Question 1

Punitive damage awards received because of a personal injury

Accepted Answer

A) Are the same as loss-of-income damages. 
B) Are included in gross income regardless of the cause. 
C) Will be excluded from gross income if the award resulted from a physical personal injury. 
D) Will be excluded from gross income because punitive awards are meant to punish the offender for gross negligence. 
E) Are never taxable.

Question 2

Donna is a student at Eastern State University. She receives a $4,000 academic scholarship from the Silverman Foundation. She also has a $2,000 assistantship to grade and tutor for the Department of Economics. Tuition, books, fees, and supplies are $5,000. How much gross income must Donna recognize from the scholarship and assistantship?

Accepted Answer

A) $- 0 - 
B) $1,000 
C) $2,000 
D) $5,000 
E) $6,000

Question 3

Denise receives an academic scholarship to Pollytech College. Under the scholarship agreement, she receives tuition ($1,500), books ($400), and room and board ($5,000). How much of the scholarship is included in Denise's gross income?

Accepted Answer

A) $- 0 - 
B) $400 
C) $1,500 
D) $5,000 
E) $6,900

Question 4

For each of the following situations, determine the amount of gross income that the taxpayer should recognize. Explain why any amounts are excluded from gross income.
a.Gary is an employee of G&K Electronics. G&K allows all employees to buy goods from inventory at a 20% discount. Gary purchases a television under the discount plan for $800. The television, which cost G&K $700, normally sells for $1,000.
b.Carolyn receives an $8,000 National Merit Scholarship and a $2,000 Honors at Entrance Scholarship to attend State Tech. The scholarships were given based on national testing scores and high school grades, and require no future services on Carolyn's part. Tuition and other fees are $6,500 per year at State Tech. Carolyn also pays $6,000 for room and board in University housing.
c.Donnie's employer provides free parking to certain management level employees. In 2018, Donnie's employer provided parking cost his employer $3,180.
d.Gretchen receives $5,000 of 6% City of Orlando bonds as a graduation present from her boyfriend on May 1. The bonds pay interest on June 30 and December 31. Gretchen sells the bonds at a gain of $750 in August.?

Accepted Answer

The answer of For each of the following situations, determine...

Question 5

Ally served as chairperson of the local school board. Upon completion of her term in office, the employees in the school district offices take up a collection and purchase her a silver sterling tray in recognition of her outstanding service to the organization. The value of the tray is $200. What are the tax effects of the award?
I.The value of the tray is included in gross income because of services rendered.
II.The tray is a gift because it is from a detached and disinterested generosity.
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Accepted Answer

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

Question 6

Christine, age 23, is an employee of Higgins Hardware Distributors whose annual salary is $35,000. Higgins provides employees with free group-term life insurance at twice their annual gross salary, free health and accident insurance, a qualified pension plan, and a flexible benefits plan. Christine's health and accident insurance cost Higgins $1,920. The cost of her group-term life insurance coverage is $520. Higgins pension plan allows employees to contribute up to 6% of their annual salary, which Higgins matches. Christine elects to have the maximum pension plan contribution made into the plan and has $400 of her salary paid into the flexible benefits plan. She submits medical insurance claims totaling $900 to the health insurance policy and is reimbursed $550. She receives the remaining $350 of medical insurance claims from the flexible benefits plan. How much gross income does Christine have from her employment with Higgins?

Accepted Answer

The answer of Christine, age 23, is an employee of...

Question 7

Cary is experiencing cash flow problems during the current year. Rather than foreclose on an $80,000 business loan, his bank agrees to reduce the debt to $50,000. Prior to the debt reduction, Cary's total assets were $500,000 and his total liabilities were $510,000. How much income must Cary recognize from the reduction of his bank loan?

Accepted Answer

A) - 0 - 
B) $10,000 
C) $20,000 
D) $30,000

Question 8

On April 1, Sally is given $20,000 worth of General Motors bonds for her 18th birthday. On June 30, Sally receives the $800 annual interest payment on the bonds. How much income should Sally recognize due to these two events?

Accepted Answer

A) $- 0 - 
B) $200 
C) $800 
D) $20,000 
E) $20,800

Question 9

Match each statement with the correct term below.
-Personal injury

Accepted Answer

A) Dues, uniforms, subscriptions. 
B) Intended to punish and are taxable. 
C) Taxable if from an employer-provided policy. 
D) Any personal wrong, such as libel, slander, or assault. 
E) Excludable amount limited to gross profit percentage.
F)Gratuitous and not a form of compensation for services.
G)Excludability requires that it must be a condition of employment.
H)Excluded if for compensatory payments for sickness or personal physical injury.
I)To replace lost earnings and is excluded if due to personal physical injury.
J)Excluded if provided on the employer's business premises and for the convenience of employer.

Question 10

Sundown, Inc., purchases a term life insurance plan only for its corporate officers. Harold receives $250,000 of insurance at a cost to the company of $3,500. The IRS Table of Premium value indicates that premiums are $1.08 annually per $1,000 of protection. How much gross income does Harold have from the purchase of the life insurance by Sundown, Inc.?

Accepted Answer

A) $216 
B) $270 
C) $2,800 
D) $3,500 
E) $5,000

Question 11

Moonglow, Inc., purchases a group-term life insurance plan for all its employees. Harold receives $250,000 of insurance for the current year at a cost to the company of $2,500. The IRS Table of Premium values indicates that premiums are $1.08 annually per $1,000 of protection. How much gross income does Harold have from the purchase of the life insurance by Moonglow, Inc.?

Accepted Answer

A) $216 
B) $270 
C) $2,000 
D) $2,270 
E) $2,500

Question 12

Bart's spouse, Carla, dies during the current year. Carla's life insurance policy names Bart the sole beneficiary of the $2 million proceeds. Bart invests the $2 million in a bank certificate of deposit (CD). For the current year, Bart earns $98,000 interest from the CD. What are the tax effects of these events for Bart?
I.The $98,000 is included in gross income.
II.The $2 million is included in 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 13

Robert's employer provides all of its employees a $40,000 group term life insurance policy. The cost of this policy must be included in Robert's income.

Accepted Answer

A) True 
 B)False

Question 14

Systech offered its stockholders a choice between stock and cash for their annual dividend. Since Carol has chosen stock, she does not have to include the dividend in income.

Accepted Answer

A) True 
 B)False

Question 15

During the Chili Company Christmas party, Alex is given a goose after her name was drawn from Santa's hat. The goose only cost Chili Company $40 because it was purchased from a wholesale grocer client. The price of a goose at a local supermarket is $55. Alex's gross income is

Accepted Answer

A) $- 0 - 
B) $15 
C) $40 
D) $55 
E) $95

Question 16

For each of the following situations, determine the amount of gross income that the taxpayer should recognize. Explain why any amounts are excluded from gross income.
a.Harvey is injured in an automobile accident. The driver of the other car is found to be at fault. A judge awards Harvey $10,000 for pain and suffering, $20,000 in punitive damages, and $15,000 for medical expenses. Harvey's total medical costs are $25,000 and his employer provided insurance policy pays $8,000 of the remaining medical costs. He also receives $800 of worker's compensation while he was unable to work. In addition, his employer provided insurance pays him $450 of disability pay while he recuperated and a separate plan that Harvey purchased paid $300 of disability payments.
b.Heather owes $35,000 of credit card debt to First City Bank. Heather is having financial difficulties during the current year and First City agrees to reduce her debt to $20,000 to help her get her financial affairs in order and avoid bankruptcy. Heather's assets were $100,000 and her liabilities were $110,000 before the discharge.
c.On May 1, Ernie receives 1,000 shares of Glimmer Company stock as a graduation present from his uncle. The shares have a fair market value of $5 per share on May 1. Ernie receives an additional 100 shares on July 25 as a result of a 10% stock dividend that Glimmer had declared on July 1. On December 1, Glimmer declares and distributes a $.50 per share cash dividend.
d.Garry works as a reservations clerk for Big Apple Hotels. Big Apple Hotels also owns Mideastern Airlines. Big Apple allows all employees to fly on Mideastern Airlines and to stay in Big Apple Hotels free, on a space available basis. Garry takes advantage of Big Apple's generosity and took a trip to Reno to visit the casinos. The cost of the airfare would have been $480 and the lodging would have cost $600 if he had not been an employee of Big Apple.

Accepted Answer

The answer of For each of the following situations, determine...

Question 17

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.
-Michelle's employer pays for her graduate school classes. Tuition during the year totals $2,500 (her employer does not have a qualified plan).

Accepted Answer

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

Question 18

Marge, age 35, is an employee of Troy, Inc. Her annual salary is $50,000. After considering the following list of benefits provided Marge, determine her gross income for the year.
-Marge has $\$ 2,000$ of her salary withheld and paid into the company's qualified pension plan. The company matches the contribution at the rate of $\$ .50$ for each $\$ 1.00$ paid in. 
-Group-term life insurance policy at twice her annual sal ary paid by the company. Premium cost is $\$ 1.08$ per $\$ 1,000$ of coverage.
-Health and accident insurance policy costing $\$ 1,500$ paid by the company.
-Marge elects to have $\$ 1,800$ of her salary paid into a flexible benefits plan to cover childcare costs. She incurs $\$ 2,100$ of childcare costs during the year.

Accepted Answer

A) $44,700 
B) $44,754 
C) $46,254 
D) $48,054 
E) $50,000

Question 19

Travis inherits $50,000 from his grandfather. He receives the $50,000 on January 2 and immediately invests $25,000 in General Motors bonds that pay 8% annual interest and $25,000 in West Lafayette City municipal bonds with a 6% annual interest rate. How much gross income does Travis report from these transactions?

Accepted Answer

A) $1,500 
B) $2,000 
C) $50,000 
D) $52,000 
E) $53,500

Question 20

Match each statement with the correct term below.
-Disability payment

Accepted Answer

A) Dues, uniforms, subscriptions. 
B) Intended to punish and are taxable. 
C) Taxable if from an employer-provided policy. 
D) Any personal wrong, such as libel, slander, or assault. 
E) Excludable amount limited to gross profit percentage.
F)Gratuitous and not a form of compensation for services.
G)Excludability requires that it must be a condition of employment.
H)Excluded if for compensatory payments for sickness or personal physical injury.
I)To replace lost earnings and is excluded if due to personal physical injury.
J)Excluded if provided on the employer's business premises and for the convenience of employer.

Exam 4: Income Exclusions

Punitive damage awards received because of a personal injury

Denise receives an academic scholarship to Pollytech College. Under the scholarship agreement, she receives tuition ($1,500) , books ($400) , and room and board ($5,000) . How much of the scholarship is included in Denise's gross income?

On April 1, Sally is given $20,000 worth of General Motors bonds for her 18^th birthday. On June 30, Sally receives the $800 annual interest payment on the bonds. How much income should Sally recognize due to these two events?

Match each statement with the correct term below. -Personal injury

Robert's employer provides all of its employees a $40,000 group term life insurance policy. The cost of this policy must be included in Robert's income.

Systech offered its stockholders a choice between stock and cash for their annual dividend. Since Carol has chosen stock, she does not have to include the dividend in income.

During the Chili Company Christmas party, Alex is given a goose after her name was drawn from Santa's hat. The goose only cost Chili Company $40 because it was purchased from a wholesale grocer client. The price of a goose at a local supermarket is $55. Alex's gross income is

Match each statement with the correct term below. -Disability payment