Exam 3: Determining Gross Income

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Gain on municipal bond sale

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Carbon Corporation had a $2,000,000 contract to build a small hospital with total costs estimated at $1,600,000. It received the following payments and incurred the following expenses over the three-year contract period: Year Payments Expenses 1 $ 400,000 $300,000 2 $1,200,000 $900,000 3 $ 400,000 $550,000 Under the percentage-of-completion method, how much profit should Carbon recognize in year 1?

In 2018 Potrus, an accrual basis corporate taxpayer, received a $40,000 advance for a series of eight lectures by various employees for the Art Institute. After delivering five lectures, the series was cancelled for poor attendance. Potrus refused to return any of the advance payment, so the Art Institute sued. In 2019, Potrus was ordered by the court to repay $15,000. Potrus's net income was $426,000 in 2019 and $298,000 in 2018. How should Potrus treat the repayment to obtain the best tax result?

Sarah and Jason are married and live in a community property state. Sarah is a nurse and earns $40,000 per year; Jason is an engineer and earns $75,000 per year. They have a joint bank account that earned $500 in interest and Jason recently invested in some stocks that paid a $2,000 dividend. If Sarah and Jason file separate returns, how much income would Sarah report?

Howard can invest $50,000 in land that is expected to increase in value by 8 percent per year. Alternatively he could invest in corporate bonds paying 8 percent interest, with interest reinvested at 8 percent. Howard's capital gains tax rate is 15 percent and his marginal tax rate is 24 percent. Which investment should Howard make and what is the advantage of this alternative over the other investment if he plans to sell the land in five years.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -To whom do the doctrines of constructive receipt and claim of right apply?

Briefly identify and define the two principles that guide the determination of who will be taxed by a specific jurisdiction.

James ran a stop sign and smashed into Mary's automobile. Mary was seriously injured and sued James and his insurance company. She was awarded the following: -$12,000 for lost income -$60,000 for hospital costs -$10,000 for therapy to overcome her fear of driving -$100,000 for the loss of function in her right hand -$50,000 punitive damages Mary's actual hospital costs were $62,000 and her therapy cost $7,000. How much must Mary include in income?

How does an alien achieve residency status for taxation in the United States?

Myra retired last year from Whiplash Company after working there for 30 years. She elects to take her retirement benefits in the form of a lifetime annuity. Her retirement balance consists of $40,000 of employer contributions, $80,000 of her before-tax contributions, $20,000 of her after-tax contributions, and $60,000 of investment income. The plan will pay her $1,500 per month based on her life expectancy of 22 years. In 2018, Myra receives twelve $1,500 payments. What is her taxable income?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Cal (an accrual-basis taxpayer) enters into a ten-year lease on some rental property. In year 1, Cal receives $3,000 as a security deposit, $5,000 for the first year's rent, and $5,000 for the last year's rent. How much income must Cal report in this first year?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -$100 found in a vacant lot

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 doctrines does not affect the timing of income recognition for a cash basis taxpayer?

Ben became disabled at the end of last year. In January of the current year, he began to receive $1,500 per month disability payments from a policy that he held through his employer. His employer paid $25 of the monthly premium for the policy and Ben paid $50. How much must Ben include in income in the current year for the disability payments?

Teddy, a single man, has $5,000 of taxable dividends, $3,000 of interest income from State of Oregon bonds, a $5,000 long-term capital gain, and $9,000 of Social Security benefits. What is Teddy's adjusted gross income?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Income earned in year 2 of a four-year long-term contract using the completed contract method.

When income is taxed in a different period than it is accrued for financial accounting, there is a timing difference.

Cora owns 6,000 shares of KLM stock, 2,000 shares of BBT Mutual fund, and 10,000 shares of Centex Corporation. Her 1099-DIV forms from these investments showed the following: KLM: $3 per share distribution all reinvested in KLM BBT Mutual fund: $5 per share distribution, $1 of which represents a capital gain distribution; none of this is reinvested. Centex: $2 per share distribution, all of which represents a return of capital. How much must Cora include in her income in the current year?

Marbella is the beneficiary of a $700,000 insurance policy on her husband's life. Marbella elects to receive $150,000 per year for 5 years rather than receive the entire $700,000 in a lump sum. How much is included in income in the first year.

The basis in inherited property is normally determined at the decedent's date of death.