Question 1

Which of the following is not a requirement for an alimony deduction?

Accepted Answer

A) The payments must be in cash. 
B) The payments must cease upon the death of the payee. 
C) The payments must be pursuant to a legal obligation to provide support. 
D) The payor and payee must not live in the same household at the time of the payments. 
E) All of the above are requirements for an alimony deduction. 
A) The payments must be in cash. 
B) The payments must cease upon the death of the payee. 
C) The payments must be pursuant to a legal obligation to provide support. 
D) The payor and payee must not live in the same household at the time of the payments. 
E) All of the above are requirements for an alimony deduction.

Question 2

Mike contracted with Kram Company,Mike's controlled corporation.Mike was a medical doctor and the contract provided that he would work exclusively for the corporation.No other doctor worked for the corporation.The corporation contracted to perform an operation for Rosa for $2,400.The corporation paid Mike $2,000 to perform the operation under the terms of his employment contract.

Accepted Answer

A) Mike's gross income is $2,000. 
B) Mike must recognize the $2,400 gross income because he provided the service. 
C) Mike must recognize $2,400 gross income since the patient obviously wanted him to perform the operation. 
D) The Kram Company corporation's gross income is $400. 
E) None of the above. 
A) Mike's gross income is $2,000. 
B) Mike must recognize the $2,400 gross income because he provided the service. 
C) Mike must recognize $2,400 gross income since the patient obviously wanted him to perform the operation. 
D) The Kram Company corporation's gross income is $400. 
E) None of the above.

Question 3

In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

Accepted Answer

A) True 
 B)False

Question 4

Tom purchased a bond on March 31 for $10,000,plus $150 accrued interest.In December,Tom collected $600 interest from the bond.Tom's interest income from the bond for the year is $450.

Accepted Answer

A) True 
 B)False

Question 5

The alimony recapture rules are intended to:

Accepted Answer

A) Assist former spouses in collecting alimony when the other spouse moves to another state. 
B) Prevent tax deductions for property divisions. 
C) Protect former spouses from having a large tax liability after the payments have already been spent. 
D) Distinguish child support payments from alimony. 
E) None of the above. 
A) Assist former spouses in collecting alimony when the other spouse moves to another state. 
B) Prevent tax deductions for property divisions. 
C) Protect former spouses from having a large tax liability after the payments have already been spent. 
D) Distinguish child support payments from alimony. 
E) None of the above.

Question 6

Maroon Corporation is considering deferred compensation plans for its executive employees over age 55.All of the employees use the cash method of accounting.One plan is to allow the employee to make an election at the beginning of the year to defer 10% of his or her salary until retirement,at which time the executive would receive the deferred pay plus 6% interest.

Accepted Answer

A) The 10% of salary and the interest must be included in gross income before retirement. 
B) The employee cannot defer the income (both the salary and the interest)for tax purposes because it is constructively received each year. 
C) The employee must recognize the salary each year,but can defer the interest. 
D) The salary and the related interest can be deferred from inclusion in gross income until they are received. 
E) None of the above is correct. 
A) The 10% of salary and the interest must be included in gross income before retirement. 
B) The employee cannot defer the income (both the salary and the interest)for tax purposes because it is constructively received each year. 
C) The employee must recognize the salary each year,but can defer the interest. 
D) The salary and the related interest can be deferred from inclusion in gross income until they are received. 
E) None of the above is correct.

Question 7

The financial accounting principle of conservatism is well-suited to the task of measuring taxable income.

Accepted Answer

A) True 
 B)False

Question 8

Jerry purchased a U.S.Series EE savings bond for $279.The bond has a maturity value in 10 years of $500 and yields 6% interest.This is the first Series EE bond that Jerry has ever owned.

Accepted Answer

A) Jerry must report the interest income each year using the original issue discount rules. 
B) Jerry can report all of the $221 interest income in the year the bond matures. 
C) The interest on the bonds is exempt from Federal income tax. 
D) Jerry must report ($500 - $279)/10 = $22.10 interest income each year he owns the bond. 
E) None of the above. 
A) Jerry must report the interest income each year using the original issue discount rules. 
B) Jerry can report all of the $221 interest income in the year the bond matures. 
C) The interest on the bonds is exempt from Federal income tax. 
D) Jerry must report ($500 - $279)/10 = $22.10 interest income each year he owns the bond. 
E) None of the above.

Question 9

Paula transfers stock to her former spouse,Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $50,000 and its fair market value on the date of the transfer is $75,000.Fred later sells the stock for $78,000.Fred's recognized gain from the sale of the stock is $3,000.

Accepted Answer

A) True 
 B)False

Question 10

Margaret owns land that appreciates at the rate of 10% each year.Ralph owns a zero coupon (i.e. ,all of the interest is paid at maturity but is taxed annually)corporate bond with a yield to maturity of 10%.At the end of 10 years,the bond will mature and the land will be sold.At the end of the 10 years,

Accepted Answer

A) Margaret and Ralph will have accumulated the same after-tax amounts. 
B) Ralph will have accumulated a greater after-tax amount because the interest on the bond is tax-exempt. 
C) Margaret will have accumulated the greater after-tax amount because the gain on the land is tax-exempt. 
D) Margaret will have accumulated the greater after-tax amount but only if her marginal tax rate never exceeds 27%. 
E) Margaret will accumulate the greater after-tax amount because she earns a return on the deferred taxes. 
A) Margaret and Ralph will have accumulated the same after-tax amounts. 
B) Ralph will have accumulated a greater after-tax amount because the interest on the bond is tax-exempt. 
C) Margaret will have accumulated the greater after-tax amount because the gain on the land is tax-exempt. 
D) Margaret will have accumulated the greater after-tax amount but only if her marginal tax rate never exceeds 27%. 
E) Margaret will accumulate the greater after-tax amount because she earns a return on the deferred taxes.

Question 11

Susan purchased an annuity for $120,000.She is to receive $15,000 each year and her life expectancy is 12 years.If Susan collects under the annuity for 13 years,the entire $15,000 received in the 13th year must be included in her gross income.

Accepted Answer

A) True 
 B)False

Question 12

Turner,Inc. ,provides group term life insurance to the officers of the corporation only.Janet,a vice-president,received $400,000 of coverage for the year at a cost to Turner,Inc.of $5,600.The Uniform Premiums (based on Janet's age)are $15 a year for $1,000 protection.How much of this must Janet include in gross income this year?

Accepted Answer

A) $0. 
B) $2,700. 
C) $5,600. 
D) $6,000. 
E) None of the above. 
A) $0. 
B) $2,700. 
C) $5,600. 
D) $6,000. 
E) None of the above.

Question 13

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

Accepted Answer

A) The fair rental value of an owner-occupied home should be included in income. 
B) The increase in value of assets held for the entire year should be included in income for the year. 
C) The decrease in value of assets held for the entire year should reduce income for the year. 
D) All of the above. 
E) None of the above. 
A) The fair rental value of an owner-occupied home should be included in income. 
B) The increase in value of assets held for the entire year should be included in income for the year. 
C) The decrease in value of assets held for the entire year should reduce income for the year. 
D) All of the above. 
E) None of the above.

Question 14

An accrual basis taxpayer who owns and operates a professional basketball team cannot allocate income from season ticket sales on the basis of the number of games played during the year.

Accepted Answer

A) True 
 B)False

Question 15

An accrual basis taxpayer can defer all advance payments for services until the services are performed if the method of accounting for the services is the same for tax and financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

As a general rule:

Accepted Answer

A) Only I and II are true. 
B) Only III and IV are true. 
C) I,II,and III are true,but IV is false. 
D) I,II,III,and IV are true. 
E) None of the above is true. 
A) Only I and II are true. 
B) Only III and IV are true. 
C) I,II,and III are true,but IV is false. 
D) I,II,III,and IV are true. 
E) None of the above is true.

Question 18

Ted paid $73,600 to receive $10,000 at the beginning of each year for ten years.This would repay the principal plus 6% interest.What difference does it make whether the contract is treated as an annuity as compared to an original issue discount instrument?

Accepted Answer

As an annuity,Ted would treat $7,360 ($7

Question 19

With respect to the prepaid income from services,which of the following is true?

Accepted Answer

A) The treatment of prepaid income is the same for tax and financial accounting. 
B) A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. 
C) An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. 
D) An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less. 
E) None of the above. 
A) The treatment of prepaid income is the same for tax and financial accounting. 
B) A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. 
C) An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt. 
D) An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less. 
E) None of the above.

Question 20

Daniel,an accrual basis taxpayer,collects the rent for December 2010 and January 2011 on December 1,2010.Daniel must include the December 2010 rent but not the January 2011 rent in his 2010 gross income.

Accepted Answer

A) True 
 B)False

Exam 4: Gross Income: Concepts and Inclusions

Which of the following is not a requirement for an alimony deduction?

In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

Tom purchased a bond on March 31 for $10,000,plus $150 accrued interest.In December,Tom collected $600 interest from the bond.Tom's interest income from the bond for the year is $450.

The alimony recapture rules are intended to:

The financial accounting principle of conservatism is well-suited to the task of measuring taxable income.

Jerry purchased a U.S.Series EE savings bond for $279.The bond has a maturity value in 10 years of $500 and yields 6% interest.This is the first Series EE bond that Jerry has ever owned.

Paula transfers stock to her former spouse,Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $50,000 and its fair market value on the date of the transfer is $75,000.Fred later sells the stock for $78,000.Fred's recognized gain from the sale of the stock is $3,000.

Susan purchased an annuity for $120,000.She is to receive $15,000 each year and her life expectancy is 12 years.If Susan collects under the annuity for 13 years,the entire $15,000 received in the 13th year must be included in her gross income.

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

An accrual basis taxpayer who owns and operates a professional basketball team cannot allocate income from season ticket sales on the basis of the number of games played during the year.

An accrual basis taxpayer can defer all advance payments for services until the services are performed if the method of accounting for the services is the same for tax and financial reporting purposes.

As a general rule:

Ted paid $73,600 to receive $10,000 at the beginning of each year for ten years.This would repay the principal plus 6% interest.What difference does it make whether the contract is treated as an annuity as compared to an original issue discount instrument?

With respect to the prepaid income from services,which of the following is true?

Daniel,an accrual basis taxpayer,collects the rent for December 2010 and January 2011 on December 1,2010.Daniel must include the December 2010 rent but not the January 2011 rent in his 2010 gross income.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Exclusions

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

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

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

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

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

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

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters