Question 1

In general,an individual must recognize income on his or her tax return if the transaction has economic benefit,the transaction has reached a conclusion and the income from the transaction is tax-exempt income.

Accepted Answer

A) True 
 B)False

Question 2

Payments under written dependent care assistance plans are tax-free,except that the exclusion for a single person cannot exceed his or her earned income and cannot exceed ________________.

Accepted Answer

A)  $5,000 
B)  $2,500 
C)  $5,150 
D)  $5,250

Question 3

A taxpayer must file a Schedule B (Forms 1040A or 1040)if he or she has received taxable interest of $1,550.

Accepted Answer

A) True 
 B)False

Question 4

Interest income on Series EE and Series E U.S.Savings Bonds can be reported:

Accepted Answer

A)  only at the maturity date of the bond issue. 
B)  only on an annual basis. 
C)  either at the maturity date or on an annual basis. 
D)  No need to report; this type of interest income is always tax-exempt income.

Question 5

Taxpayers are not required to "impute interest" on a deferred payment contract for which no interest,or a low rate of interest,is stated.

Accepted Answer

A) True 
 B)False

Question 6

For most individuals,interest income comes from interest-earning deposits at banks,savings and loans,or credit unions.

Accepted Answer

A) True 
 B)False

Question 7

Morris redeemed $6,000 (principal of $4,500 and interest of $1,500)of Series I Savings Bonds to pay qualified higher education expenses.His qualified expenses for the year totaled $6,500 and AGI consists of wages of $32,000.What is the amount of interest that Morris can exclude from income?

Accepted Answer

A)  $0. 
B)  $500. 
C)  $1,000. 
D)  $1,500.

Question 8

Receipt of property or services does not trigger income recognition for tax purposes.

Accepted Answer

A) True 
 B)False

Question 9

The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer.

Accepted Answer

A) True 
 B)False

Question 10

For tax purposes,income is recognized if the transaction meets three conditions: economic benefit,occurrence and completion,and not exempt from tax.

Accepted Answer

A) True 
 B)False

Question 11

Pedro agreed to repair a house for a client and started to work on December 30,2012.On January 2,2014,he completed the job and received payment from the client.Pedro must record the income in:

Accepted Answer

A)  2012. 
B)  2013. 
C)  2014. 
D)  Both 2013 and 2014.

Question 12

If Alex,an attorney,agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car,Alex and his friend will have to report income on this transaction at fair market value.

Accepted Answer

A) True 
 B)False

Question 13

Working condition fringes include:

Accepted Answer

A)  Professional organization dues paid by the employer. 
B)  Bonus earned by the employee. 
C)  The use of an employer-provided vehicle for business purposes. 
D)  Professional organization dues paid by the employer and The use of an employer-provided vehicle for business purposes.

Question 14

When filing their tax returns,almost all individuals use:

Accepted Answer

A)  The accrual method. 
B)  The cash receipts and disbursements method. 
C)  The recognition method. 
D)  The accounting method.

Question 15

If the process of a transaction begins and ends with an economic benefit for the taxpayer,he or she must report it in income even though the income is specifically exempt from tax.

Accepted Answer

A) True 
 B)False

Question 16

If Elliot,an accountant,agrees to provide tax services to a neighbor in exchange for the neighbor agreeing to fix his pool,Elliot but not his neighbor will have to report income on this transaction at fair market value.

Accepted Answer

A) True 
 B)False

Question 17

Banks and credit unions report interest income to taxpayers on Form 1099-INT.

Accepted Answer

A) True 
 B)False

Question 18

Martin redeemed $3,000 (principal of $2,000 and interest of $1,000)of Series I Savings Bonds to pay qualified higher education expenses.His qualified expenses for the year totaled $2,500 and AGI consists of wages of $20,000.What is the amount of interest that Martin must include in income? (Round interim calculations to three decimal places)

Accepted Answer

A)  $0. 
B)  $833. 
C)  $167. 
D)  $1,000.

Question 19

What is the tax liability for a taxpayer who is married filing jointly with taxable income of $67,500,that includes a taxable qualified dividend of $1,000? All answers should be rounded to the nearest dollar.

Accepted Answer

A)  $9,975. 
B)  $9,218. 
C)  $9,071. 
D)  $9,105.

Question 20

Under the cash receipts and disbursements method,the taxpayer reports income in the year:

Accepted Answer

A)  Income is received. 
B)  Income is accrued. 
C)  Income is earned. 
D)  Income is negotiated.

Exam 3: Gross Income: Inclusions and Exclusions

In general,an individual must recognize income on his or her tax return if the transaction has economic benefit,the transaction has reached a conclusion and the income from the transaction is tax-exempt income.

Payments under written dependent care assistance plans are tax-free,except that the exclusion for a single person cannot exceed his or her earned income and cannot exceed ________________.

A taxpayer must file a Schedule B (Forms 1040A or 1040)if he or she has received taxable interest of $1,550.

Interest income on Series EE and Series E U.S.Savings Bonds can be reported:

Taxpayers are not required to "impute interest" on a deferred payment contract for which no interest,or a low rate of interest,is stated.

For most individuals,interest income comes from interest-earning deposits at banks,savings and loans,or credit unions.

Morris redeemed $6,000 (principal of $4,500 and interest of $1,500) of Series I Savings Bonds to pay qualified higher education expenses.His qualified expenses for the year totaled $6,500 and AGI consists of wages of $32,000.What is the amount of interest that Morris can exclude from income?

Receipt of property or services does not trigger income recognition for tax purposes.

The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer.

For tax purposes,income is recognized if the transaction meets three conditions: economic benefit,occurrence and completion,and not exempt from tax.

Pedro agreed to repair a house for a client and started to work on December 30,2012.On January 2,2014,he completed the job and received payment from the client.Pedro must record the income in:

If Alex,an attorney,agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car,Alex and his friend will have to report income on this transaction at fair market value.

Working condition fringes include:

When filing their tax returns,almost all individuals use:

If the process of a transaction begins and ends with an economic benefit for the taxpayer,he or she must report it in income even though the income is specifically exempt from tax.

If Elliot,an accountant,agrees to provide tax services to a neighbor in exchange for the neighbor agreeing to fix his pool,Elliot but not his neighbor will have to report income on this transaction at fair market value.

Banks and credit unions report interest income to taxpayers on Form 1099-INT.

What is the tax liability for a taxpayer who is married filing jointly with taxable income of $67,500,that includes a taxable qualified dividend of $1,000? All answers should be rounded to the nearest dollar.

Under the cash receipts and disbursements method,the taxpayer reports income in the year: