Exam 3: Determining Gross Income

John and Ethel, a married couple, receive $21,000 in Social Security benefits in 2018. They also receive $82,000 in taxable pension payments and $6,000 in municipal bond interest. What is their adjusted gross income for 2018?

All taxpayers may use the accrual method of determining income but certain taxpayers may not use the cash method.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Abdo Corporation wants to determine if it can qualify to use the cash method under the $25 million gross receipts test for 2018. Its gross receipts were $26 million for 2018, $24 million for 2017, $23 million for 2016, and $22 million for 2015. What amount of gross receipts is relevant for determining if Abdo can use the cash method for 2018?

The assignment of income doctrine allows one taxpayer to assign income to another taxpayer for tax purposes.

In February, Jasmine received a $30,000 gift from her cousin and in March she inherited $90,000 in corporate bonds from her aunt. Jasmine was the beneficiary on her aunt's life insurance policy and received the lump-sum proceeds of $100,000 in April. How much does Jasmine include in gross income?

Fannie purchased ten $1,000 bonds from her broker this year. The bonds were issued four years ago and mature in six years. Due to a change in interest rates, the purchase price of the bonds was only $8,200. If the issuing company redeems the bonds for $10,000 at maturity, how will Fannie treat the $10,000 proceeds?

Naomi was the beneficiary of a $100,000 insurance policy on her mother who died in January 2018. It took the insurance company several months to make the payment so she received $100,206 in May 2018. She was a joint tenant on a bank account with her mother. She inherited the $14,000 in the account that had all been deposited by her mother. After a long battle with her medical insurance company, Naomi received a $7,000 reimbursement in 2018 for an operation that she underwent in 2016. As a result of her high medical expenses, she was able to claim $7,000 in itemized deductions on her 2016 tax return rather than taking the $6,300 standard deduction. What are Naomi's taxable income items from these events for 2018?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which of the following statements explain permanent differences between tax and financial accounting? i. Income is recognized in one period for tax and in another period for financial accounting Ii) Income is recognized for accounting but not for tax purposes. Iii) Expenses not deductible for tax purposes are deductible for financial accounting. Iv) An expense is deducted currently for tax but in a later period for financial accounting.

Explain the doctrine of constructive receipt and the claim of right doctrine.

Why do tax accounting principles differ from GAAP?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Cash dividends from a U.S. corporation paid to a nonresident alien.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except:

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Punitive damages received

International tax treaties help to alleviate the potential of double taxation when companies have business facilities in several countries.

What is the tax benefit rule? Provide an example of its application.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Workers compensation payment

Income must be realized before it can be recognized.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which of the following statements explains timing differences for tax and financial accounting? i. Income is recognized in one period for tax and in another period for financial accounting. Ii) Income is recognized for accounting but not for tax purposes. Iii) Expenses not deductible for tax purposes are deductible for financial accounting. Iv) An expense is deducted currently for tax but in a later period for financial accounting.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Which type of book/tax differences are accounted for as deferred tax assets or deferred tax liabilities?

George and Georgette divorced in 2017. George was ordered to pay (and does pay) Georgette $600 per month alimony and $800 per month child support. In addition, George transferred title to his half of their stock to Georgette last year. The stock had a basis of $120,000 and a fair market value of $260,000 at the date of the transfer. This year Georgette sells the stock for $280,000. What is Georgette's income for this year if she has no other income items?