Question 1

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Accepted Answer

A) True 
 B)False

Question 2

Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?

Accepted Answer

A)  $5,500 
B)  $20,000 
C)  $50,000 
D)  $70,000 
E)  $75,500 
A)  $5,500 
B)  $20,000 
C)  $50,000 
D)  $70,000 
E)  $75,500

Question 3

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years. Charles paid $180,000 for the annuity. How much of the first $20,000 payment should Charles include in gross income?

Accepted Answer

$5,000
Explanation: A part of each payme

Question 4

Hank is a U.S. citizen and is doing a three to six year assignment as a sales executive in Paris for a French company, which began this year. Hank earned $109,500 working for the French company this year but only lived in France for 340 days (out of 365 days). What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the U.S.? (rounded to the nearest one-hundred dollars)

Accepted Answer

A)  Hank can exclude his entire salary because he worked more than 330 days overseas 
B)  102,000 
C)  94,400 
D)  101,300 
E)  None of his salary can be excluded from gross income because Hank must reside overseas for the entire year 
A)  Hank can exclude his entire salary because he worked more than 330 days overseas 
B)  102,000 
C)  94,400 
D)  101,300 
E)  None of his salary can be excluded from gross income because Hank must reside overseas for the entire year

Question 5

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share) at the time she started working when the stock price was $14 per share. Now that the share price is $20 per share, she exercises all of her options. If Hazel holds the shares for two years and sells them when the market price is $25, how much gain will Hazel recognize on the sale and how much tax will she pay assuming her marginal tax rate is 25 percent?

Accepted Answer

$1,000 and $150.
Explanation:

Question 6

When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is true regarding stock options?

Accepted Answer

A)  A loss is realized when stock options lapse. 
B)  There is typically no tax effect on the grant date. 
C)  Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D)  The bargain element on a nonqualified option is taxed to employees at capital gain rates. 
A)  A loss is realized when stock options lapse. 
B)  There is typically no tax effect on the grant date. 
C)  Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D)  The bargain element on a nonqualified option is taxed to employees at capital gain rates.

Question 8

This year Ed celebrated his 25th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Accepted Answer

A)  $2,250 
B)  $2,000 
C)  $250 
D)  Zero if Ed offers to contribute his watch and bonus to a qualified charity 
E)  Zero - all employee awards are excluded from gross income 
A)  $2,250 
B)  $2,000 
C)  $250 
D)  Zero if Ed offers to contribute his watch and bonus to a qualified charity 
E)  Zero - all employee awards are excluded from gross income

Question 9

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Accepted Answer

A) True 
 B)False

Question 10

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. What is the amount of Maren's bargain element?

Accepted Answer

A)  $0. 
B)  $700. 
C)  $900. 
D)  $1,500. 
E)  None of the above. 
A)  $0. 
B)  $700. 
C)  $900. 
D)  $1,500. 
E)  None of the above.

Question 11

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George include in his gross income?

Accepted Answer

A)  $80 
B)  $72 
C)  $48 
D)  $32 
E)  None of the above 
A)  $80 
B)  $72 
C)  $48 
D)  $32 
E)  None of the above

Question 12

Prizes and awards are generally taxable.

Accepted Answer

A) True 
 B)False

Question 13

For tax purposes, unearned income means income that has not yet been realized.

Accepted Answer

A) True 
 B)False

Question 14

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Accepted Answer

A) True 
 B)False

Question 15

Ben's employer offers employees the following benefits. What amount must Ben include in his gross income? $$\begin{array} { | l | r | } 
\hline \text { Benefit } & \text { Value } \
\hline \text { Health insurance coverage } & \$ 5,800 \
\hline \text { Group term life insurance } ( \$ 50,000 ) & 4,270 \
\hline \text { Disability insurance coverage (considered purchased by Ben) } & 3,600 \
\hline \text { Whole life insurance coverage } ( \$ 100,000 ) & 7,000 \
\hline
\end{array}$$

Accepted Answer

A)  $9,400 
B)  $11,070 
C)  $10,600 
D)  $7,000 
E)  Zero - none of the above benefits is included in gross income 
A)  $9,400 
B)  $11,070 
C)  $10,600 
D)  $7,000 
E)  Zero - none of the above benefits is included in gross income

Question 16

Worker's compensation benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 17

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4%, which of the following is correct?

Accepted Answer

A)  Janine recognizes $200 of taxable interest income. 
B)  Janine's employer recognizes $200 of deductible interest expense. 
C)  Janine recognizes $200 of imputed compensation income. 
D)  Janine recognizes $200 of imputed dividend income. 
E)  None of the above. 
A)  Janine recognizes $200 of taxable interest income. 
B)  Janine's employer recognizes $200 of deductible interest expense. 
C)  Janine recognizes $200 of imputed compensation income. 
D)  Janine recognizes $200 of imputed dividend income. 
E)  None of the above.

Question 18

Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k) accounts than employees who are not 50 years old by year end.

Accepted Answer

A) True 
 B)False

Question 19

Loretta received $6,200 from disability insurance that she purchased directly this year. Loretta must include all $6,200 in her gross income.

Accepted Answer

A) True 
 B)False

Question 20

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

Accepted Answer

A) True 
 B)False

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years. Charles paid $180,000 for the annuity. How much of the first $20,000 payment should Charles include in gross income?

When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Which of the following is true regarding stock options?

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George include in his gross income?

Prizes and awards are generally taxable.

For tax purposes, unearned income means income that has not yet been realized.

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Worker's compensation benefits are excluded from gross income.

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4%, which of the following is correct?

Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k) accounts than employees who are not 50 years old by year end.

Loretta received $6,200 from disability insurance that she purchased directly this year. Loretta must include all $6,200 in her gross income.

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Exam 5: Gross Income and Exclusions

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income?

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years. Charles paid $180,000 for the annuity. How much of the first $20,000 payment should Charles include in gross income?

When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Which of the following is true regarding stock options?

This year Ed celebrated his 25th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George include in his gross income?

Prizes and awards are generally taxable.

For tax purposes, unearned income means income that has not yet been realized.

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Worker's compensation benefits are excluded from gross income.

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4%, which of the following is correct?

Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k) accounts than employees who are not 50 years old by year end.

Loretta received $6,200 from disability insurance that she purchased directly this year. Loretta must include all $6,200 in her gross income.

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?