Question 1

Deb has found it very difficult to repay her loans. Because of these difficulties, the bank decided to forgive one of her most recent loans, an amount of $45,000. After the loan was discharged, Deb had total assets of $232,000 and her remaining loans total $217,000. What amount must Deb include in her gross income?

Accepted Answer

A)   $15,000
B)   $45,000
C)   $30,000
D)   $28,000
E)   Zero - Deb was not solvent when the loan was dischargedF) C) and D)
G) C) and E)

Question 2

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

Accepted Answer

A) True 
 B)False

Question 3

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

Accepted Answer

A)   $25,000.
B)   $25,000 because all prizes are taxable.
C)   Zero because prizes transferred to charities are excludible.
D)   Zero because all prizes are excludible.
E)   Zero because prizes from charities are excludible.F) C) and D)
G) B) and E)

Question 4

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Accepted Answer

A) True 
 B)False

Question 5

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 6

Caroline is retired and receives income from a number of sources. The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased. Calculate Caroline's gross income.

Accepted Answer

$ 12,350 = $ 5,400 + $ 2,300 + $ 1,900 +...

Question 7

Which of the following is not a necessary condition for income to be included in gross income?

Accepted Answer

A)   income must be realized.
B)   income must be paid in cash.
C)   income cannot be excluded by law.
D)   income must be made available to a taxpayer on the cash basis.
E)   All of the choices are correct.F) A) and D)
G) B) and E)

Question 8

Unemployment benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 9

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

Accepted Answer

A)   business income.
B)   income from a partnership.
C)   interest income.
D)   dividend income because the partnership intends to organize next year as a limited liability company.
E)   None of the choices are correct.F) B) and C)
G) C) and E)

Question 10

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of social security payments. What amount must Bart include in his gross income for the social security payments?

Accepted Answer

A)   $4,250
B)   $2,500
C)   $1,500
D)   $750
E)   ZeroF) B) and C)
G) A) and E)

Question 11

Charles and Camilla got divorced in 2018. Under the terms of the decree Charles  pays Camilla $50,000 in cash in each of the next five years (or until Camilla's death or remarriage) . In addition, Charles will transfer a castle worth $2,000,000 to Camilla and pay $12,000 per year to support their son, Clyde, until he turns 19 years old. What amount (if any)  is included in Camilla's gross income this year?

Accepted Answer

A)   $2,062,000
B)   $12,000
C)   $50,000
D)   $2,050,000
E)   None of the payments are included in gross incomeF) A) and D)
G) B) and E)

Question 12

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Accepted Answer

A)   $250,000
B)   $255,000
C)   $258,500
D)   $260,000
E)   ZeroF) None of the above
G) A) and B)

Question 13

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage) . What amount (if any)  is included in Barney's gross income this year?

Accepted Answer

A)   $24,000
B)   $50,000
C)   $74,000
D)   $170,000
E)   None of the payments are included in gross incomeF) A) and B)
G) B) and C)

Question 14

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)   16,624
C)   23,376
D)   14,546
E)   None of her salary can be excluded from gross income.F) A) and E)
G) C) and D)

Question 15

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives. Later this year Harold will recover the remainder of his cost of the annuity. Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

Accepted Answer

A)   Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income.
B)   Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity.
C)   The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity.
D)   Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy.
E)   All of the choices are correct.F) B) and C)
G) A) and C)

Question 16

Emily is a cash basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year-end. Identify the principle that will determine when Emily is taxed on the bonus:

Accepted Answer

A)   Assignment of income.
B)   Constructive receipt.
C)   Return of capital principle.
D)   Wherewithal to pay.
E)   All of the choices are correct.F) A) and D)
G) B) and D)

Question 17

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. Assuming no unusual or hardship circumstances apply, 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 of the choices are correctF) A) and D)
G) C) and D)

Question 18

This year Ed celebrated his 25ᵗʰ year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Accepted Answer

A)   $2,250.
B)   $2,000.
C)   $250.
D)   Zero if Ed offers to contribute his watch and bonus to a qualified charity.
E)   Zero - all employee awards are excluded from gross income.F) C) and D)
G) A) and B)

Question 19

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Accepted Answer

A)   The expected return is divided by the number of payments.
B)   The original investment is divided by the prevailing interest rate.
C)   The original investment is divided by the number of payments.
D)   The expected return is divided by the prevailing interest rate.
E)   None of the choices are correct.F) A) and D)
G) B) and D)

Question 20

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Accepted Answer

A) True 
 B)False

Exam 5: Gross Income and Exclusions

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Correct Answer
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Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Correct Answer
verified

Correct Answer
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This year Ed celebrated his 25ᵗʰ year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Correct Answer
verified

Correct Answer
verified

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage) . What amount (if any) is included in Barney's gross income this year?

Correct Answer
verified

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Correct Answer
verified

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of social security payments. What amount must Bart include in his gross income for the social security payments?

Correct Answer
verified

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

Correct Answer
verified

Correct Answer
verified

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

Correct Answer
verified

Correct Answer
verified

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. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Correct Answer
verified

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

Correct Answer
verified

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Correct Answer
verified

Which of the following is not a necessary condition for income to be included in gross income?

Correct Answer
verified

Unemployment benefits are excluded from gross income.

Correct Answer
verified

Correct Answer
verified

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Correct Answer
verified

Caroline is retired and receives income from a number of sources. The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased. Calculate Caroline's gross income.

Correct Answer
verified
$ 12,350 = $ 5,400 + $ 2,300 + $ 1,900 +...
View Answer

Exam 5: Gross Income and Exclusions

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Correct AnswerverifiedShow Answer

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

This year Ed celebrated his 25ᵗʰ year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Barney and Betty got divorced in 2018. In the divorce decree Betty agreed to transfer 100 shares of common stock worth $50,000 and pay Barney $24,000 per year for five years (or until Barney's death or remarriage) . What amount (if any) is included in Barney's gross income this year?

Correct AnswerverifiedShow Answer

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Correct AnswerverifiedShow Answer

Bart, a single taxpayer, has recently retired. This year, he received $24,000 in pension payments and $5,000 of social security payments. What amount must Bart include in his gross income for the social security payments?

Correct AnswerverifiedShow Answer

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

Correct AnswerverifiedShow Answer

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Ethan include in his gross income?

Correct AnswerverifiedShow Answer

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Correct AnswerverifiedShow Answer

Which of the following is not a necessary condition for income to be included in gross income?

Correct AnswerverifiedShow Answer

Unemployment benefits are excluded from gross income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Correct AnswerverifiedShow Answer

Caroline is retired and receives income from a number of sources. The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased. Calculate Caroline's gross income.

Correct Answerverified$ 12,350 = $ 5,400 + $ 2,300 + $ 1,900 +...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
$ 12,350 = $ 5,400 + $ 2,300 + $ 1,900 +...
View Answer