Exam 4: Gross Income: Concepts and Inclusions

In 2017 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct?

In December 2016, Mary collected the December 2016 and January 2017 rent from a tenant. Mary is a cash basis taxpayer. The amount collected in December 2016 for the 2017 rent should be included in her 2017 gross income.

April, a calendar year taxpayer, is a 40% partner in Pale Partnership, whose fiscal year ends on September 30th. For the fiscal year ending September 30, 2017, the partnership had $400,000 net income and for fiscal year ending September 30, 2018, the partnership had $300,000 net income. April withdrew $100,000 in December of each year. April's gross income from the partnership for 2017 is $160,000 ($400,000 × 40%).

If the alimony recapture rules apply, the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

Debbie is age 67 and unmarried and her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits. Debbie's adjusted gross income for the year is:

On January 5, 2017, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2017, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2017: ​

Harry and Wanda were married in Texas, a community property state, but moved to Virginia, a common law state. The calculation of their income on a joint return:

When a business is operated as an S corporation, a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

The Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $500 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of the tax year, the company had $50,000 of unearned revenues from these contracts. The company also had $10,000 in unearned rent income received from excess office space leased to other companies. Based on the above, Green must include in gross income for the current year:

Dick and Jane are divorced in 2016. At the time of the divorce, Dick had a lawsuit pending. He had filed suit against a former employer for overtime pay. As part of a divorce agreement, Dick agreed to pay Jane one-half of the proceeds from the lawsuit. In 2017, Dick collected $250,000 from the former employer and paid Jane $125,000. What are the tax consequences for Dick receiving the $250,000 and then paying Jane the $125,000?

Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon's age), the amount is $12 per year for $1,000 of protection. The cost of an individual policy would be $15 per year for $1,000 of protection. Since Gordon paid nothing towards the cost of the $250,000 protection, Gordon must include in his 2015 gross income which of the following amounts?

The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are:

The alimony rules:

George and Erin are divorced, and George is required to pay Erin $20,000 of alimony each year. George earns $75,000 a year. Erin is required to include the alimony payments in gross income although George earned the income.

Jay, a single taxpayer, retired from his job as a public school teacher in 2017. He is to receive a retirement annuity of $1,200 each month and his life expectancy is 180 months. He contributed $36,000 to the pension plan during his 35-year career; so his adjusted basis is $36,000. Jay collected 192 payments before he died. What is the correct method for reporting the pension income?

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

As a general rule: I. Income from property is taxed to the person who owns the property. II) Income from services is taxed to the person who earns the income.III. The assignee of income from property must pay tax on the income.IV. The person who receives the benefit of the income must pay the tax on the income.

A sole proprietorship purchased an asset for $1,000 in 2016 and its value was $1,500 at the end of 2016. In 2017, the sole proprietorship sold the asset for $1,400. The sole proprietorship realized a taxable gain of $400 in 2017 but an economic loss of $100 in 2017.

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Linda delivers pizzas for a pizza shop. On Wednesday, December 31, 2017, Linda made several deliveries and collected $400 from customers. However, Linda forgot to turn in the proceeds for the day to her employer until the following Friday, January 2, 2018. The pizza shop owner recognizes the income of $400 when he receives it from Linda in 2018.