Question 1

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

Accepted Answer

A) True 
 B)False

Question 2

Jack and Jill are married. This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married-separate from Jill?

Accepted Answer

A)  $72,000 if they reside in a common law state. 
B)  $76,000 if they reside in a community property law state. 
C)  $84,000 if they reside in a common law state. 
D)  $78,000 if they reside in a community property law state. 
E)  All of these 
A)  $72,000 if they reside in a common law state. 
B)  $76,000 if they reside in a community property law state. 
C)  $84,000 if they reside in a common law state. 
D)  $78,000 if they reside in a community property law state. 
E)  All of these

Question 3

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4%, which of the following is correct?

Accepted Answer

A)  Janine recognizes $200 of taxable interest income. 
B)  Janine's employer recognizes $200 of deductible interest expense. 
C)  Janine recognizes $200 of imputed compensation income. 
D)  Janine recognizes $200 of imputed dividend income. 
E)  None of these. 
A)  Janine recognizes $200 of taxable interest income. 
B)  Janine's employer recognizes $200 of deductible interest expense. 
C)  Janine recognizes $200 of imputed compensation income. 
D)  Janine recognizes $200 of imputed dividend income. 
E)  None of these.

Question 4

Graham has accepted an offer to do graduate work in the chemistry department at State University. The chemistry department offered Graham a $5,000 tuition reduction and $3,500 toward the cost of room and meals. Under the terms of the scholarship Graham must work in the chemistry labs during the summer as a research assistant. What amount must Graham include in his gross income?

Accepted Answer

A)  $8,500 
B)  $5,000 
C)  $3,500 
D)  $2,500 
E)  Zero - None of these benefits is included in gross income 
A)  $8,500 
B)  $5,000 
C)  $3,500 
D)  $2,500 
E)  Zero - None of these benefits is included in gross income

Question 5

Unemployment benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 6

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income? $$\begin{array} { l r } 
\text { Benefits Received } & \text { Amount } \
\text { Salary } & \$ 54,450 \
\text { Health insurance } & 2,900 \
\text { Group term life insurance } ( \$ 50,000 ) & 1,800
\end{array}$$

Accepted Answer

A)  $54,450 
B)  $57,350 
C)  $56,250 
D)  $59,150 
E)  Zero - these benefits are excluded in gross income 
A)  $54,450 
B)  $57,350 
C)  $56,250 
D)  $59,150 
E)  Zero - these benefits are excluded in gross income

Question 7

Excluded income will never be subject to the federal income tax.

Accepted Answer

A) True 
 B)False

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 these - 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 these - refunds of state income taxes are not included in gross income.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Rental income generated by a partnership is reported by partners as dividend income.

Accepted Answer

A) True 
 B)False

Question 11

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 12

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. 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 these is true. 
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 these is true.

Question 13

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of social security payments. What amount must Bart include in his gross income for the social security payments?

Accepted Answer

A)  $4,250 
B)  $2,500 
C)  $1,500 
D)  $750 
E)  Zero 
A)  $4,250 
B)  $2,500 
C)  $1,500 
D)  $750 
E)  Zero

Question 14

Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $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 =

Question 15

Kevin provided services to several clients this year who 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 16

Which of the following is not a necessary condition for income to be included in gross income?

Accepted Answer

A)  income must be realized 
B)  income must be paid in cash 
C)  income cannot be excluded by law 
D)  income must be made available to a taxpayer on the cash basis 
E)  All of these 
A)  income must be realized 
B)  income must be paid in cash 
C)  income cannot be excluded by law 
D)  income must be made available to a taxpayer on the cash basis 
E)  All of these

Question 17

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

Accepted Answer

A) True 
 B)False

Question 18

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Accepted Answer

A) True 
 B)False

Question 19

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 refund rule 
B)  Constructive receipt 
C)  Return of capital principle 
D)  Tax benefit rule 
E)  None of these 
A)  Tax refund rule 
B)  Constructive receipt 
C)  Return of capital principle 
D)  Tax benefit rule 
E)  None of these

Question 20

Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (rounded to the nearest whole dollar)?

Accepted Answer

A)  $18,000 
B)  $12,000 
C)  $7,000 
D)  $1,100 
E)  Zero - None of these disability pay is included in gross income 
A)  $18,000 
B)  $12,000 
C)  $7,000 
D)  $1,100 
E)  Zero - None of these disability pay is included in gross income

Exam 5: Gross Income and Exclusions

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

Jack and Jill are married. This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married-separate from Jill?

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4%, which of the following is correct?

Unemployment benefits are excluded from gross income.

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income? Benefits Received Amount Salary \ 54,450 Health insurance 2,900 Group term life insurance (\ 50,000) 1,800

Excluded income will never be subject to the federal income tax.

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?

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

Rental income generated by a partnership is reported by partners as dividend income.

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?

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. Which of the following is a true statement?

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of social security payments. What amount must Bart include in his gross income for the social security payments?

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

Which of the following is not a necessary condition for income to be included in gross income?

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

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

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

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 of the Cfa Institute

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