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Exam 4: Gross Income: Concepts and Inclusions

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Question 41

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Mike contracted with Kram Company, Mike's controlled corporation.Mike was a medical doctor and the contract provided that he would work exclusively for the corporation.No other doctor worked for the corporation.The corporation contracted to perform an operation for Rosa for $8,000.The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

A) Mike's gross income is $6,500.
B) Mike must recognize the $8,000 gross income because he provided the service.
C) Mike must recognize $8,000 gross income since the patient obviously wanted him to perform the operation.
D) The Kram Company corporation's gross income is $1,500.
E) None of the above.

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

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Question 42

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Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon's age) , the amount is $12 per year for $1,000 of protection.The cost of an individual policy would be $15 per year for $1,000 of protection.Since Gordon paid nothing towards the cost of the $250,000 protection, Gordon must include in his 2012 gross income which of the following amounts?

A) $1,350.
B) $2,400.
C) $3,000.
D) $3,750.
E) None of the above.

F) B) and D)
G) None of the above

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Question 43

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

Daniel purchased a bond on July 1, 2012, at par of $10,000 plus accrued interest of $300.On December 31, 2012, Daniel collected the $600 interest for the year.On January 1, 2013, Daniel sold the bond for $10,200.

A sole proprietorship purchased an asset for $1,000 in 2012 and its value was $1,500 at the end of 2012. In 2013, the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2013 but an economic loss of $100 in 2013.

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement, Emily received sole ownership of their personal residence.This property transfer is classified as a property settlement rather than as alimony as the transfer was a result of a divorce.

On December 1, 2012, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2012 and $12,000 for January 2013.Daniel must include the $24,000 in 2012 gross income.

On January 1, 2012, Faye gave Todd, her son, a 36-month certificate of deposit she purchased December 31, 2010, for $8,638.Faye gave Todd 1,000 shares of ABC, Inc., on December 2, 2012.The certificate had a maturity value of $10,000 and the yield to maturity was 5%.On November 30, 2012, ABC, Inc., had declared a dividend of $1.00 payable to stockholders of record on December 5th.How much interest and dividends should Todd include in his gross income for 2012?

April, a calendar year taxpayer, is a 40% partner in Pale Partnership, whose fiscal year ends on September 30th. For the fiscal year ending September 30, 2012, the partnership had $400,000 net income and for fiscal year ending September 30, 2013, the partnership had $300,000 net income. April withdrew $100,000 in December of each year. April's gross income from the partnership for 2012 is $160,000 ($400,000 ´ 40%).

Margaret owns land that appreciates at the rate of 10% each year.Ralph owns a zero coupon (i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%.At the end of 10 years, the bond will mature and the land will be sold.At the end of the 10 years,

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.

On January 1, 2012, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months.The amount received for the contract was $2,400. The taxpayer should report $1,600 of income in 2013.

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.

Susan purchased an annuity for $200,000.She is to receive $18,000 each year and her life expectancy is 13 years.If Susan collects under the annuity for 14 years, the entire $18,000 received in the 14th year must be included in her gross income.

Ralph purchased his first Series EE bond during the year.He paid $709 for a 10-year bond with a $1,000 maturity value.The yield to maturity on the bonds was 3.5%.Ralph is not required to recognize the $291 ($1,000 - $709) original issue discount until the bond matures.However, Ralph can elect to amortize the discount over the ten-year period.

Ted loaned money to a business acquaintance. The loan was for $100,000 and was to be repaid at the rate of $13,000 each year for ten years. The effective interest rate was 5%. He also purchased an annuity contract for $100,000 that would pay him $13,000 each year for ten years. Will Ted's gross income for the first year differ with the loan as compared to the annuity contract? Explain your answer.

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

Debbie is age 67 and unmarried and her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits.Debbie's adjusted gross income for the year is:

In 2004, Terry purchased land for $150,000. In 2012, 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.

Ted and Alice were in the process of negotiating a divorce agreement.They own bonds with a basis of $600,000 and a fair market value of $600,000. They also own common stock with a basis of $800,000 and a fair market value of $600,000. Alice is trying to decide whether to bargain to receive the bonds or the stock.Whichever of the assets she receives, she will sell it to start a new business and to purchase a house. She knows that Ted would prefer to receive the stock, and that he intends to sell them. She knows that Ted has substantial investments that he inherited. a. Why do you suppose that Ted prefers to receive the stock? b. If Ted is bargaining to receive the stock, what additional consideration should Alice receive?