Question 1

Mike received the following interest payments this year. What amount must Mike include in his gross income? (for federal tax purposes) $$\begin{array} { | l | r | } 
\hline \text { Bond } & \text { Interest } \
\hline \text { General Motors } & \$ 1,450 \
\hline \text { City of New York } & 900 \
\hline \text { State of New Jersey } & 1,200 \
\hline \text { U.S. Treasury } & 850 \
\hline
\end{array}$$

Accepted Answer

A)  $2,650 
B)  $2,350 
C)  $2,050 
D)  $2,300 
E)  $3,500

Question 2

Riley participates in his employer's 401(k) plan. He turns 70 years of age on February 15, 2016 and he plans on retiring on July 1, 2018. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Accepted Answer

A)  by April 1, 2016 
B)  by April 1, 2017 
C)  by April 1, 2018 
D)  by April 1, 2019

Question 3

Qualified fringe benefits received by an employee can be excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 4

In the current year, Norris, an individual, has $50,000 of ordinary income, a net short term capital loss (NSTCL) of $10,000 and a net long term capital gain (NLTCG) of $2,800. From his capital gains and losses, Norris reports:

Accepted Answer

A)  an offset against ordinary income of $10,000 
B)  an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000 
C)  an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200 
D)  an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200 
E)  an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200

Question 5

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

Accepted Answer

A) True 
 B)False

Question 6

Jim received a $500 refund of state income taxes this year. Jim will not need to include the $500 in his gross income this year because he did not deduct state income taxes last year.

Accepted Answer

A) True 
 B)False

Question 7

Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

Accepted Answer

A) True 
 B)False

Question 8

Capital loss carryovers for individuals are carried forward indefinitely.

Accepted Answer

A) True 
 B)False

Question 9

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

Accepted Answer

A) True 
 B)False

Question 10

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)  All of the above

Question 11

Rental income generated by a partnership is reported by partners as dividend income.

Accepted Answer

A) True 
 B)False

Question 12

Generally, long-term capital gains are taxed at:

Accepted Answer

A)  0 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent 
E)  Depending on the taxpayer's income, 0 percent, 15 percent, or 20 percent.

Question 13

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)  All of the above are true

Question 14

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Accepted Answer

A) True 
 B)False

Question 15

Bobby and Sissy got married 2.5 years ago. Since that time, they have lived in Bobby's home. Sissy sold her previous home three years ago and excluded her entire gain ($80,000) at that time. Bobby and Sissy decided to move to a bigger home this year. As a result, they sold Bobby's home for $500,000 (original cost $150,000). How much of the gain from the sale is taxable?

Accepted Answer

The answer of Bobby and Sissy got married 2.5 years...

Question 16

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

Accepted Answer

A) True 
 B)False

Question 17

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 18

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. How much of the gain is included in gross income?

Accepted Answer

A)  $550,000 
B)  $300,000 
C)  $250,000 
D)  $50,000 
E)  None

Question 19

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

Accepted Answer

The answer of Wendell is an executive with CFO Tires....

Question 20

NeNe is an accountant and U.S. citizen, who has accepted a permanent position in Madrid, Spain for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?

Accepted Answer

A)  NeNe can exclude all of the housing payment because she worked more than 330 days overseas 
B)  16,208 
C)  23,792 
D)  14,182 
E)  None of her salary can be excluded from gross income.

Exam 5: Gross Income and Exclusions

Riley participates in his employer's 401(k) plan. He turns 70 years of age on February 15, 2016 and he plans on retiring on July 1, 2018. When must Riley receive his first distribution from the plan to avoid minimum distribution penalties?

Qualified fringe benefits received by an employee can be excluded from gross income.

In the current year, Norris, an individual, has $50,000 of ordinary income, a net short term capital loss (NSTCL) of $10,000 and a net long term capital gain (NLTCG) of $2,800. From his capital gains and losses, Norris reports:

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

Jim received a $500 refund of state income taxes this year. Jim will not need to include the $500 in his gross income this year because he did not deduct state income taxes last year.

Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400.

Capital loss carryovers for individuals are carried forward indefinitely.

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the 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?

Rental income generated by a partnership is reported by partners as dividend income.

Generally, long-term capital gains are taxed at:

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?

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses, and (3) net the outcome to yield a final gain or loss to place on the tax return.

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

This year, Barney and Betty sold their home (sales price $750,000; cost $200,000) . All closing costs were paid by the buyer. Barney and Betty owned and lived in their home for 18 months. How much of the gain is included in gross income?