Question 1

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Accepted Answer

A) True 
 B)False

Question 2

Wayne owns a 25% interest in the capital and profits of Emerald Company (a calendar year partnership) .For tax year 2012, the partnership earned revenue of $900,000 and had operating expenses of $560,000.During the year, Wayne withdrew from the partnership a total of $90,000. He also invested an additional $20,000 in the partnership.For 2012, Wayne's gross income from the partnership is:

Accepted Answer

A)  $70,000.
B)  $85,000.
C)  $90,000.
D)  $110,000.
E)  None of the above.F) A) and E)
G) A) and B)

Question 3

With respect to income from services, which of the following is true?

Accepted Answer

A)  The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)  A cash basis taxpayer can spread the income from a 24-month service contract over the contract period.
C)  If an accrual basis taxpayer sells a 36-month service contract on July 1, 2012 for $3,600, the taxpayer's 2013 gross income from the contract is $3,000.
D)  If an accrual basis taxpayer sells a 12-month service contract on July 1, 2012, all of the income is recognized in 2012.
E)  None of the above.F) C) and D)
G) D) and E) C

Question 4

In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000.

Accepted Answer

A) True 
 B)False

Question 5

After the divorce, Jeff was required to pay $18,000 per year to his former spouse, Darlene, who had custody of their child. Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year, Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

Accepted Answer

A) True 
 B)False

Question 6

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

Accepted Answer

A) True 
 B)False  False

Question 7

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day.If Tom works, he must hire a painter for $120.For Tom to have a positive cash flow from working and hiring the painter:

Accepted Answer

A)  Tom must earn more than $160 if he is in the 25% marginal tax bracket.
B)  Tom must earn at least $160 if he is in the 33% marginal tax bracket.
C)  Tom must earn at least $150 if he is in the 25% marginal tax bracket.
D)  Tom must earn at least $135 if he is in the 15% marginal tax bracket.
E)  None of the above.F) A) and E)
G) B) and D)

Question 8

Seth, a calendar year taxpayer, purchased an annuity for $50,000 in 2010.The annuity was to pay him $3,000 on the first day of each year, beginning in 2010, for the remainder of his life.Seth's life expectancy at the time he purchased the annuity was 20 years.In 2012, Seth developed a deadly disease, and doctors estimated that he would live for no more than 24 months.

Accepted Answer

A)  If Seth dies in 2013, a loss can be claimed on his final return for his unrecovered cost of the annuity.
B)  If Seth dies in 2013, his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income.
C)  If Seth is still alive at the end of 2012, he is not required to recognize any gross income because of his terminal illness.
D)  If Seth is still alive in 2032, his recovery of capital for that year is $500.
E)  None of the above.F) B) and C)
G) A) and E)

Question 9

The tax concept and economic concept of income are in agreement on which of the following:

Accepted Answer

A)  The fair rental value of an owner-occupied home should be included in income.
B)  The increase in value of assets held for the entire year should be included in income for the year.
C)  Rent income for 2013 collected in 2012 is income for 2012.
D)  All of the above.
E)  None of the above.F) A) and D)
G) D) and E)

Question 10

For purposes of determining gross income, which of the following is true?

Accepted Answer

A)  A mechanic completed repairs on an automobile during the year and collects money from the customer.The customer was not satisfied with the repairs and sued the mechanic for a refund.The mechanic can defer recognition of the income until the suit has been settled.
B)  A taxpayer who finds a wallet full of money is not required to recognize income because someone will eventually ask for the return of the money.
C)  Embezzlement proceeds are included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)  All of the above are true.
E)  None of the above is true.F) B) and E)
G) B) and D)

Question 11

Ted was shopping for a new automobile. He found one that met his needs and agreed to purchase it for $23,000. He had shopped around and concluded that he could not get a better price from another dealer. After he had paid for the automobile, the dealer called to notify Ted that he was entitled to a manufacturer's rebate of $1,500. The next week he received a $1,500 check from the manufacturer.How much should Ted include in gross income?

Accepted Answer

Perhaps in Ted's mind he is $1,500 riche...

Question 12

Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00, when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.

Accepted Answer

However, it seems unlikely tha...

Question 13

Betty purchased an annuity for $24,000 in 2012.Under the contract, Betty will receive $300 each month for the rest of her life.According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.

Accepted Answer

A)  If Betty collects $3,000 in 2012, her gross income is $630 (.03 ´ $21,000) .
B)  Betty has no gross income until she has collected $24,000.
C)  If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income.
D)  If Betty lives to collect only 60 payments before her death, she will report a $6,000 loss from the annuity [$24,000 - (60 ´ $300)  = $6,000] on her final return.
E)  None of the above.F) B) and E)
G) C) and E) C

Question 14

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2009, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2012, she sold the bond for $10,300, which included $200 of accrued interest.

Accepted Answer

A)  Theresa's 2012 interest income from the bond is $200.
B)  Theresa has $200 of interest income and a $100 gain from the bond in 2012.
C)  Theresa has a $100 loss from the sale of the bond and no interest income.
D)  Theresa's gain on the sale of the bond is $200.
E)  None of the above.F) A) and D)
G) None of the above

Question 15

Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift, March 31, 2012, the accrued interest on the bond was $100. On December 31, 2012, Brent collected $400 interest on the bond.Brent must include in gross income the $300 interest earned after the date of the gift.

Accepted Answer

A) True 
 B)False

Question 16

The annual increase in the cash surrender value of a life insurance policy:

Accepted Answer

A)  Is taxed according to the original issue discount rules.
B)  Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
C)  Reduces the deduction for life insurance expense.
D)  Is exempt because it is life insurance proceeds.
E)  None of the above.F) A) and D)
G) B) and E)

Question 17

Margaret made a $90,000 interest-free loan to her son, Adam, who used the money to retire a mortgage on his personal residence and to buy a certificate of deposit.Adam's only income for the year is his salary of $35,000 and $1,400 interest income on the certificate of deposit.The relevant Federal interest rate is 8% compounded semiannually.The loan is outstanding for the entire year.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> (.08 ´ $105,000 ´ 1...

Question 18

Under the terms of a divorce agreement, Ron is to pay his former wife Jill $10,000 per month.The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18.During the current year, Ron paid $120,000 under the agreement.Assuming all of the other conditions for alimony are satisfied, Ron can deduct from gross income (and Jill must include in gross income)  as alimony:

Accepted Answer

A)  $120,000.
B)  $84,000.
C)  $36,000.
D)  $0.
E)  None of the above is correct.F) B) and E)
G) D) and E)

Question 19

The alimony recapture rules are intended to:

Accepted Answer

A)  Assist former spouses in collecting alimony when the other spouse moves to another state.
B)  Prevent tax deductions for property divisions.
C)  Reduce the net cash outflow for the payor.
D)  Distinguish child support payments from alimony.
E)  None of the above.F) B) and C)
G) D) and E)

Question 20

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Accepted Answer

A) True 
 B)False

Exam 4: Gross Income: Concepts and Inclusions

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Correct Answer
verified

Correct Answer
verified

With respect to income from services, which of the following is true?

Correct Answer
verified
C

In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000.

Correct Answer
verified

Correct Answer
verified

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

Correct Answer
verified
False

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day.If Tom works, he must hire a painter for $120.For Tom to have a positive cash flow from working and hiring the painter:

Correct Answer
verified

Correct Answer
verified

The tax concept and economic concept of income are in agreement on which of the following:

Correct Answer
verified

For purposes of determining gross income, which of the following is true?

Correct Answer
verified

Correct Answer
verified
Perhaps in Ted's mind he is $1,500 riche...
View Answer

Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00, when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.

Correct Answer
verified
However, it seems unlikely tha...
View Answer

Betty purchased an annuity for $24,000 in 2012.Under the contract, Betty will receive $300 each month for the rest of her life.According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.

Correct Answer
verified
C

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2009, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2012, she sold the bond for $10,300, which included $200 of accrued interest.

Correct Answer
verified

Correct Answer
verified

The annual increase in the cash surrender value of a life insurance policy:

Correct Answer
verified

Correct Answer
verified
(.08 ´ $105,000 ´ 1...
View Answer

Correct Answer
verified

The alimony recapture rules are intended to:

Correct Answer
verified

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Correct Answer
verified

Exam 4: Gross Income: Concepts and Inclusions

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

With respect to income from services, which of the following is true?

Correct AnswerverifiedC

In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

Correct AnswerverifiedFalse

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day.If Tom works, he must hire a painter for $120.For Tom to have a positive cash flow from working and hiring the painter:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The tax concept and economic concept of income are in agreement on which of the following:

Correct AnswerverifiedShow Answer

For purposes of determining gross income, which of the following is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPerhaps in Ted's mind he is $1,500 riche...View AnswerShow Answer

Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00, when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.

Correct AnswerverifiedHowever, it seems unlikely tha...View AnswerShow Answer

Betty purchased an annuity for $24,000 in 2012.Under the contract, Betty will receive $300 each month for the rest of her life.According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.

Correct AnswerverifiedC

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2009, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2012, she sold the bond for $10,300, which included $200 of accrued interest.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The annual increase in the cash surrender value of a life insurance policy:

Correct AnswerverifiedShow Answer

Correct Answerverified (.08 ´ $105,000 ´ 1...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The alimony recapture rules are intended to:

Correct AnswerverifiedShow Answer

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Perhaps in Ted's mind he is $1,500 riche...
View Answer

Correct Answer
verified
However, it seems unlikely tha...
View Answer

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
(.08 ´ $105,000 ´ 1...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified