Exam 3: Determining Gross Income

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

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?

Multiplying the annuity amount received by the ratio of the investment in the annuity to the expected return determines the annuity's taxable portion.

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

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

Debra owned City of Long Beach bonds that were issued several years ago to pay for basic government services. She received $3,800 of interest income from the bonds in the current year. Due to a change in the market interest rate, she was able to sell the bonds at a $2,100 gain. How much gross income should Debra report from these transactions?

Elizabeth is the beneficiary of an $800,000 insurance policy on her husband's life. Elizabeth can elect to receive $165,000 per year for 5 years or received the entire $800,000 in a lump sum the first year. If she elects to receive the lump sum, how much is included in income in the first year.

Which type of book/tax differences are accounted for as deferred tax assets or deferred tax liabilities?

Windjammer Corporation, a cash-basis, calendar-year corporation sold $30,000 of merchandise to Jackpot Company in January, year 1. In November, Jackpot declared bankruptcy without paying Windjammer. In year 4, Jackpot had reorganized under a new owner and paid all its old debts including the $30,000 owed Windjammer. How does Windjammer treat these events?

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

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?

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

Prior to the Tax Cuts and Jobs Act, foreign income of a controlled foreign corporation that has never paid a dividend.

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 2?

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.

What types of government transfer payments are excluded from gross income?

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

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

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?

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