wilma has a $25,000 certificate of deposit (CD) at the local bank. The interest on this certificate, $1,000, 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?

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

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

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters

Exam 5: Gross Income and Exclusions

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

Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes.

Unemployment benefits are excluded from gross income.

Identify which of the items below help determine which taxpayer must recognize earned income:

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

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

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

Barney and Betty got divorced this year. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage). What amount (if any) is included in Barney's gross income this year?

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

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Qualified fringe benefits received by an employee can be excluded from gross income.

Worker's compensation benefits are excluded from gross income.

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Wilma has a $25,000 certificate of deposit (CD) at the local bank. The interest on this certificate, $1,000, 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?

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

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

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters