Exam 4: Gross Income: Concepts and Inclusions

Jay, a single taxpayer, retired from his job as a public school teacher in 2012.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?

The Purple & Gold Gym, Inc., uses the accrual method of accounting.The corporation sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $360 ($360/12 = $30 per month); a two-year membership costs $600 ($600/24 = $25 per month).Cash payment is required at the beginning of the membership period. On July 1, 2012, the company sold a one-year membership and a two-year membership.The company should report as gross income from the two contracts:

Paula transfers stock to her former spouse, Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000.Fred later sells the stock for $100,000.Fred's recognized gain from the sale of the stock is $5,000.

Jim and Nora, residents of a community property state, were married in early 2010.Late in 2010 they separated, and in 2012 they were divorced.Each earned a salary, and they received income from community owned investments in all relevant years.They filed separate returns in 2010 and 2011.

In January 2012, Tammy purchased a bond due in 24 months.The cost of the bond is $857 and its maturity value is $1,000.No interest is paid each year, but the compound interest rate on the bond is 8%.Tammy also purchased a Series EE United States Government bond for $558, with a maturity value in 10 years of $1,000.This is the only Series EE bond she has ever owned.The Series EE bond is sold to yield 6% interest.Tammy is 13 years old and has no other source of income.She is claimed as a dependent by her parents.Compute Tammy's gross income from the bond and Series EE bond for 2012.

Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift, March 31, 2012, the accrued interest on the bond was $100. On December 31, 2012, Brent collected $400 interest on the bond.Brent must include in gross income the $300 interest earned after the date of the gift.

On November 1, 2012, Bob, a cash basis taxpayer, gave Dave common stock. On October 30, 2012, the corporation had declared the dividend payable to shareholders of record as of November 22, 2012.The dividend was paid on December 15, 2012.The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock.When Dave collected the dividend on December 15, 2012:

Mark is a cash basis taxpayer. He is a partner in the M&M partnership, and his share of the partnership's profits for 2012 is $90,000.Only $40,000 was distributed to him in January 2012, and this was his share of the 2011 partnership profits. None of the 2012 profits were distributed although Mark's share of the 2012 profits was $90,000.Mark's gross income from the partnership for 2012 is $40,000.

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement, Emily received sole ownership of their personal residence.This property transfer is classified as a property settlement rather than as alimony as the transfer was a result of a divorce.

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:

Dick and Jane are divorced in 2011.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 2012, 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?

Barney painted his house which saved him $3,000. According to the realization requirement, Barney must recognize $3,000 of income.

After the divorce, Jeff was required to pay $18,000 per year to his former spouse, Darlene, who had custody of their child. Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year, Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

The alimony rules:

Rachel owns rental properties.When Rachel rents to a new tenant, she usually requires the tenant to pay an amount in addition to the first month's rent.The additional amount serves as security for damages to the property and the tenant's failure to pay future rents.How should the payments be characterized (e.g., on lease documents) to minimize Rachel's current tax liability?

In some foreign countries, the tax law specifically designates the types of income items that are includible in gross income.How does this approach compare with the U.S.Internal Revenue Code (§ 61)? What is a major advantage to the approach used in the U.S.tax law?

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

The taxable portion of Social Security benefits is dependent upon:

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

The tax concept and economic concept of income are in agreement on which of the following: