Question 1

The receipt of prizes and awards is generally taxable.

Accepted Answer

A) True 
 B)False

Question 2

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)  Tax basis of the property and selling expenses. 
E)  All of the choices are correct.

Question 3

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

Accepted Answer

A)  Dave is taxed on $62,000 of plumbing income this year. 
B)  Steve is taxed on $62,000 of plumbing income this year. 
C)  Steve is taxed on $62,000 of income from gifts received this year. 
D)  Dave may deduct the $62,000 received by Steve. 
E)  None of the choices are true.

Question 4

U.S.citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

Accepted Answer

A) True 
 B)False

Question 5

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Accepted Answer

A) True 
 B)False

Question 6

Barney and Betty got divorced this year.In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage).What amount (if any)is included in Barney's gross income this year?

Accepted Answer

A)  $24,000 
B)  $50,000 
C)  $74,000 
D)  $170,000 
E)  None of the payments are included in gross income

Question 7

Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates,Attorneys at Law.The scholarship pays Simon's tuition ($7,000 per semester),fees ($500 per semester),and a $4,500 per semester stipend to pay for food and housing.In order to qualify for the stipend,Simon must work 10 hours per week at Gary Harris & Associates during the term.How much of the scholarship is Simon required to include in gross income?

Accepted Answer

The answer of Simon was awarded a scholarship to attend...

Question 8

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

Accepted Answer

A) True 
 B)False

Question 9

Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family.Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds (Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year).Finally,Teresa's parents paid off $50,000 of her student loans debt including $2,000 of accrued interest.What amount,if any,must Teresa include in gross income this year?

Accepted Answer

The answer of Teresa was married on November 1 of...

Question 10

Helen is a U.S.citizen and CPA,who moved to London,England three years ago to work for a British company.This year,she spent the entire year in London and earned a salary of $110,000.How much of her salary will she be allowed to exclude from gross income in the U.S.?

Accepted Answer

A)  $82,000. 
B)  $102,100. 
C)  $105,500. 
D)  $108,000. 
E)  All of her salary is included in gross income.

Question 11

Vincent is a writer and U.S.citizen.After being out of work for the 1ˢᵗ half of the year,Vincent moved permanently to Ireland on July 4.He worked for an Irish magazine and earned $110,000 in salary from July 4ᵗʰ - December 31ˢᵗ.Earlier in April of this year Vincent received a $1,500 refund of the $3,600 in state income taxes his previous employer withheld from his pay last year.Vincent claimed $7,100 in itemized deductions last year (the standard deduction for a single filer was 6,300).Vincent wants to elect to use the foreign-earned income exclusion to the extent he is eligible.Calculate Vincent's gross income for this year.(Round your final answer to the nearest whole dollar amount and assume there are 365 days in the year.)

Accepted Answer

The answer of Vincent is a writer and U.S.citizen.After being...

Question 12

Sam,age 45,saved diligently for his college education by putting part of his pay into U.S.Series EE saving 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 at least some portion of 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 13

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Accepted Answer

A)  The expected return is divided by the number of payments. 
B)  The original investment is divided by the prevailing interest rate. 
C)  The original investment is divided by the number of payments. 
D)  The expected return is divided by the prevailing interest rate. 
E)  None of the choices are correct.

Question 14

This year Zach was injured in an auto accident.As a result,he received the following payments. Zach received $18,000 of disability pay.Zach has disability insurance provided by his employer as a nontaxable fringe benefit.Zach's employer paid $4,300 in disability premiums for Zach this year.
Zach's hospital bills totaled $4,500 and were paid by his health insurance.Zach has health insurance provided by his employer as a nontaxable fringe benefit.Zach's employer paid $6,250 in health insurance premiums for Zach this year.
What amount must Zach include in his gross income?

Accepted Answer

A)  $22,500 
B)  $18,000 
C)  $4,500 
D)  $10,550 
E)  Zero - none of the benefits are included in gross income.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years.The annuity was purchased at a cost of $300,000.How much of the first quarterly payment will Fran include in her gross income?

Accepted Answer

A)  $7,500 
B)  $4,500 
C)  $12,000 
D)  $32,400 
E)  None of the choices are correct.

Question 17

Ben's employer offers employees the following benefits.What amount must Ben include in his gross income?

Accepted Answer

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

Question 18

Emily is a cash basis taxpayer,and she was an especially productive salesperson last year.In December of last year her supervisor told Emily she had earned a $5,000 bonus.However,Emily received the bonus check after year end.Identify the principle that will determine when Emily is taxed on the bonus:

Accepted Answer

A)  Assignment of income. 
B)  Constructive receipt. 
C)  Return of capital principle. 
D)  Wherewithal to pay. 
E)  All of the choices are correct.

Question 19

Wilma has a $25,000 certificate of deposit (CD)at the local bank.The interest on this certificate,$1,000,was credited to her account this year but she must pay an early withdrawal penalty if she cashes in the CD before next year.Which of the following is a true statement?

Accepted Answer

A)  Wilma must include the $1,000 of interest in her income this year. 
B)  Wilma must include the $1,000 of interest in her income when she cashes the CD. 
C)  Wilma must include the $1,000 of interest in her income this year only if the bank waives the early withdrawal penalty. 
D)  Wilma must include the $1,000 of interest in her income next year if she does not pay the early withdrawal penalty. 
E)  All of the choices are true.

Question 20

Juan works as a landscaper for local businesses on weekends,and he often provides services in exchange for property.This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services,$3,570 of groceries,and a certificate of deposit (C.D.)for $4,050.The C.D.matures next year with interest.Finally,Juan received a gift card that can only be applied for $850 of clothing at a local mall.Juan has only applied the gift card to purchase $100 of clothing.Compute Juan's gross income assuming that he uses the cash basis of accounting.

Accepted Answer

The answer of Juan works as a landscaper for local...

Exam 5: Gross Income and Exclusions

The receipt of prizes and awards is generally taxable.

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

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

U.S.citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Barney and Betty got divorced this year.In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage) .What amount (if any) is included in Barney's gross income this year?

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

Helen is a U.S.citizen and CPA,who moved to London,England three years ago to work for a British company.This year,she spent the entire year in London and earned a salary of $110,000.How much of her salary will she be allowed to exclude from gross income in the U.S.?

Sam,age 45,saved diligently for his college education by putting part of his pay into U.S.Series EE saving 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 is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

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

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years.The annuity was purchased at a cost of $300,000.How much of the first quarterly payment will Fran include in her gross income?

Ben's employer offers employees the following benefits.What amount must Ben include in his gross income?

Wilma has a $25,000 certificate of deposit (CD) at the local bank.The interest on this certificate,$1,000,was credited to her account this year but she must pay an early withdrawal penalty if she cashes in the CD before next year.Which of the following is a true statement?