Exam 3: Income Sources

Leroy purchased an annuity from an insurance company for $42,000. He has been receiving $940 monthly from the annuity. Leroy began receiving the payments when he was 72 years old and he has now received annuity payments for 13.33 years. How much of each subsequent $940 payment must Leroy include in his gross income? I.The Capital Recovery Concept explains the result. II.Leroy may exclude 100% of the annuity payments received. III.Leroy must recognize 100% of the annuity payments received. IV.Leroy will continue to recognize the same amount that he recognized in all prior years. ​

As a result of their 2017 divorce agreement, Carlos made the following payments to Michelle, his former wife in 2018: How much gross income should Michelle report as a result of the above transfers? - He transferred the family car to Michelle. The car cost them $\$ 20,000$ and was worth $\$ 10,000$ at the time that he gave it to Michelle. -Carlos paid Michelle 12 monthly cash payments of $\$ 1,000$ each. These payments are to continue as long as Michelle lives or until their son is age 19 . When their son attains age 19, the payments will be reduced to $\$ 600$ a month. -On June 6, Carlos paid Michelle a single cash payment of $\$ 70,000$ to help her settle in a new home. Carlos kept the family home.

Which of the following items is a capital asset in the hands of the taxpayer?

Which of the following payments received on December 31, 2018, would be recognized by a cash basis taxpayer in 2018, but would not be recognized in 2018 by an accrual basis taxpayer? I.Checks received from customers for services rendered during November and December 2018. The checks are deposited in the bank account on January 4, 2019. II.Checks received from customers for services to be rendered during 2019. The checks are received in the morning mail and deposited in the bank account on December 31, 2018. III.A check received from a customer for a service contract. The services under the contract are to be rendered over 24 months, beginning in January 2019. The check is deposited in the bank account on January 4, 2018. ​

Marvin and Simone are a retired couple living on income from their investments and Social Security benefits. During the current year, they receive the following: Marvin and Simone's adjusted gross income is: Consulting fee from Burton Industries \ 35,000 Interest on municipal bonds 7,000 Social Security benefits 20,000

The income tax treatment of payments from annuity contracts is based on the: I.Capital Recovery Concept II.Assignment of Income Doctrine III.Annual Accounting Period Concept IV.Arm's-Length Transaction Concept ​

Boris, a single individual, has two sales of stock during the current year. The first sale produces a short-term loss of $27,000 and the second sale results in a long-term gain of $57,000. Boris's taxable income without considering the gain is $125,000. Boris's stock transactions will increase his taxable income by:

The income tax concept that is primarily responsible for the treatment of installment sales of property is the:

Todd and Fiona are negotiating a divorce settlement. Todd has offered to pay Fiona $12,000 each year for 10 years, but payments cease upon Fiona's death. What are the tax implications of this proposition assuming is finalized in 2018? I.Fiona must recognize Gross Income when the money is received. II.Todd has a deduction for Adjusted Gross Income in the year of payment. III.Since the payments are in cash and there is no obligation to pay more after Fiona's death, the payments are classified as alimony. IV.If the payments qualify as child support, Fiona recognizes no gross income and Todd has no deduction from Adjusted Gross Income. ​

Match each statement with the correct term below. -Percentage of completed contract method

How much gross income does Faith have from the following items of economic income? ? - Received cash gift of $\$ 6,000$ from parents. - Received $\$ 12,000$ in alimony payments from former spouse (2017 agreement). - Received $\$ 18,000$ in child support payments from former spouse (2017 agreement). - Won $\$ 6,000$ in a slot machine in Las Vegas. - Faith's vacation home on Lake Tahoe increased in value by $\$ 15,000$ . - Collected $\$ 14,000$ in unempl oyment benefits.

Andy has the following capital gains and losses during the current year: Andy's capital gains and losses will Short-term capital gain \ 4,000 Short-term capital loss (9,000) Collectibles loss (2,000) Long-term capital gain 1,000

Andrea has the following capital gains and losses during the current year: For tax calculation purposes, the net result of the above is: $\begin{array}{lc}\text { Short-term capital loss } & \$(4,000) \\\text { Collectibles gain } & 6,000 \\\text { Long-term capital gain } & 2,000\end{array}$

Elise sells a painting that has a fair market value of $9,000 to Jon for $6,000. Which of the following statements about the tax effect of the sale is/are correct? I.If Jon is an employee of Elise's, no income is recognized from the sale. II.If Jon is Elise's brother, Jon does not recognize any income from the sale. ​

Stephanie and Matt are married with no children. During 2018, they have total gross income of $140,000. Their allowable deductions for adjusted gross income total $6,000 and they have $16,000 of allowable itemized deductions. Compute Stephanie and Matt's 2018 taxable income and 2018 income tax liability. a.Assume that in addition to the above information, Stephanie sold some land that she had held as an investment at a gain of $5,000. What is the effect of the gain on their taxable income and income tax liability? You do not need to recalculate, just explain the general effect of the sale of the land. b.Assume the same facts as in part (a) and that Matt also sold some stock he purchased several years ago at a $12,000 loss. What is the effect of the gain on the land and the loss on the stock on their taxable income? Explain.

Sonya and Butch divorce during 2018. Their 2018 divorce agreement requires Sonya to pay Butch alimony of $2,500 monthly. When their son, Bubba, attains the earliest of either the age 23 or graduates from college, the payments will cease. I.Butch must recognize gross income of $2,500 monthly. II.Sonya may deduct $2,500 monthly from her gross income. III.Butch will not recognize any gross income due to the payments. ​

Which of the following interest-free loans is subject to the imputed interest rules? I.Lena needed $5,000 to pay off some gambling debts. Her employer loans her the $5,000. II.Sherry loans her son $130,000 to purchase a motor home to use in his landscaping business. Her son has no investment income for the year. ​

An accrual basis taxpayer does not have income until there is an actual or constructive receipt of income earned.

Net collectibles gains are taxed at a maximum rate of 25 percent.

Brandon and Judy divorce during the year and agree that Brandon will pay Judy $24,000 a year in alimony. Brandon will be able to reduce his income by $24,000, but Judy does not have to report any income since it was not earned..