Question 1

Which of the following statements regarding qualified tuition programs is incorrect?

Accepted Answer

A) Distributions from income earned by a qualified tuition program are tax-free if used for qualified higher education expenses. 
B) Distributions of income are taxed to the donor if the proceeds are not used for higher education expenses. 
C) A qualified tuition program may be established by parents or grandparents. 
D) Contributions to a qualified tuition program are distributed tax-free. 
A) Distributions from income earned by a qualified tuition program are tax-free if used for qualified higher education expenses. 
B) Distributions of income are taxed to the donor if the proceeds are not used for higher education expenses. 
C) A qualified tuition program may be established by parents or grandparents. 
D) Contributions to a qualified tuition program are distributed tax-free.

Question 2

Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother.Cameron sells the policy to his brother,Parker,for $100,000.Parker subsequently pays premiums of $55,000.Upon his mother's death,how much of the insurance proceeds must Parker include in income?

Accepted Answer

A) $0 
B) $55,000 
C) $145,000 
D) $300,000 
A) $0 
B) $55,000 
C) $145,000 
D) $300,000

Question 3

Trisha is married and has young children.The couple is in the 39.6% tax bracket.In order for Trisha and her husband to work,they pay $5,000 for daycare which earns them a $1,000 dependent care credit.Trisha has been offered a new job.The new job will pay a $5,000 lower salary,but the new employer will offer $5,000 of paid child care.Trisha cannot claim the dependent care credit if she receives employer-paid child care.Which of the following statements is correct? (Ignore payroll taxes. )

Accepted Answer

A) Trisha will have $980 additional after-tax income if she accepts the new job. 
B) Trisha will lose $4,000 net value if she accepts the new job. 
C) Trisha will have $1,980 additional after-tax income if she accepts the new job. 
D) Trisha will lose $3,020 of net value if she accepts the new job. 
A) Trisha will have $980 additional after-tax income if she accepts the new job. 
B) Trisha will lose $4,000 net value if she accepts the new job. 
C) Trisha will have $1,980 additional after-tax income if she accepts the new job. 
D) Trisha will lose $3,020 of net value if she accepts the new job.

Question 4

Which of the following statements regarding the qualified tuition plans (QTP)is incorrect?

Accepted Answer

A) Distributions can be made tax-free to pay for room and board at college. 
B) Distributions made from a QTP for college tuition will be tax-free in addition to qualifying for the American Opportunity credit or lifetime learning credit. 
C) Katie's parents had established a QTP for Katie,but she has received a "full-ride" scholarship.Katie's parents can name her sister as a replacement beneficiary of the QTP. 
D) Distributions of income not used for qualified higher education expenses are taxable and subject to a 10% penalty. 
A) Distributions can be made tax-free to pay for room and board at college. 
B) Distributions made from a QTP for college tuition will be tax-free in addition to qualifying for the American Opportunity credit or lifetime learning credit. 
C) Katie's parents had established a QTP for Katie,but she has received a "full-ride" scholarship.Katie's parents can name her sister as a replacement beneficiary of the QTP. 
D) Distributions of income not used for qualified higher education expenses are taxable and subject to a 10% penalty.

Question 5

Connor owes $4 million and has assets of only $1 million.He declares and files personal and business bankruptcy and his creditors approve a payment plan of $.25 per dollar.Connor has a net operating loss carryover of $2 million.The remaining 75 percent of his debt will be canceled.Connor must recognize income of

Accepted Answer

A) $0. 
B) $1 million. 
C) $2 million. 
D) $3 million. 
A) $0. 
B) $1 million. 
C) $2 million. 
D) $3 million.

Question 6

The exclusion for employee discounts on services is limited to 30% of the price charged regular customers.

Accepted Answer

A) True 
 B)False

Question 7

A business provides $45,000 of group-term life insurance to all workers,including the partners who work in the business.All of the workers can exclude the value of this fringe benefit from their gross income.

Accepted Answer

A) True 
 B)False

Question 8

All of the following items are excluded from gross income except

Accepted Answer

A) working condition benefits. 
B) de minimis benefits. 
C) no additional cost benefits for employees. 
D) disability income from an employer-financed policy. 
A) working condition benefits. 
B) de minimis benefits. 
C) no additional cost benefits for employees. 
D) disability income from an employer-financed policy.

Question 9

In the case of foreign-earned income,U.S.citizens may avoid double taxation of income by both the United States and the host country by utilizing a foreign tax credit or by electing the foreign earned income exclusion.

Accepted Answer

A) True 
 B)False

Question 10

John,who is President and CEO of ZZZ Corporation which owns the ZZZ hotel chain,is working with his Human Resources department to design an employee fringe benefits package.He would like employees to receive discounts on goods and services provided by the corporation,would like to provide free hotel rooms to employees,would like to provide transit passes or pay for parking in metropolitan areas,and would like to provide recreational and athletic facilities.What issues should John consider in designing his package?

Accepted Answer

All of the desired can be provided in a

Question 11

Which one of the following fringe benefits allows for discrimination between highly compensated employees and other employees to be present?

Accepted Answer

A) no-additional cost 
B) qualified employee discounts 
C) recreation and athletic facilities 
D) working condition 
A) no-additional cost 
B) qualified employee discounts 
C) recreation and athletic facilities 
D) working condition

Question 12

An electronics store sold a home theater system to an employee for $300,even though the retail price was $500.The gross profit percentage is 40%.Such discounts are available to all employees.How much income should be recognized by the employee from these transactions?

Accepted Answer

A) $0 
B) $100 
C) $120 
D) $200 
A) $0 
B) $100 
C) $120 
D) $200

Question 13

Amounts collected under accident and health insurance policies purchased by the taxpayer are excludible from income.

Accepted Answer

A) True 
 B)False

Question 14

Ming,who has been employed by the Frostine Corporation for five years,receives a $400 Amazon.com gift card for his years of hard work.The employee service award is taxable.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following items will result in an increase in gross income?

Accepted Answer

A) Receipt of a $10,000 check from the bank.The check is for a student loan. 
B) Receiving a $10,000 award from a university for high grades and high SAT scores.The award is used to pay tuition. 
C) Preparing a mechanic's tax return in exchange for the mechanic replacing the muffler on your car. 
D) None of the above will be included in gross income. 
A) Receipt of a $10,000 check from the bank.The check is for a student loan. 
B) Receiving a $10,000 award from a university for high grades and high SAT scores.The award is used to pay tuition. 
C) Preparing a mechanic's tax return in exchange for the mechanic replacing the muffler on your car. 
D) None of the above will be included in gross income.

Question 16

Daniel purchased qualified small business corporation stock for $200,000.In 2017 he sells the stock for $2,200,000,realizing a $2,000,000 gain.Determine the taxes due under the following independent situations (apply current tax rates,but ignore any additional Medicare taxes on investment income):
(a)Daniel purchased the stock on February 1,2006.
(b)Daniel purchased the stock on March 1,2009.
(c)Daniel purchased the stock on October 1,2010.

Accepted Answer

(a)$2,000,000 × 50% × 28% = $280,000 tax

Question 17

Loan proceeds are taxable in the year received in cash.

Accepted Answer

A) True 
 B)False

Question 18

In September of 2017,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?

Accepted Answer

A) $ 0 
B) $100,000 
C) $800,000 
D) $900,000 
A) $ 0 
B) $100,000 
C) $800,000 
D) $900,000

Question 19

Nelda suffered a serious stroke and was admitted to a nursing home for 140 days.Nursing home charges,including physician fees and other related expenses were $33,000.Under Nelda's long-term care insurance contract,she received reimbursements of $36,000.How much of the $36,000 reimbursement must be included in Nelda's gross income in 2017?

Accepted Answer

A) $0 
B) $1,400 
C) $36,000 
D) $3,000 
A) $0 
B) $1,400 
C) $36,000 
D) $3,000

Question 20

All of the following are requirements for excluding employee achievement awards except for

Accepted Answer

A) tangible personal property other than cash. 
B) based on safety records or length of service. 
C) part of a meaningful presentation. 
D) if paid in cash,must be less than $400. 
A) tangible personal property other than cash. 
B) based on safety records or length of service. 
C) part of a meaningful presentation. 
D) if paid in cash,must be less than $400.

Exam 20: Gross Income: Exclusions

Which of the following statements regarding qualified tuition programs is incorrect?

Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother.Cameron sells the policy to his brother,Parker,for $100,000.Parker subsequently pays premiums of $55,000.Upon his mother's death,how much of the insurance proceeds must Parker include in income?

Which of the following statements regarding the qualified tuition plans (QTP)is incorrect?

The exclusion for employee discounts on services is limited to 30% of the price charged regular customers.

A business provides $45,000 of group-term life insurance to all workers,including the partners who work in the business.All of the workers can exclude the value of this fringe benefit from their gross income.

All of the following items are excluded from gross income except

In the case of foreign-earned income,U.S.citizens may avoid double taxation of income by both the United States and the host country by utilizing a foreign tax credit or by electing the foreign earned income exclusion.

Which one of the following fringe benefits allows for discrimination between highly compensated employees and other employees to be present?

An electronics store sold a home theater system to an employee for $300,even though the retail price was $500.The gross profit percentage is 40%.Such discounts are available to all employees.How much income should be recognized by the employee from these transactions?

Amounts collected under accident and health insurance policies purchased by the taxpayer are excludible from income.

Ming,who has been employed by the Frostine Corporation for five years,receives a $400 Amazon.com gift card for his years of hard work.The employee service award is taxable.

Which of the following items will result in an increase in gross income?

Loan proceeds are taxable in the year received in cash.

In September of 2017,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?

All of the following are requirements for excluding employee achievement awards except for

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