Saudi Electronic University

ACCT 422

CH3:

1)Which one of the following items is not considered gross income for tax purposes?

 

2. Frasier and Marcella, husband and wife, file separate returns. Frasier and Marcella live in a community property state that considers separate property income to be separate. Frasier's salary is

$42,000 and Marcella's salary is $46,000. Marcella receives dividend income of $4,000 from stock inherited from her parents. Frasier receives interest income of $1,000 from bonds purchased with his salary after marriage. Frasier and Marcella receive $3,200 dividend income from stock they purchased jointly. Marcella's income would be

 

3. Todd and Hillary, husband and wife, file separate returns. Todd and Hillary live in a community property state that considers separate property income to be community income. Todd's salary is

$82,000 and Hillary's salary is $80,000. Hillary receives dividend income of $7,000 from stock inherited from her parents. Todd receives interest income of $5,000 from bonds purchased with his salary after marriage. Todd and Hillary receive $10,000 dividend income from stock they purchased jointly. Todd's income would be

 

4. Norah, who gives music lessons, is a calendar year taxpayer using the cash basis method of accounting. On October 1 of this year, she received $1,200 for a one-year contract beginning on that date to provide 10 lessons. She gave 6 lessons this year. How much should Norah include in income this year?

 

5. Examples of income which are constructively received include all of the following except

 

6. Ms. Marple's books and records for 2013 reflect the following information:

Salary earned this year	$65,000
Interest on savings account (credited to her account in 2013, withdrawn in 2014)	1,000
Interest on county bonds earned and collected in 2013	2,000

 

What is the amount Ms. Marple should include in her gross income in 2013?

 

7. One of the requirements that must be met in order to defer recognition of income for advance payments for goods is

 

8. Which of the following advance payments cannot qualify for income tax deferral?

9. Speak Corporation, a calendar year accrual basis taxpayer, sells packages of foreign language lessons to individuals planning to work overseas. In December, 2013, it sold and received payment for

$600,000 of 24-month lesson packages to be provided evenly through 2014 and 2015. Speak Corporation will recognize the $600,000 of income

 

10. CT Computer Corporation, an accrual basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately:

One for three months	$200
One for 20 months	800
One for 48 months	4,000

 

The amount of income CT Corporation must report for this year is

 

11. Alex is a calendar year sole proprietor. He began business on December 1, this year. He uses the accrual method of accounting. Alex had the following collections in December:

• Collected $7,000 in December, from clients who paid cash for services to be performed next year.
• Collected $5,000 in December, for services performed during December; deposited in an operating account on December 31, this year.
• Collected $12,000 in December; on accounts receivable for services performed in December; deposited in operating account on January 2, next year.

What is the amount Alex must include in his income for December?

 

12. All of the following statements are true except

 

13. Amy's employer provides her with several fringe benefits. Which of the following are included in her taxable income?

 

14. Which of the following bonds do not generate tax-exempt Federal income?

 

15. Carla redeemed EE bonds which qualify for the educational exclusion. The redemption consisted of

$14,000 principal and $6,000 interest. The net qualifying educational expenses are $10,000. Her AGI is below the threshold for phase-out of the exclusion. The taxable interest is

 

16. In December of this year, Jake and Stockard, a married couple, redeemed qualified Series EE U.S. Savings Bonds which they had purchased in January 2003. The proceeds were used to help pay for their daughter's college tuition. Jake and Stockard received proceeds of $8,000 representing principal of

$5,000 and interest of $3,000. The qualified higher educational expenses they paid this year totaled

$6,000. Their AGI is below the threshold for phase-out of the exclusion. What is the amount of interest income Jake and Stockard can exclude from their income this year?

 

17. Jacob, who is single, paid educational expenses of $16,000 in the current year. He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000. Jacob has other adjusted gross income of $78,700. The $3,000 exclusion must be reduced by

 

18. In December 2013, Max, a cash basis taxpayer, rents an apartment to Kadeem. Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400. The amount of income reported as taxable in 2013 is

19. Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?

 

20. Which of the following is not included in gross income when received?

 

21. Ricky has rented a house from Sarah since last year. The rent is usually $900 per month, but Sarah reduced the monthly rent down to $800 for all twelve months this year in exchange for Ricky constructing an addition to the house. The addition has a fair market value of $33,000. How much total rental income must Sarah report this year?

 

22. Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's

 

23. Natasha is a single taxpayer with a 28% marginal tax rate. She received dividends this year as follows:

CE Corp., a C corporation	$1,000
SE Corp., an S corporation	$2,000
Paris Corp., a foreign corporation	$3,000

How much of the $6,000 dividend income will be taxed at the 15% tax rate?

 

24. In 2013, Richard, a single taxpayer, has adjusted gross income of $40,000. His AGI includes $4,000 of qualified dividends. Richard has no dependents and does not itemize deductions. What is his 2013 federal income tax?

 

25. Edward, a single taxpayer, has AGI of $50,000 which includes $1,000 of qualified dividends. Edward has $7,000 of itemized deductions. What is his 2013 federal income tax?

 

26. Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?

 

27. Julia owns 1,000 shares of Orange Corporation. This year, Orange declared a 10% stock dividend. There was no option for shareholders to receive cash. When Julia received 100 shares of Orange stock, it had a fair market value of $50 a share. How much income does Julia have from the dividend?

 

28. Mark purchased 2,000 shares of Darcy Corporation for $13,200. This year, Darcy declared a 10% nontaxable stock dividend, and Mark received 200 shares. After the dividend Mark's per share basis will be

 

29. Which of the following is least likely to result in a constructive dividend?

30. Alimony is

 

31. Child support is

 

32. With respect to alimony and property settlements in a divorce or separation, all of the following are true with the exception of

 

33. The requirements for a payment to be considered as alimony include all of the following except

 

34. Thomas and Sally were divorced last year. As a result, Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000. The house and car are given as a property settlement. As a result of these transactions Thomas has a deduction of

 

35. Carolyn, who earns $400,000, is required to pay John, her ex-husband, $200,000 as part of the property settlement as a result of their divorce. In turn, John transfers stock worth $50,000 to Carolyn. What is the amount of Carolyn's adjusted gross income for the year?

 

36. Under the terms of their divorce agreement executed in August of this year, Clint transferred Beta, Inc. stock to his former wife, Rosa, as a property settlement. At the time of the transfer, the stock had a basis to Clint of $55,000 and a fair market value of $68,000. Rosa subsequently sold the stock for

$75,000. What is the tax consequence of first the stock transfer and then the stock sale to Rosa?

 

37. Under the terms of their divorce agreement, Humphrey transferred Corporation H stock to his former wife, Greta as a property settlement. At the time of the transfer, the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000. What is the tax consequence of this transaction to Humphrey, and what is Greta's basis in the Corporation H stock?

 

38. As a result of a divorce, Matthew pays Jasmine alimony of $75,000 in year one and $25,000 per year in subsequent years. How much is deductible by Matthew in year one?

 

39. As a result of a divorce, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?

 

40. Thomas purchased an annuity for $20,000 that will pay him $500 per month for ten years. What amount should Thomas include in his income each year?

 

41. Natasha, age 58, purchases an annuity for $40,000. Natasha will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 65, the amount that Natasha may exclude from income is

 

42. Julia, age 57, purchases an annuity for $33,600. Julia will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 88, the amount that Julia may exclude from income is

 

43. David, age 62, retires and receives $1,000 per month annuity from his employer's qualified pension

plan. David made $65,000 of after-tax contributions to the plan prior to his retirement. Under the simplified method, David's number of anticipated payments is 260. What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?

 

44. Eva and Lisa each retired this year and started receiving distributions from their respective retirement plans. Eva's plan was funded with all pre-tax contributions, whereas Lisa's plan was funded with only after-tax contributions. With respect to the tax treatment of their retirement plan distributions,

 

45. Jonathon, age 50 and in good health, withdrew $6,000 from his pension plan during the current year. The withdrawal was not eligible for any exception to the 10% penalty. Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000. In addition to relevant income taxes, how much penalty must Jonathon pay?

 

46. Jan purchased an antique desk at auction. For two years, the desk sat in Jan's garage until she decided to restore it. This year, while cleaning and restoring the desk, Jan discovered $1,500 in a hidden compartment inside one drawer. With respect to the $1,500, Jan must

 

47. While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?

 

48. A taxpayer had the following income and losses in the current year:

Salary	$55,000
Sold AT&T stock at a loss	( 5,000)
Lottery prize	4,500
Gambling winnings	8,000
Gambling losses	( 5,000)

What is the taxpayer's adjusted gross income (not taxable income)?

 

49. Lily had the following income and losses during the current year:

Salary	$75,000
Prize from quiz show	25,000
Unemployment compensation	8,000
Embezzled funds	30,000
Partnership Income	35,000

What is Lily's adjusted gross income (not taxable income)?

 

50. Lori had the following income and losses during the current year:

Wages	$22,000
Share of partnership income	18,000
Unemployment compensation	12,000
Gambling winnings	2,000
Gambling losses	( 5,000)
Prize won on a game show	30,000

 

What is Lori's adjusted gross income (not taxable income)?

 

51. The term "Social Security benefits" does not include

 

52. In addition to Social Security benefits of $8,000, Mr. and Mrs. Wells have adjusted gross income of

$32,000 and tax-exempt interest of $1,000 and will file a joint return. The taxable portion of their social security benefits will be

 

53. Mr. & Mrs. Bronson are both over 65 years of age and are filing a joint return. Their income this year consisted of the following:

Taxable interest	$ 6,000
Taxable dividends	9,000
Social Security payments (combined)	20,000
Tax-exempt interest	5,000
Taxable pension	11,000

They did not have any adjustments to income. What amount of Mr. & Mrs. Bronson's social security benefits is taxable this year?

 

54. Reva is a single taxpayer with a taxable pension of $22,000, tax-exempt interest of $10,000, and Social Security benefits of $10,000. What is the amount of her taxable Social Security benefits?

 

55. Insurance proceeds received because of the destruction of property are

 

56. Homer Corporation's office building was destroyed by fire. Homer collected insurance of

$250,000, which equaled the building's basis, and $150,000 for profits lost during the time the company was rebuilding the office building. What is the amount taxable this year?

 

57. During 2013, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2013 federal income tax return which included

$8,000 of itemized deductions. Christiana is single. On her 2013 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2014. What amount must Christiana include in income in 2014?

 

58. During 2013, Mark's employer withheld $2,000 from his wages for state income tax. Mark claimed the $2,000 as an itemized deduction on his 2013 federal income tax return. His total itemized deductions for 2013 were $6,000. Mark's taxable income for 2013 was a negative $20,000 due to substantial business losses. Mark received the $2,000 as a refund from the state during 2014. What amount must Mark include in income in 2014?

 

59. During 2013, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2013 federal income tax return which included a total of $6,450 of itemized deductions. Christiana is single. On her 2013 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 20143. What amount must Christiana include in income in 2014?

 

60. During 2013, Robert and Cassie had $2,600 withheld from their pay for state income taxes. They file a joint return for 2013 and claimed the $2,600 taxes withheld as an itemized deduction on their federal tax return. Their itemized deductions totaled $12,800 on their 2013 tax return. Their 2013 state income tax was only $1,000 and they received a refund of $1,600 when they filed their state income tax return in 2014. As a result, Robert and Cassie must

 

61. Gwen's marginal tax bracket is 25%. Gwen pays alimony of $24,000 per year. Gwen's after tax cost for the $24,000 payment is

 

62. Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate. The bonds have an equivalent level of risk. Daniel has a 33% marginal tax rate and