Question 1

Jerry's wife dies in September. His wife had paid $20,000 of premiums on a $150,000 face value whole life insurance policy. Jerry elects to receive the life insurance policy proceeds in 20 annual installments of $10,000. Jerry receives his first $10,000 payment this year. How much of the payment should Jerry report as gross income?

Accepted Answer

A) $- 0 - 
B) $2,500 
C) $5,000 
D) $7,500 
E) $10,000

Question 2

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below.
-Tina receives 100 shares of Welby stock as a result of a 2 for 1 stock split. The shares have a value of $7,000 the day of the split.

Accepted Answer

A) Fully excluded from gross income. 
B) Fully included in gross income. 
C) Partially excluded from gross income.

Question 3

Sigma Company provides its employees with $25,000 of group-term life insurance. How much is included in gross income because of the life insurance?

Accepted Answer

A) $- 0 - 
B) $25,000 
C) $50,000 
D) The cost of the premium to purchase $25,000 of group term life insurance. 
E) The value of the premium to acquire $25,000 of group term life insurance from IRS tables.

Question 4

During the current year, Eve receives the following interest payments:
How much gross income does Eve have from the interest payments?
$$\begin{array} { l r } 
\text { City of Toronto, Ontario Bonds } & \$ 750 \
\text { Florida Tumpike Authority Bonds } & 420 \
\text { U.S. Virgin Islands Transportation Authority Bonds } & 630 \
\text { General Electric Corporate Bonds } & 850
\end{array}$$

Accepted Answer

A) $1,050 
B) $1,480 
C) $1,600 
D) $1,800 
E) $1,900

Question 5

Fran dies on January 14, 2018. Her spouse, Carl, is the beneficiary of a $100,000 life insurance policy. Carl elects to receive the proceeds in 10 equal installments of $11,000. In 2018, Carl receives $11,000. The amount included in Carl's 2018 gross income is

Accepted Answer

A) $- 0 - 
B) $1,000 
C) $10,000 
D) $11,000 
E) $111,000

Question 6

Kristine is the controller of Evans Company. Evans provides all management level employees with medical insurance through a self-insured plan. During the current year, Kristine has $2,650 in medical expenses reimbursed by the plan. The income tax effect of the reimbursements Kristine receives is:
I.Kristine excludes the value of the reimbursement.
II.Kristine includes $2,650 in her gross income.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 7

Ramona's employer pays 100% of the cost of all employees' group-term life insurance. The life insurance plan is not discriminatory. Ramona's annual salary is $100,000. What is the maximum amount of coverage that can be provided tax-free?

Accepted Answer

A) $- 0 - 
B) $5,000 
C) $10,000 
D) $50,000 
E) $100,000

Question 8

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below.
-Katrina receives $1,000 interest income from U.S. Treasury bonds that her uncle had given to her.

Accepted Answer

A) Fully excluded from gross income. 
B) Fully included in gross income. 
C) Partially excluded from gross income.

Question 9

Terri is driving down a road when she sees that Sonny is having trouble changing a tire. Terri stops and helps Sonny. As Sonny is leaving, he gives Terri $50 and thanks her. What are the effects of the $50 receipt?
I.The $50 is a gift because it is from detached and disinterested generosity.
II.The $50 is compensation received for services rendered.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 10

Cindy is an employee of Silvertone Corporation. Silvertone pays the medical insurance premiums of all of its employees. Because of large deductible levels and limitations on the payment of certain medical expenses, the basic health insurance policy does not cover all medical costs. During the current year, Silvertone adopted a Cafeteria Plan funded entirely by Silvertone. The plan provides for $3,000 per employee, and Cindy elects $2,500 for her medical costs not covered by the basic policy. She takes the remaining $500 in cash. Actual payments for Cindy's medical care of $1,500 are made from the Cafeteria Plan.
I.Cindy's gross income is increased by the $1,000 of the $2,500 allocation not used for additional medical expenses.
II.Cindy's gross income is increased by the $1,500 paid out of the Cafeteria Plan.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 11

Match each statement with the correct term below.
-Child & dependent care

Accepted Answer

A) An employee may exclude up to $5,000 annually of these employer-provided services. 
B) If cash is received under this program, taxpayers are taxed on the amount of cash received. 
C) A salary reduction plan that allows employees to pay for medical and child care costs with before-tax dollars. 
D) A transfer of property without any profit motivation with an intention that includes affection, charity, and respect. 
E) Payments made into an employee's account are not taxable in the current period; taxation is deferred until funds are withdrawn.
F)Employer provided benefit that may be excluded from income because the dollar amounts are too small for a reasonable accounting.

Question 12

Clarance rented office space to an attorney who left town before the lease was completed. The attorney left several bookcases and other improvements to cover the remaining rent. Clarance must include in income the value of the leasehold improvements to the extent of the remaining rent that was due.

Accepted Answer

A) True 
 B)False

Question 13

Eduardo and Ana Maria own their home, purchased in 2005 for $600,000. They financed the purchase with a mortgage for $550,000. In 2013 they bought a vacation cottage for $100,000, financed with a second mortgage of $95,000 on their home. In 2018, they fall upon hard times and cannot make the mortgage payments. The mortgage company sells their home for $425,000 and the cottage for $85,000. At the time of the sale, the mortgage balances are $450,000 on their home and $90,000 on their second mortgage. The mortgage company cancels the remaining debt. How much income do Eduardo and Ana Maria recognize on the cancellation of their debt?

Accepted Answer

A) $-0- 
B) $5,000 
C) $15,000 
D) $25,000 
E) $30,000

Question 14

David owes $120,000 to Second National Bank. David is having financial difficulties during the current year and Second National agrees to reduce David's debt to $80,000 to help him get his financial affairs in order and avoid bankruptcy.
I.If David's assets were $300,000 and his liabilities were $290,000 before the discharge, he is taxed on $10,000 of the $40,000 debt reduction.
II.If David's assets were $300,000 and his liabilities were $400,000 before the discharge, he is not taxed on any of the $40,000 debt reduction.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 15

Conzo is injured in an accident while working at his job. He received $1,500 in worker's compensation benefits for 5 weeks of lost work. How much should Conzo report as gross income from the receipt of these benefits?

Accepted Answer

A) $- 0 - 
B) $300 
C) $750 
D) $900 
E) $1,500

Question 16

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below.
-Frank receives $1,000 interest income from City of St Louis bonds.

Accepted Answer

A) Fully excluded from gross income. 
B) Fully included in gross income. 
C) Partially excluded from gross income.

Question 17

What are the differences between a cafeteria plan and a flexible benefits (salary reduction) plan?

Accepted Answer

The answer of What are the differences between a cafeteria...

Question 18

A college student who is a candidate for a degree may exclude the value of a scholarship received for
I.Meals.
II.Books.
III.Computer.
IV.Tuition.
V.Housing.
​

Accepted Answer

A) Statements I and V are correct. 
B) Statements II, III, and IV are correct. 
C) Only statement IV is correct. 
D) Statements II and IV is correct. 
E) Statements I, II, III, IV, and V are correct.

Question 19

Simon Leasing, Inc., an accrual basis taxpayer, owns and leases residential, business, and industrial properties. During the current year it collects $800,000 in rents on its various properties. Included in the $800,000 in rents is $80,000 of the last month's rent payments it requires on new rentals. The company also receives $30,000 of security deposits on new residential rentals. In addition, one of its business tenants pays $40,000 to cancel a long-term lease during the year.
Simon Leasing, Inc., also sold one of its industrial buildings for $1,700,000. Simon Leasing had purchased the building for $900,000 in 1986. The tenant made improvements to the building valued at $100,000 in 1986. At the termination of the original lease last year, the building was worth $1,600,000 ($150,000 of that was attributable to the improvements made by the tenant) and the adjusted basis was $500,000. The adjusted basis at the date of sale is $460,000. How much income must Simon Leasing, Inc., recognize in the current year? Explain how you arrived at the gross amount in terms of the income tax concepts.

Accepted Answer

The answer of Simon Leasing, Inc., an accrual basis taxpayer,...

Question 20

Ward and June are in the 32% tax bracket. Included in their assets is a Dell Corporation bond with a face value of $10,000. The bond pays $1,000 per year in interest. Ward and June gift the bond to their son, Wally (age 19), on January 1, 2018. Wally is in the 10% tax bracket. Wally's taxable income from the receipt of the bond and the bond interest in 2018 is

Accepted Answer

A) $-0- 
B) $1,000 
C) $1,500 
D) $10,000 
E) $11,000

Exam 4: Income Exclusions

Sigma Company provides its employees with $25,000 of group-term life insurance. How much is included in gross income because of the life insurance?

Fran dies on January 14, 2018. Her spouse, Carl, is the beneficiary of a $100,000 life insurance policy. Carl elects to receive the proceeds in 10 equal installments of $11,000. In 2018, Carl receives $11,000. The amount included in Carl's 2018 gross income is

Ramona's employer pays 100% of the cost of all employees' group-term life insurance. The life insurance plan is not discriminatory. Ramona's annual salary is $100,000. What is the maximum amount of coverage that can be provided tax-free?

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below. -Katrina receives $1,000 interest income from U.S. Treasury bonds that her uncle had given to her.

Match each statement with the correct term below. -Child & dependent care

Clarance rented office space to an attorney who left town before the lease was completed. The attorney left several bookcases and other improvements to cover the remaining rent. Clarance must include in income the value of the leasehold improvements to the extent of the remaining rent that was due.

Conzo is injured in an accident while working at his job. He received $1,500 in worker's compensation benefits for 5 weeks of lost work. How much should Conzo report as gross income from the receipt of these benefits?

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below. -Frank receives $1,000 interest income from City of St Louis bonds.

What are the differences between a cafeteria plan and a flexible benefits (salary reduction) plan?

A college student who is a candidate for a degree may exclude the value of a scholarship received for I.Meals. II.Books. III.Computer. IV.Tuition. V.Housing. ​

A college student who is a candidate for a degree may exclude the value of a scholarship received for I.Meals. II.Books. III.Computer. IV.Tuition. V.Housing.