Exam 3: Determining 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?

George can invest $10,000 in a tax-exempt bond paying 6 percent interest or a $10,000 corporate bond paying 8 percent interest.What is the lowest marginal tax rate at which George will be better off investing in the tax-exempt bond?

_____ 1.Income must be recognized before it can be realized.

Bigtown Advertising Agency,a calendar-year,accrual basis taxpayer,was paid $60,000 for a three-year advertising contract on July 1,2013,and $36,000 for a 12-month contract on December 1,2013 How much income must Bigtown recognize for these contracts in years 2013 and 2014,respectively?

_____ 22.The completed contract method allows the taxpayer to defer taxes on the contract income.

_____ 13.Qualified dividends are dividends that are eligible for the reduced tax rates for dividend income.

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 2013,Myra receives twelve $1,500 payments.What is her taxable income?

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?

_____ 6.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.

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?

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?

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.

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?

_____ 12.Most stock dividends are nontaxable.

_____ 14.Multiplying the annuity amount received by the ratio of the investment in the annuity to the expected return determines the annuity's taxable portion.

Which of the following is not a government transfer payment?

_____ 21.A business must have a permanent location within a state to establish nexus.

Under the percentage-of-completion method,how much profit (loss)should Carbon recognize in year 3?

Tax treaties

Kimberly gave 100 shares of stock to her 24-year-old son,Brandon.Kimberly purchased the stock 9 months ago for $10 per share.On the gift date,the stock was worth $40 per share.Two months later,Brandon sells the 100 shares of stock for $60 per share.Kimberly and Brandon are in the 33 percent and 10 percent marginal tax brackets,respectively.How much family tax savings is achieved through this transaction?