Question 1

An accrual-basis taxpayer receives advance payment for services to be provided over three future years.The taxpayer can recognize the income over the three-year period as services are provided,consistent with its financial statements.

Accepted Answer

A) True 
 B)False

Question 2

In December 2017,Max,a cash-basis taxpayer,rents an apartment to Kadeem.Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400.The amount of income reported by Max as taxable in 2017 is

Accepted Answer

A)  $400. 
B)  $1,300. 
C)  $1,800. 
D)  $2,200.

Question 3

In 2017,Richard,a single taxpayer,has adjusted gross income of $40,200.His AGI includes $4,000 of qualified dividends.Richard has no dependents and does not itemize deductions.What is his 2017 federal income tax?

Accepted Answer

A)  $3,404 
B)  $4,011 
C)  $4,611 
D)  $4,004

Question 4

Natasha is a single taxpayer with a 28% marginal tax rate.She received distributions of earnings this year as follows:

How much of the $6,000 distribution will be taxed at the 15% tax rate?

Accepted Answer

A)  $0 
B)  $1,000 
C)  $3,000 
D)  $6,000

Question 5

In common law states,all income is split evenly between the two spouses.

Accepted Answer

A) True 
 B)False

Question 6

Billy,age 10,found an old baseball glove while exploring his new home.His father,Al,took the glove to a dealer in baseball memorabilia who verified that the glove belonged to Babe Ruth.Al sold the glove for $75,000.What tax issues should Al consider?

Accepted Answer

The answer of Billy,age 10,found an old baseball glove while...

Question 7

Becky wins a car and furniture on a television game show.The fair market value of these items is taxable to Becky.

Accepted Answer

A) True 
 B)False

Question 8

As a result of a divorce,Matthew pays Jasmine alimony of $75,000 in year one and $25,000 per year in subsequent years.How much is deductible by Matthew in year one?

Accepted Answer

A)  $25,000 
B)  $35,000 
C)  $40,000 
D)  $75,000

Question 9

Insurance proceeds received because of the destruction of property are

Accepted Answer

A)  included in gross income in all cases. 
B)  excluded from gross income completely. 
C)  included in gross income to the extent the proceeds are less than the adjusted basis of the replacement property. 
D)  included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property.

Question 10

While using a metal detector at the beach during spring break,Toni uncovered some rare coins with a current fair market value of $9,000.What are her tax consequences regarding this find?

Accepted Answer

A)  Because it was a "find" she only reports half of the FMV as income. 
B)  She reports the entire FMV as income. 
C)  Since she "found" the coins, she does not have to report any amount of income until she sells the coins. 
D)  Under the discovery rules in the tax law, she will never report any amount as taxable since the value is under $10,000.

Question 11

Jeannie,a single taxpayer,retired during the year,to take over the management of some rental property.She had the following items of income and expense:
  
What is Jeannie's adjusted gross income for the year?

Accepted Answer

The answer of Jeannie,a single taxpayer,retired during the year,to take...

Question 12

Natasha,age 58,purchases an annuity for $40,000.Natasha will receive $400 per month for the rest of her life.The expected return multiple is 20.0.At age 65,the amount that Natasha may exclude from income is

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  $2,800. 
D)  $4,000.

Question 13

Eva and Lisa each retired this year and started receiving distributions from their respective retirement plans.Eva's plan was funded with all pre-tax contributions,whereas Lisa's plan was funded with only after-tax contributions (Roth plan).With respect to the tax treatment of their retirement plan distributions,

Accepted Answer

A)  distributions from both retirement plans will be fully taxable. 
B)  Eva's distributions will be fully taxable, and Lisa's distributions will not be taxable. 
C)  Eva's distributions will not be taxable, but Lisa's distributions will be fully taxable. 
D)  neither Eva's nor Lisa's distributions will be taxable.

Question 14

Which of the following is not included in gross income when received?

Accepted Answer

A)  interest received on bank accounts 
B)  royalties paid to an author 
C)  amounts received to cancel or modify a lease 
D)  refundable security deposit

Question 15

On January 1,1997,Erika Greene purchased a single premium annuity for $15,000 that will pay her $5,000 every year for life beginning on January 1,2017.Based on actuarial tables published by the IRS,her life expectancy multiple is 10.
a.What is the amount to be excluded in Erika's income for 2017?
b.What is the amount to be excluded in Erika's income for the year 2027?

Accepted Answer

The answer of On January 1,1997,Erika Greene purchased a single...

Question 16

Reva is a single taxpayer with a taxable pension of $24,000,tax-exempt interest of $8,000,and Social Security benefits of $10,000.What is the amount of her taxable Social Security benefits?

Accepted Answer

A)  $5,000 
B)  $8,500 
C)  $7,050 
D)  $10,000

Question 17

James and Colleen have reached an agreement with Kelsey in which she will give birth to a baby and then give the baby to James and Colleen.In return,James and Colleen will pay Kelsey $40,000 cash and pay for her medical expenses.What tax issues should Kelsey consider?

Accepted Answer

The answer of James and Colleen have reached an agreement...

Question 18

Chance Corporation began operating a new retail business in the current year and had $500,000 of sales,$70,000 of which had not been collected by year-end.Total purchases were $350,000 on which $30,000 is still owed.Ending inventory is $60,000; operating expenses are $170,000,$50,000 of which is still owed at year-end.
a.Compute net income from the business under the accrual method.
b.Compute net income from the business under the cash method.
c.Would paying the $50,000 she owes for operating expenses before year-end change her net income under the accrual method? Under the cash method?

Accepted Answer

The answer of Chance Corporation began operating a new retail...

Question 19

The wherewithal-to-pay concept provides that a tax should be collected when the taxpayer has the financial resources to pay the tax.

Accepted Answer

A) True 
 B)False

Question 20

Gross income is limited to amounts received in the form of cash.

Accepted Answer

A) True 
 B)False

Exam 3: Gross Income: Inclusions

An accrual-basis taxpayer receives advance payment for services to be provided over three future years.The taxpayer can recognize the income over the three-year period as services are provided,consistent with its financial statements.

In December 2017,Max,a cash-basis taxpayer,rents an apartment to Kadeem.Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400.The amount of income reported by Max as taxable in 2017 is

In 2017,Richard,a single taxpayer,has adjusted gross income of $40,200.His AGI includes $4,000 of qualified dividends.Richard has no dependents and does not itemize deductions.What is his 2017 federal income tax?

Natasha is a single taxpayer with a 28% marginal tax rate.She received distributions of earnings this year as follows: How much of the $6,000 distribution will be taxed at the 15% tax rate?

In common law states,all income is split evenly between the two spouses.

Billy,age 10,found an old baseball glove while exploring his new home.His father,Al,took the glove to a dealer in baseball memorabilia who verified that the glove belonged to Babe Ruth.Al sold the glove for $75,000.What tax issues should Al consider?

Becky wins a car and furniture on a television game show.The fair market value of these items is taxable to Becky.

As a result of a divorce,Matthew pays Jasmine alimony of $75,000 in year one and $25,000 per year in subsequent years.How much is deductible by Matthew in year one?

Insurance proceeds received because of the destruction of property are

While using a metal detector at the beach during spring break,Toni uncovered some rare coins with a current fair market value of $9,000.What are her tax consequences regarding this find?

Jeannie,a single taxpayer,retired during the year,to take over the management of some rental property.She had the following items of income and expense: What is Jeannie's adjusted gross income for the year?

Natasha,age 58,purchases an annuity for $40,000.Natasha will receive $400 per month for the rest of her life.The expected return multiple is 20.0.At age 65,the amount that Natasha may exclude from income is

Which of the following is not included in gross income when received?

Reva is a single taxpayer with a taxable pension of $24,000,tax-exempt interest of $8,000,and Social Security benefits of $10,000.What is the amount of her taxable Social Security benefits?

James and Colleen have reached an agreement with Kelsey in which she will give birth to a baby and then give the baby to James and Colleen.In return,James and Colleen will pay Kelsey $40,000 cash and pay for her medical expenses.What tax issues should Kelsey consider?

The wherewithal-to-pay concept provides that a tax should be collected when the taxpayer has the financial resources to pay the tax.

Gross income is limited to amounts received in the form of cash.