FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 4: Gross Income

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

Turner, a successful executive, is negotiating a compensation plan with his potential employer.The employer has offered to pay Turner a $600,000 annual salary, payable at the rate of $50,000 per month.Turner counteroffers to receive a monthly salary of $40,000 $480,000 annually) and a $180,000 bonus in 5 years when Turner will be age 65.

A) If the employer accepts Turner's counteroffer, Turner will recognize $660,000 at the time the offer is accepted.
B) If the employer accepts Turner's counteroffer, Turner will recognize as gross income $55,000 per month [$480,000 + $180,000) /12].
C) If the employer accepts Turner's counteroffer, Turner will recognize $40,000 income each month for the year and $180,000 in year 5.
D) If the employer accepts Turner's counteroffer, Turner must recognize imputed interest income on the $180,000 to be received in 5 years.
E) None of these.

F) A) and B)
G) C) and D)

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Tonya is a cash basis taxpayer.In 2018, she paid state income taxes of $8,000.In early 2019, she filed her 2018 state income tax return and received a $900 refund.

A) If Tonya itemized her deductions in 2018 on her Federal income tax return, she should amend her 2018 return and reduce her itemized deductions by $900.
B) If Tonya itemized her deductions in 2018 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $900, the refund will not affect her 2019 tax return.
C) If Tonya itemized her deductions in 2018 on her Federal income tax return, she must amend her 2018 Federal income tax return and use the standard deduction.
D) If Tonya itemized her deductions in 2018 on her Federal income tax return and her itemized deductions exceeded the standard deduction by more than $900, she must recognize $900 income in 2019 under the tax benefit rule.
E) None of these.

F) B) and C)
G) A) and E)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

In 2008, Terry purchased land for $150,000.In 2018, Terry received $10,000 from a local cable television company in exchange for Terry allowing the company to run an underground cable across Terry's property.Terry is not required to recognize income from receiving the $10,000 because it was a return of his capital invested in the land.

During the year, Irv had the following transactions:

The Maroon & Orange Gym, Inc., uses the accrual method of accounting.The corporation sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $480 $480/12 = $40 per month) ; a two-year membership costs $720 $720/24 = $30 per month) .Cash payment is required at the beginning of the membership period.On July 1, 2018, the company sold a one-year membership and a two-year membership.For financial reporting purposes, Maroon reports the membership income ratably over the number of months involved.The company should report as gross income from the two contracts:

Jessica is a cash basis taxpayer.When Jessica failed to repay a loan, the bank garnished her salary.Each week $60 was withheld from Jessica's salary and paid to the bank.Jessica is required to include the $60 each week in her gross income even though it is the creditor that benefits from the income.

The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not assure that the method will be acceptable for tax purposes.

The realization requirement gives an incentive to own assets that have increased in value and to sell assets whose value has decreased.

At the beginning of 2018, Mary purchased a 3-year certificate of deposit CD) for $8,760.The maturity value of the certificate was $10,000 and it was to yield 4.5%.She also purchased a Series EE bond for $6,400 with a maturity value in 10 years of $10,000.Mary must recognize $1,240 of income from the certificate of deposit in 2018, and $3,600 from the Series EE bonds in 2027.

In the case of a below-market gift loan for which there is no exception to the imputed interest rules, the lender is deemed to have received interest income even though no interest is charged and collected.

Barney painted his house which saved him $3,000.According to the realization requirement, Barney must recognize $3,000 of income.

In January 2018, Tammy purchased a bond due in 24 months.The cost of the bond is $857 and its maturity value is $1,000.No interest is paid each year, but the compound interest rate on the bond is 8%.Tammy also purchased a Series EE United States Government bond for $558, with a maturity value in 10 years of $1,000.This is the only Series EE bond she has ever owned.The Series EE bond is sold to yield 6% interest.Tammy is 13 years old and has no other source of income.She is claimed as a dependent by her parents.Compute Tammy's gross income from the bond and Series EE bond for 2018.

Gull Corporation was undergoing reorganization under the bankruptcy laws.The shareholders, who had made loans of $300,000 to the corporation, agreed to accept additional stock with a value of $200,000 instead of repayment on the debt.The Old Line Insurance Company, which had a $400,000 mortgage on the building, agreed to reduce the principal to $250,000.A trade creditor with a receivable of $150,000 from the company agreed to accept $70,000 in full payment for the debt incurred to purchase goods that were still on hand.Finally, the company transferred some equipment with an adjusted basis of $90,000 in satisfaction of a liability for $120,000.Compute the corporation's gross income and other adjustments necessary as a result of the above transactions.

Tom, a cash basis taxpayer, purchased a bond on March 31 for $10,000, plus $100 accrued interest.In December, Tom collected $500 interest from the bond.Tom's interest income from the bond for the year is $500.

Juan, was considering purchasing an interest in a tax-exempt bond fund for $100,000, when he discovered that the interest must be included on his state income tax return.The interest rate is 5%.His marginal Federal tax rate is 35%, and his marginal state income tax rate is 10%.Juan itemizes his deductions on his Federal income tax return.As an alternative, Juan can purchase a state bond a "double-exempt bond") yielding 4.9% interest that is exempt from both Federal and state income tax.Which investment would yield the greater after-tax return?

On December 1, 2018, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2018 and $12,000 for January 2019.Daniel must include the $24,000 in 2018 gross income.

The constructive receipt doctrine requires that income be recognized when it is made available to the cash basis taxpayer, although it has not been actually received.The constructive receipt doctrine does not apply to accrual basis taxpayers.

In December 2018, Todd, a cash basis taxpayer, paid $1,200 of fire insurance premiums for the calendar year 2019 on a building he held for rental income.Todd deducted the $1,200 of insurance premiums on his 2018 tax return.He had $150,000 of taxable income that year.On June 30, 2019, he sold the building and, as a result, received a $500 refund on his fire insurance premiums.As a result of the above:

Turquoise Company purchased a life insurance policy on the company's chief executive officer, Joe.After the company had paid $400,000 in premiums, Joe died and the company collected the $1.5 million face amount of the policy.The company also purchased group term life insurance on all its employees.Joe had included $16,000 in gross income for the group term life insurance premiums.Joe's widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy.

A sole proprietorship purchased an asset for $1,000 in 2018 and its value was $1,500 at the end of 2018.In 2019, the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2019 but an economic loss of $100 in 2019.