Question 1

In X8, Erin had the following capital gains (losses)from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000)LTCL, and ($15,000)STCL.What is the amount and nature of Erin's capital gains and losses?

Accepted Answer

A) $3,000 net short-term capital gain 
B) $3,000 net long-term capital loss 
C) $4,000 net short-term capital gain 
D) $4,000 net long-term capital loss 
E) None of the choices are correct

Question 2

Barter clubs are an effective means of avoiding realization for tax purposes.

Accepted Answer

A) True 
 B)False

Question 3

A portion of each payment from a purchased annuity represents income.

Accepted Answer

A) True 
 B)False

Question 4

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

Accepted Answer

A) True 
 B)False

Question 5

To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

Accepted Answer

A) Tax basis of the property. 
B) Selling expenses. 
C) Amount realized. 
D) All of these choices are correct. 
E) Both tax basis of the property and selling expenses.

Question 6

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 7

Rhett made his annual gambling trip to Uwin Casino.On this trip Rhett won $250 at the slots and $1,200 at poker.Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers.What amount must Rhett include in his gross income?

Accepted Answer

A) $1,450 
B) $1,200 
C) $750 
D) $250 
E) Zero-gambling winnings are not included in gross income

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

Question 9

An employee may exclude up to a 40 percent employer-provided discount on services.

Accepted Answer

A) True 
 B)False

Question 10

Irene's husband passed away this year.After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband's stock portfolio, worth $750,000.What amount must Irene include in her gross income?

Accepted Answer

A) $1 million 
B) $750,000 
C) $500,000 
D) Zero but only if Irene does not opt to receive the life insurance proceeds in a lump sum 
E) Zero-none of these benefits are included in gross income

Question 11

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S.Series EE savings bonds.Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200.He has no other income this year.What amount must Sam include in his gross income?

Accepted Answer

A) $7,200. 
B) $6,500. 
C) A maximum of $350 if Sam uses the proceeds to pay for his college tuition and fees. 
D) $700 unless Sam uses the proceeds to pay for his college tuition and fees. 
E) Zero-proceeds from cashing bonds sold at a discount is not realized income.

Question 12

This fall Angelina, age 35, plans to attend college.To fund her tuition she cashed in Series EE savings bonds with a redemption value of $24,000 and an original cost of $16,800.Angelina plans on spending $7,200 of the proceeds to pay tuition.The redemption proceeds are Angelina's only source of income.What amount of interest must Angelina include in gross income this year?

Accepted Answer

The answer of This fall Angelina, age 35, plans to...

Question 13

Hal Gore won a $1 million prize for special contributions to environmental research.This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency.How much of the prize should Hal include in his gross income?

Accepted Answer

A) $400,000 
B) $600,000 
C) $1 million 
D) None of the choices because all prizes are excludable 
E) None of the choices because prizes from charities are excludable

Question 14

Which of the following best describes distributions from a traditional defined contribution plan?

Accepted Answer

A) Distributions from defined contribution plans are fully taxable as ordinary income. 
B) Distributions from defined contribution plans are partially taxable as ordinary income and partially nontaxable as a return of capital. 
C) Distributions from defined contribution plans are fully taxable as capital gains. 
D) Distributions from defined contribution plans are partially taxable as capital gains and partially nontaxable as a return of capital.

Question 15

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can)contribute to an employee's plan.

Accepted Answer

A) True 
 B)False

Question 16

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 180 days (out of 365 days).He will live full time in France next year.What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest $100)?

Accepted Answer

A) Hank can exclude his entire salary because he worked more than 330 days overseas 
B) $102,000 
C) $52,200 
D) $105,900 
E) None of his salary can be excluded from gross income because Hank must reside overseas for the entire year

Question 17

Jake sold his car for $2,400 in cash this year.He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

Accepted Answer

A) True 
 B)False

Question 18

This year Joseph joined the board of directors.Besides his director's fees, Joseph received the following employee benefits:
 $\begin{array} { l r } 
\text { Salary } & \$ 204,000 \
\text { Contributions to qualified pension plary } & 25,000 \
\text { Qualified health insurance premiurns } & 8,000 \
\text { Stock bonus } & 20,000 \
\text { Arnual directors fee } & 15,000 \
\text { Group-term life insurance premiurns (face } = \$ 40,000 ) & 1,800
\end{array}$ The stock bonus consisted of 5,000 shares of Bell stock given to Joseph as compensation.At the time of the transfer the stock was listed at $4 per share.What amounts, if any, should Joseph include in gross income this year?

Accepted Answer

The answer of This year Joseph joined the board of...

Question 19

In the current year, Norris, an individual, has $50,000 of ordinary income, a net short-term capital loss (NSTCL)of $10,000, and a net long-term capital gain (NLTCG)of $2,800.From his capital gains and losses, Norris reports:

Accepted Answer

A) an offset against ordinary income of $10,000. 
B) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000. 
C) an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200. 
D) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200. 
E) an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200.

Question 20

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

Accepted Answer

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

Exam 5: Gross Income and Exclusions

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL.What is the amount and nature of Erin's capital gains and losses?

Barter clubs are an effective means of avoiding realization for tax purposes.

A portion of each payment from a purchased annuity represents income.

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Rhett made his annual gambling trip to Uwin Casino.On this trip Rhett won $250 at the slots and $1,200 at poker.Also this year, Rhett made several trips to the racetrack, but he lost $700 on his various wagers.What amount must Rhett include in his gross income?

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?

An employee may exclude up to a 40 percent employer-provided discount on services.

Irene's husband passed away this year.After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband's stock portfolio, worth $750,000.What amount must Irene include in her gross income?

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S.Series EE savings bonds.Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200.He has no other income this year.What amount must Sam include in his gross income?

Which of the following best describes distributions from a traditional defined contribution plan?

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can)contribute to an employee's plan.

Jake sold his car for $2,400 in cash this year.He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

In the current year, Norris, an individual, has $50,000 of ordinary income, a net short-term capital loss (NSTCL) of $10,000, and a net long-term capital gain (NLTCG) of $2,800.From his capital gains and losses, Norris reports: