Question 1

Clayton Corporation receives $100,000 to provide garbage service for the next four years:

Accepted Answer

A)  Clayton must recognize income over the four years for both tax and accounting purposes. 
B)  Clayton can include the entire $100,000 in income currently for both tax and accounting purposes. 
C)  The $100,000 creates a permanent difference between tax and accounting income. 
D)  The $100,000 creates a timing difference between tax and accounting income. 
A)  Clayton must recognize income over the four years for both tax and accounting purposes. 
B)  Clayton can include the entire $100,000 in income currently for both tax and accounting purposes. 
C)  The $100,000 creates a permanent difference between tax and accounting income. 
D)  The $100,000 creates a timing difference between tax and accounting income. D

Question 2

Sheryl sold 100 shares of ABC stock for $2,100 and 300 shares of XYZ stock for $8,900. She purchased the ABC stock four years ago for $1,200 and the XYZ stock two years ago for $9,100. What is the net effect of these sales on Sheryl's income?

Accepted Answer

A)  $200 net gain 
B)  $700 net gain 
C)  $900 net gain 
D)  $1,100 net gain 
A)  $200 net gain 
B)  $700 net gain 
C)  $900 net gain 
D)  $1,100 net gain B

Question 3

What is an annuity? How is annuity income taxed?

Accepted Answer

An annuity is a series of periodic payments that generally contain two components, a nontaxable return of investment in the annuity and a taxable portion representing income on the investment.

Question 4

Wilma purchased an annuity policy for $100,000 that will pay her $10,000 per year for life beginning on her 60th birthday in 5 years. At 60, her life expectancy is 25 years. How much of each annual payment can Wilma exclude from income?

Accepted Answer

A)  0 
B)  $4,000 
C)  $6,000 
D)  $10,000 
A)  0 
B)  $4,000 
C)  $6,000 
D)  $10,000

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Blinder Corporation was having some cash flow problems. One of its creditors agreed to accept $25,000 in payment of a $40,000 debt to help the company out of the jam, even though it is not bankrupt. How does Blinder treat this debt repayment?

Accepted Answer

A)  Blinder has neither income nor loss 
B)  Blinder must recognize $15,000 of income 
C)  Blinder must reduce the basis of assets by $15,000 
D)  Blinder must reduce tax attributes by $15,000 
A)  Blinder has neither income nor loss 
B)  Blinder must recognize $15,000 of income 
C)  Blinder must reduce the basis of assets by $15,000 
D)  Blinder must reduce tax attributes by $15,000

Question 7

Bryan, age 66, is retired. His wife, Rebecca, age 64, still works part-time. They have income from the following sources:   What is their joint gross income?

Accepted Answer

A)  $10,500 
B)  $11,050 
C)  $25,500 
D)  $25,550 
E)  $30,550 
A)  $10,500 
B)  $11,050 
C)  $25,500 
D)  $25,550 
E)  $30,550

Question 8

Alimony received due to a divorce agreement executed prior to January 1, 2019

Accepted Answer

The answer of Alimony received due to a divorce agreement...

Question 9

Which of the following is an application of the wherewithal-to-pay concept?

Accepted Answer

A)  Percentage-of-completion 
B)  Hybrid method of accounting 
C)  Installment method 
D)  Accrual method of accounting 
A)  Percentage-of-completion 
B)  Hybrid method of accounting 
C)  Installment method 
D)  Accrual method of accounting

Question 10

Constructive receipt requires an accrual basis taxpayer to recognize income when the taxpayer has an unrestricted right to a payment that is to be received.

Accepted Answer

A) True 
 B)False

Question 11

Marylee and George divorced in 2017 after 20 years of marriage during which time George gave up his career and stayed home with their children. In 2018, Marylee, the CEO of a mail order company, transfers their home valued at $450,000 and held in joint tenancy to George as part of the divorce settlement. She also agreed to pay George $4,000 per month alimony and $6,000 per month in child support beginning in January of 2018. If George has no other income, what is his adjusted gross income for 2018?

Accepted Answer

A)  $48,000 
B)  $120,000 
C)  $273,000 
D)  $498,000 
A)  $48,000 
B)  $120,000 
C)  $273,000 
D)  $498,000

Question 12

Community property states allow income to be taxed to a person who did not earn the income.

Accepted Answer

A) True 
 B)False

Question 13

How is the return of capital principle related to basis?

Accepted Answer

Basis, or adjusted basis, is the measure

Question 14

When a corporation lends money to an employee at below-market interest rates, the imputed interest is additional compensation to the employee.

Accepted Answer

A) True 
 B)False

Question 15

Wilma divorced Barney prior to January 1, 2019. This year she received the title to their boat that cost $45,000 and is now worth $55,000. Barney paid Wilma $1,500 per month, $500 for alimony and $1,000 for support of their two children. Wilma owed $60,000 to the bank for a loan on a failed business. To satisfy the debt, she transferred title of the boat to the bank and paid an additional $5,000. What are the tax consequences of these transactions for Barney and Wilma?

Accepted Answer

Barney's only tax consequences are a ded

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  $23 million 
B)  $23.5 million 
C)  $23.75 million 
D)  $24 million 
A)  $23 million 
B)  $23.5 million 
C)  $23.75 million 
D)  $24 million

Question 18

The recipient's basis in a gift always carries over from the gift's donor.

Accepted Answer

A) True 
 B)False

Question 19

Willy, who has no income and no investments, borrows $50,000 from his mother at no interest. The applicable federal rate is 4 percent.
a. Explain the tax consequences of this loan if Willy uses the money for an exotic vacation.
b. How would your answer change if Willy uses the money to invest in bonds paying 4 percent interest?

Accepted Answer

a. Willy's mother will have no imputed i

Question 20

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?

Accepted Answer

A)  $40,000 
B)  $41,000 
C)  $57,750 
D)  $58,750 
A)  $40,000 
B)  $41,000 
C)  $57,750 
D)  $58,750

Clayton Corporation receives $100,000 to provide garbage service for the next four years:

Sheryl sold 100 shares of ABC stock for $2,100 and 300 shares of XYZ stock for $8,900. She purchased the ABC stock four years ago for $1,200 and the XYZ stock two years ago for $9,100. What is the net effect of these sales on Sheryl's income?

What is an annuity? How is annuity income taxed?

Wilma purchased an annuity policy for $100,000 that will pay her $10,000 per year for life beginning on her 60th birthday in 5 years. At 60, her life expectancy is 25 years. How much of each annual payment can Wilma exclude from income?

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

Blinder Corporation was having some cash flow problems. One of its creditors agreed to accept $25,000 in payment of a $40,000 debt to help the company out of the jam, even though it is not bankrupt. How does Blinder treat this debt repayment?

Bryan, age 66, is retired. His wife, Rebecca, age 64, still works part-time. They have income from the following sources: What is their joint gross income?

Alimony received due to a divorce agreement executed prior to January 1, 2019

Which of the following is an application of the wherewithal-to-pay concept?

Constructive receipt requires an accrual basis taxpayer to recognize income when the taxpayer has an unrestricted right to a payment that is to be received.

Community property states allow income to be taxed to a person who did not earn the income.

How is the return of capital principle related to basis?

When a corporation lends money to an employee at below-market interest rates, the imputed interest is additional compensation to the employee.

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

The recipient's basis in a gift always carries over from the gift's donor.

Introduction to Taxation

The Tax Practice Environment

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 3: Determining Gross Income

Clayton Corporation receives $100,000 to provide garbage service for the next four years:

Sheryl sold 100 shares of ABC stock for $2,100 and 300 shares of XYZ stock for $8,900. She purchased the ABC stock four years ago for $1,200 and the XYZ stock two years ago for $9,100. What is the net effect of these sales on Sheryl's income?

What is an annuity? How is annuity income taxed?

Wilma purchased an annuity policy for $100,000 that will pay her $10,000 per year for life beginning on her 60th birthday in 5 years. At 60, her life expectancy is 25 years. How much of each annual payment can Wilma exclude from income?

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

Blinder Corporation was having some cash flow problems. One of its creditors agreed to accept $25,000 in payment of a $40,000 debt to help the company out of the jam, even though it is not bankrupt. How does Blinder treat this debt repayment?

Bryan, age 66, is retired. His wife, Rebecca, age 64, still works part-time. They have income from the following sources: What is their joint gross income?

Alimony received due to a divorce agreement executed prior to January 1, 2019

Which of the following is an application of the wherewithal-to-pay concept?

Constructive receipt requires an accrual basis taxpayer to recognize income when the taxpayer has an unrestricted right to a payment that is to be received.

Community property states allow income to be taxed to a person who did not earn the income.

How is the return of capital principle related to basis?

When a corporation lends money to an employee at below-market interest rates, the imputed interest is additional compensation to the employee.

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

The recipient's basis in a gift always carries over from the gift's donor.

Introduction to Taxation

The Tax Practice Environment

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters