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. -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 competed contract method of accounting, how much profit (loss) should Carbon recognize in years 1, 2, and 3 respectively?

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

The completed contract method allows the taxpayer to defer taxes on the contract income.

All government bonds are exempt from the application of the OID rules.

If a beneficiary of a life insurance policy receives the insurance proceeds over time in installments, then each installment received is fully taxable.

Explain the basic difference between the common law and community property states related to earned income.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Clayton Corporation receives $100,000 to provide garbage service for the next four years:

Which of the following types of income would a nonresident alien avoid paying tax on in the U.S.?

The completed contract method requires income to be recognized annually based on the costs incurred in that year.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Prior to the Tax Cuts and Jobs Act, foreign income of a controlled foreign corporation that has never paid a dividend.

Kayla receives an $18,500 scholarship from the state university. The university specifies that $8,500 is for tuition and books, while $10,000 is for room and board. In addition, Kayla works part-time at the campus library and earns $5,000. How much is Kayla required to include in her gross income?

Explain the two acceptable methods for recognizing income on long-term contracts.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -Reimbursements from employer-financed medical plan for medical expenses

Qualified dividends are dividends that are eligible for the reduced tax rates for dividend income.

Which of the following are included in gross income?

Income of a nonresident alien cannot be taxed by the United States.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -State tax refund of a nonitemzer.

What is the purpose of the original issue discount rules?

When is money received in the form of a scholarship included in income?

Under the source principle of international taxation, income will be taxed in a particular jurisdiction if the source of that income is a business operating in that jurisdiction.