Saudi Electronic University

ACCT 422

CH4:

1)Which of the following is not excluded from income? (Assume that any amounts received by the taxpayer were kept.)

2. During the year, Cathy received the following:

• Dividends of $4,000 from Lindsay Corporation. Cathy's father owned the stock and directed the corporation to send the dividends to Cathy.
• A car worth $30,000 for being the 100th customer at a car dealership.
• $5,500 cash gift from her uncle.
• $10,000 inheritance from her grandmother. What amount must Cathy include in gross income?

3. Mae Li is beneficiary of a $70,000 insurance policy on her father's life. Upon his death, she elects to receive the proceeds in installments from the insurance company that carries the policy. She will receive $16,000 per year for five years. What are the tax consequences each year?

4. Rebecca is the beneficiary of a $500,000 insurance policy on her husband's life. She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum. Of the amount received each year

5. Britney is beneficiary of a $150,000 insurance policy on her father's life. Upon his death, she may elect to receive the proceeds in five yearly installments of $32,000 or may take the $150,000 lump sum. She elects to take the lump sum payment. What are the tax consequences in year one?

6. Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother. Cameron sells the policy to his brother, Parker, for $100,000. Parker subsequently pays premiums of $55,000. Upon his mother's death, how much of the insurance proceeds must Parker include in income?

7. Greg is the owner and beneficiary of a $100,000 policy on the life of his mother. Greg gives the policy to his brother, Don. Don subsequently pays premiums of $40,000. Upon his mother's death, how much of the insurance proceeds must Don include in income?

8. Over the years Rianna paid $65,000 in premiums on a life insurance policy with a face value of

$100,000. Upon reaching 65, while still in good health, Rianna surrendered the policy and collected

$95,000. In the year of collection, Rianna will report

9. David has been diagnosed with cancer and is expected to live less than 18 months. David is covered by a life insurance policy with a $400,000 face amount. David cashes in the policy early under a special option and receives 80% of the face amount or $320,000. In the year of collection, David will report

10. Julia suffered a severe stroke and has been admitted to a private hospital where she is expected to remain for the rest of her life. She is certified by a licensed health care practitioner as being a "chronically ill individual." Her hospital expenses amount to $280 per day. She will receive $270 per day from a $500,000 life insurance policy as an accelerated death benefit. In 2013, she was in the hospital for 10 days and received $2,700. How much of this amount is taxable?

11. Bret carries a $200,000 insurance policy on his life and has paid premiums of $10,000 over the years. Dividends on the policy have totaled $8,500. Each year Bret has left the dividends with the insurance company. In the current year, the insurance company credited $800 of interest on the accumulated dividends to Bret's account. In addition, $600 of dividends was added by the insurance

company. In the current year, Bret must report income of

12. Hope receives an $18,500 scholarship from State University. The university specifies that $8,500 is for tuition, books, supplies, and equipment, while $10,000 is for room and board. In addition, Hope works part-time at the campus library and earns $5,000. Hope's gross income is

13. Sarah receives a $15,000 scholarship from City University. The university specifies that $8,000 is for tuition, books, supplies, and equipment for classes. The other $7,000 is for room and board. Sarah works ten hours per week as a grader, for which she is paid $7,500 for the year. Of the total amount received, Sarah must include the following amount in gross income

14. Which of the following statements regarding qualified tuition programs is incorrect?

15. Which of the following statements regarding the qualified tuition plans (QTP) is incorrect?

16. Amanda, who lost her modeling job, sued her employer for age discrimination. She was awarded

$75,000 in lost wages, $25,000 for emotional distress, and $150,000 punitive damages. The amount taxable is

17. Elisa sued her former employer for discrimination. She was awarded $200,000 for lost wages,

$30,000 for medical expenses related to emotional distress resulting from the discrimination, and

$300,000 in punitive damages. The amount taxable is

18. Derrick was in an automobile accident while he was going to work. The doctor advised him to stay home for eight months due to his physical injuries. The resulting lawsuit was settled and Derrick received the following amounts:

How much of the settlement must Derrick include in ordinary income on his tax return?

19. Linda was injured in an automobile accident caused by another driver. Her son, Matthew, was in the automobile but not physically injured. The other driver's insurance company was required by a court to pay Linda $75,000 to cover medical bills relating to her injuries, $30,000 to compensate her for emotional distress attributable to the injuries and $40,000 of punitive damages. Matthew was paid

$15,000 to compensate him for emotional distress attributable to his witnessing his mother's injuries. What is the amount taxable to Linda?

20. John is injured and receives $16,000 of income from a disability policy. John's employer paid 75% of the disability policy premiums and John paid the remainder. In addition, John's employer has paid all the $3,000 of premiums on a health policy that paid John's doctor bills of $10,000. How much of the benefits must John include in income?

21. Liza's employer purchased a disability income policy from an insurance company on behalf of all of its employees. The employer paid for two-thirds of the premiums, and the employees paid for the other one-third. Subsequently, Liza received $3,000 per month for 6 months she was unable to work. Liza will be taxed on

22. Nelda suffered a serious stroke and was admitted to a nursing home for 140 days. Nursing home charges, including physician fees and other related expenses were $33,000. Under Nelda's long-term

care insurance contract, she received reimbursements of $36,000. How much of the $36,000 reimbursement must be included in Nelda's gross income in 2013?

23. Sharisma suffered a serious stroke and was admitted to a nursing home for 140 days. Nursing home charges, including physician fees and other related expenses were $63,000. Under Sharisma's long-term care insurance contract, she received reimbursements of $56,000. How much of the $56,000 reimbursement must be included in Sharisma's gross income in 2013?

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24. Joe Black, a police officer, was injured in the line of duty. He received the following during the current year:

What is the amount that is taxable?

25. Richard is a key employee of Winn Corporation. The corporation provides Richard with $120,000 of group-term life insurance coverage. Only company executives receive life insurance coverage. The premium attributable to the coverage is $1,600. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Richard include in income due to the policy?

26. Miranda is not a key employee of AB Corporation. AB provides Miranda with group term life insurance coverage of $140,000. The premiums attributable to the excess coverage are $1,300. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Miranda include in income?

27. All of the following items are excluded from gross income except

28. Which one of the following fringe benefits allows for discrimination between highly compensated employees and other employees to be present?

29. A department store sold a stereo to an employee for $300, even though the retail price was $500. The gross profit percentage is 40%. Such discounts are available to all employees. How much income should be recognized by the employee from these transactions?

30. Michael is an employee of StayHere Hotels, Inc. in Washington, DC. On his vacation, Michael travels to San Francisco and stays at a StayHere Hotel for six nights free of charge. The regular rate for a hotel room at StayHere in San Francisco is $300 a night. His ability to stay in the hotel without charge is based on the availability of empty rooms. How much income must Michael report due to the use of the San Francisco hotel room?

31. Benefits covered by Section 132 which may be excluded from an employee's gross income do not include

32. All of the following fringe benefits paid for by the employer may be excluded from an employee's gross income except

33. All of the following are requirements for excluding employee achievement awards except for

34. Healthwise Ambulance requires its employees to be on 24-hour call and consequently gives them

$800 per month housing allowance and a $200 per month food allowance. Ron, an employee of Healthwise, receives a salary of $40,000 per year (this does not include the allowances). Ron will be taxed each year on

35. Which of the following item(s) must be included in the income of the respective employees?

36. Lindsay Corporation made the following payments to the family of Luke Marshall, an employee who died during the year.

$5,000 for Luke's final paycheck that he failed to collect

$10,000 for accrued vacation days as required by the employment contract

$25,000 in admiration of Luke's outstanding service to the community What is the total amount that Luke's family must include in income?

37. Fatima's employer funds childcare for all employees' children. She pays nothing for this service. The cost of Fatima's child care is $7,200 a year. How much of the child care benefits are taxable to Fatima?

38. Chad and Jaqueline are married and have AGI of $150,000. In 2013 they adopted a child, while taking advantage of their employer's written adoption assistance program. The adoption cost $9,500, all of which was paid by the employer in accordance with the adoption plan. How much of the employer paid adoption costs may be excluded from their income?

39. Ahmad's employer pays $10,000 in tuition this year for Ahmad to attend a graduate business program. How much of the employer-provided tuition is taxable to Ahmad?

40. Carl filed his tax return, properly claiming the head of household filing status. Carl's employer paid or provided the following to Carl:

How much of this income should Carl report?

41. Rick chose the following fringe benefits under his employer's cafeteria plan. Which of his chosen benefits will be taxable?

42. Tim earns a salary of $40,000. This year, Tim's employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and

$1,000 is available to reimburse medical expenses. During the year, he is reimbursed $900 for medical expenses. What is the total taxable to Tim this year?

43. For 2013, the maximum foreign-earned income exclusion is

44. Jan has been assigned to the Rome office of ABC Corporation. She arrives in Rome on November 1, 2011 and does not return to the U.S. until March 5, 2014. During her stay in Rome, Jan earned

$102,000 in 2013. Jan may exclude

45. Jeremy, an American citizen, earned $200,000 during 2013 while employed in Switzerland. Jeremy