Question 1

Heather's interest and gains on investments for 2012 were as follows:   Heather's gross income from the above is:

Accepted Answer

A) $2,000. 
B) $1,800. 
C) $1,400. 
D) $1,300. 
E) None of the above. 
A) $2,000. 
B) $1,800. 
C) $1,400. 
D) $1,300. 
E) None of the above.

Question 2

The exclusion for health insurance premiums paid by the employer applies to:

Accepted Answer

A) Only current employees and their spouses. 
B) Only current employees and their spouses and dependents. 
C) Only current employees and their disabled spouses. 
D) Present employees, retired former employees, and their spouses and dependents. 
E) None of the above. 
A) Only current employees and their spouses. 
B) Only current employees and their spouses and dependents. 
C) Only current employees and their disabled spouses. 
D) Present employees, retired former employees, and their spouses and dependents. 
E) None of the above.

Question 3

Bob had a terminal illness and realized that he "can't take it with him." Therefore, he cashed in his insurance policy and received $120,000. He had paid $50,000 in premiums on the policy. He used the money to fulfill his lifelong ambitions of going to the Super Bowl, driving an expensive sports car, and vacationing in Bermuda.
Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?

Accepted Answer

No.Bob was permitted to exclude from his

Question 4

Stuart owns 300 shares of Turquoise Corporation stock and 2,000 shares of Blue Corporation stock.During the year, Stuart received 150 shares of Turquoise as a result of a 1 for 2 stock split.The value of the shares received was $4,800.Stuart also received 100 shares of Blue Corporation stock as a result of a 5% stock dividend.Stuart did not have the option of receiving cash from Blue.The additional shares he received had a value of $7,200.Stuart's gross income from the receipt of the additional Turquoise and Blue shares is:

Accepted Answer

A) $0. 
B) $4,800. 
C) $7,200. 
D) $12,000. 
E) None of the above. 
A) $0. 
B) $4,800. 
C) $7,200. 
D) $12,000. 
E) None of the above.

Question 5

In the case of interest income from state and Federal bonds:

Accepted Answer

A)  Interest on United States government bonds received by a state resident cannot be subject to that state's income tax. 
B)  Interest on United States government bonds is subject to Federal income tax. 
C)  Interest on bonds issued by State A received by a resident of State B can be subject to income tax in State B. 
D)  All of the above are correct. 
E)  None of the above are correct. 
A)  Interest on United States government bonds received by a state resident cannot be subject to that state's income tax. 
B)  Interest on United States government bonds is subject to Federal income tax. 
C)  Interest on bonds issued by State A received by a resident of State B can be subject to income tax in State B. 
D)  All of the above are correct. 
E)  None of the above are correct.

Question 6

Doug and Pattie received the following interest income in the current year:   Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Accepted Answer

A) $4,775. 
B) $4,675. 
C) $4,575. 
D) $4,300. 
E) None of the above. 
A) $4,775. 
B) $4,675. 
C) $4,575. 
D) $4,300. 
E) None of the above.

Question 7

Section 119 excludes the value of meals from the employee's gross income:

Accepted Answer

A) Whenever the employee is working during the normal mealtimes. 
B) When the employer pays for the meals, if the employee makes an accounting to the employer. 
C) When the meals are provided for the employee, on the employer's business premises, and as a convenience to the employer. 
D) When the meals are provided for the employee on the employer's business premises as a convenience to the employee. 
E) None of the above. 
A) Whenever the employee is working during the normal mealtimes. 
B) When the employer pays for the meals, if the employee makes an accounting to the employer. 
C) When the meals are provided for the employee, on the employer's business premises, and as a convenience to the employer. 
D) When the meals are provided for the employee on the employer's business premises as a convenience to the employee. 
E) None of the above.

Question 8

Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

Accepted Answer

A) Heather reduced her salary by $1,200, actually spent $1,500, and received only $1,200 as reimbursement for her medical expenses. Heather's gross income will be reduced by $1,500. 
B) Heather reduced her salary by $1,200, and received only $900 as reimbursement for her actual medical expenses.She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200. 
C) Heather reduced her salary by $1,200, and received only $800 as reimbursement for her medical expenses.She is not refunded the $400.Her gross income is reduced by $800. 
D) Heather reduced her salary by $1,200, and received only $900 as reimbursement for her medical expenses.She forfeits the $300.Her gross income is reduced by $300. 
E) None of the above. 
A) Heather reduced her salary by $1,200, actually spent $1,500, and received only $1,200 as reimbursement for her medical expenses. Heather's gross income will be reduced by $1,500. 
B) Heather reduced her salary by $1,200, and received only $900 as reimbursement for her actual medical expenses.She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200. 
C) Heather reduced her salary by $1,200, and received only $800 as reimbursement for her medical expenses.She is not refunded the $400.Her gross income is reduced by $800. 
D) Heather reduced her salary by $1,200, and received only $900 as reimbursement for her medical expenses.She forfeits the $300.Her gross income is reduced by $300. 
E) None of the above.

Question 9

If a scholarship does not satisfy the requirements for a gift, the scholarship must be included in gross income.

Accepted Answer

A) True 
 B)False

Question 10

When Betty was diagnosed as having a terminal illness, she sold her life insurance policy to Insurance Purchase, Inc., a company that is licensed to invest in these types of contracts.Betty sold the policy for $32,000 and Insurance Purchase, Inc., became the beneficiary.She had paid total premiums of $19,000.Betty died 8 months after the sale.Insurance Purchase, Inc., collected $50,000 on the policy.The company had paid additional premiums of $4,000 on the policy.Betty is not required to recognize a $13,000 gain from the sale of her life insurance policy and Insurance Purchase, Inc., is required to recognize a $14,000 gain from the insurance policy.

Accepted Answer

A) True 
 B)False

Question 11

In December 2012, Todd, a cash basis taxpayer, paid $1,200 of fire insurance premiums for the calendar year 2013 on a building he held for rental income. Todd deducted the $1,200 of insurance premiums on his 2012 tax return.He had $150,000 of taxable income that year. On June 30, 2013, he sold the building and, as a result, received a $500 refund on his fire insurance premiums.As a result of the above:

Accepted Answer

A) Todd should amend his 2012 return and claim $500 less insurance expense. 
B) Todd should include the $500 in 2013 gross income in accordance with the tax benefit rule. 
C) Todd should add the $500 to his sales proceeds from the building. 
D) Todd should include the $500 in 2013 gross income in accordance with the claim of right doctrine. 
E) None of the above. 
A) Todd should amend his 2012 return and claim $500 less insurance expense. 
B) Todd should include the $500 in 2013 gross income in accordance with the tax benefit rule. 
C) Todd should add the $500 to his sales proceeds from the building. 
D) Todd should include the $500 in 2013 gross income in accordance with the claim of right doctrine. 
E) None of the above.

Question 12

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

Accepted Answer

A) $1.00 taxable income rather than $1.00 tax-exempt income. 
B) $.80 tax-exempt income rather than $1.00 taxable income. 
C) $1.25 taxable income rather than $1.00 tax-exempt income. 
D) $1.30 taxable income rather than $1.00 tax-exempt income. 
E) None of the above. 
A) $1.00 taxable income rather than $1.00 tax-exempt income. 
B) $.80 tax-exempt income rather than $1.00 taxable income. 
C) $1.25 taxable income rather than $1.00 tax-exempt income. 
D) $1.30 taxable income rather than $1.00 tax-exempt income. 
E) None of the above.

Question 13

The Royal Motor Company manufactures automobiles.Employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost.Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost.

Accepted Answer

A) None of the employees who take advantage of the fringe benefits described above are required to recognize income. 
B) Employees of Royal are required to recognize as gross income 18% (20% - 2%) of the cost of the automobile purchased. 
C) Employees of Local Dealer are required to recognize as gross income the gross profit Local Dealer loses as a result of the sale to the employees. 
D) Local Dealer officers must recognize gross income from the personal use of the company vehicles. 
E) None of the above. 
A) None of the employees who take advantage of the fringe benefits described above are required to recognize income. 
B) Employees of Royal are required to recognize as gross income 18% (20% - 2%) of the cost of the automobile purchased. 
C) Employees of Local Dealer are required to recognize as gross income the gross profit Local Dealer loses as a result of the sale to the employees. 
D) Local Dealer officers must recognize gross income from the personal use of the company vehicles. 
E) None of the above.

Question 14

Ben was hospitalized for back problems.While he was away from the job, he collected his regular salary from an employer-sponsored income protection insurance policy.Ben's employer-sponsored hospitalization insurance policy also paid for 90% of his medical expenses.Ben also collected on an income protection policy that he purchased.Which of the above sources of income are taxable? Explain the basis for excluding any item or items.

Accepted Answer

Only the collections on the employer-spo

Question 15

A cash basis taxpayer took an itemized deduction of $5,500 for state income tax paid in 2012. His total itemized deductions in 2012 were $18,000. In 2013, he received a $900 refund of his 2012 state income tax.The taxpayer must include the $900 refund in his 2013 Federal gross income in accordance with the tax benefit rule.

Accepted Answer

A) True 
 B)False

Question 16

Gold Company was experiencing financial difficulties, but was not bankrupt or insolvent.The National Bank, which held a mortgage on other real estate owned by Gold, reduced the principal from $110,000 to $85,000. The bank had made the loan to Gold when it purchased the real estate from Silver, Inc.Pink, Inc., the holder of a mortgage on Gold's building, agreed to accept $40,000 in full payment of the $55,000 due.Pink had sold the building to Gold for $150,000 that was to be paid in installments over 8 years.As a result of the above, Gold must:

Accepted Answer

A) Include $40,000 in gross income. 
B) Reduce the basis in its assets by $40,000. 
C) Include $25,000 in gross income and reduce its basis in its assets by $15,000. 
D) Include $15,000 in gross income and reduce its basis in the building by $25,000. 
E) None of the above. 
A) Include $40,000 in gross income. 
B) Reduce the basis in its assets by $40,000. 
C) Include $25,000 in gross income and reduce its basis in its assets by $15,000. 
D) Include $15,000 in gross income and reduce its basis in the building by $25,000. 
E) None of the above.

Heather's interest and gains on investments for 2012 were as follows: Heather's gross income from the above is:

The exclusion for health insurance premiums paid by the employer applies to:

In the case of interest income from state and Federal bonds:

Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Section 119 excludes the value of meals from the employee's gross income:

Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

If a scholarship does not satisfy the requirements for a gift, the scholarship must be included in gross income.

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters

Exam 5: Gross Income: Exclusions

Heather's interest and gains on investments for 2012 were as follows: Heather's gross income from the above is:

The exclusion for health insurance premiums paid by the employer applies to:

In the case of interest income from state and Federal bonds:

Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Section 119 excludes the value of meals from the employee's gross income:

Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

If a scholarship does not satisfy the requirements for a gift, the scholarship must be included in gross income.

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S: Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters