Exam 3: Gross Income: Inclusions

Payments from an annuity purchased from an insurance company are not taxable until the taxpayer has recovered the purchase price of the annuity.

Alex is a calendar-year sole proprietor.He began business on December 1,this year.He uses the accrual method of accounting.Alex had the following collections in December: • Collected $7,000 in December,from clients who paid cash for services to be performed next year. • Collected $5,000 in December,for services performed during December; deposited in an operating account on December 31,this year. • Collected $12,000 in December; on accounts receivable for services performed in December; deposited in operating account on January 2,next year. What is the amount Alex must include in his income for December?

AAA Corporation distributes an automobile to Alexandria,a shareholder,in lieu of a cash dividend.Alexandria must report the value of the automobile as dividend income.

Bridget owns 200 shares of common stock of Jones Corporation.During the current year,Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned.The stock has a fair market value of $10 per share.Bridget chooses to take the additional shares of stock.How much income does Bridget have from the stock dividend?

Ron and Eve are a married couple who plan to file separate tax returns.How will they determine how to split their income for tax reporting purposes?

Interest credited to a bank savings account is taxed regardless of whether or not it is withdrawn.

Jonathon,age 50 and in good health,withdrew $6,000 from his pension plan during the current year.The withdrawal was not eligible for any exception to the 10% penalty.Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000.In addition to relevant income taxes,how much penalty must Jonathon pay?

Which of the following is least likely to result in a constructive dividend?

CT Computer Corporation,a cash-basis taxpayer,sells service contracts on the computers it sells.At the beginning of January of this year,CT Corporation sold contracts with service to begin immediately: The amount of income CT Corporation must report for this year is

Tyler has rented a house from Camarah since last year.The rent is usually $1,200 per month,but Camarah reduced the monthly rent down to $200 for all twelve months this year in exchange for Tyler putting in an inground pool in the backyard.The improvement has a fair market value of $20,000.How much total rental income must Camarah report this year?

Which of the following statements is false?

Distributions in excess of a corporation's current and accumulated earnings and profits are treated as a nontaxable recovery of capital unless they exceed the basis of the stock.

Speak Corporation,a calendar-year,cash-basis taxpayer,sells packages of foreign language lessons to individuals planning to work overseas.In December 2017,it sold and received payment for $600,000 of 24-month lesson packages to be provided evenly through 2018 and 2019.Speak Corporation will recognize the $600,000 of income

During 2016,Mark's employer withheld $2,000 from his wages for state income tax.Mark claimed the $2,000 as an itemized deduction on his 2016 federal income tax return.His total itemized deductions for 2016 were $9,000.Mark's taxable income for 2016 was a negative $20,000 due to substantial business losses.Mark received the $2,000 as a refund from the state during 2017.What amount must Mark include in income in 2017?

Interest on Series E and Series EE U.S.savings bonds need not be reported until the bonds mature.

Thomas purchased an annuity for $20,000 that will pay him $500 per month for ten years.What amount should Thomas include in his income each year?

Ellen is a single taxpayer with qualified dividend income of $5,000,and itemized deductions of $13,000. Required: Determine Ellen's taxable income and tax liability in 2017,assuming the following salaries a.$40,000. b.$100,000.

In December of this year,Jake and Stockard,a married couple,redeemed qualified Series EE U.S.Savings Bonds.The proceeds were used to help pay for their daughter's college tuition.Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000.The qualified higher educational expenses they paid this year totaled $6,000.Their AGI is below the threshold for phase-out of the exclusion.What is the amount of interest income Jake and Stockard can exclude from their income this year?

Gabe Corporation,an accrual-basis taxpayer that uses the calendar year as its tax year,sells CPE (continuing professional education) courses under contracts ranging from three months to two years.Assume that Gabe Corporation sold three contracts on July 1,2017; one for six months costing $300; one for one year costing $500; and one for two years costing $800. Required: What is the minimum amount of income that must be recognized in 2017 and 2018?

Thomas and Sally were divorced last year.As a result,Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000.The house and car are given as a property settlement.As a result of these transactions Thomas has a deduction of