Exam 3: Determining Gross Income

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?

In 2017 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 2018, Potrus was ordered by the court to repay $15,000. Potrus's net income was $426,000 in 2018 and $298,000 in 2017. How should Potrus treat the repayment to obtain the best tax result?

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?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ j. Property settlement as part of divorce proceedings

Abdo Corporation received permission to change its tax year-end from December 31 to August 31 in 2017. Its income from January 1 through August 31 is $278,000. What is Abdo's tax liability for its year ended August 2017?

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?

_____ 3. When a taxpayer has a tax year of less than 12 months, the taxpayer must always annualize income.

Which of the following is not included in income?

How is the return of capital principle related to basis?

_____ 12. All government bonds are exempt from the application of the OID rules.

Carol attends State U. and received a $10,000 scholarship for her senior year that began in September, year 1. Up to the time of her graduation in May, year 2, Carol had paid the following expenses for the two semesters: 1^st semester: $3,000 tuition; $1,550 room and board in a dormitory; $400 for books and fees. 2^nd semester: $3,000 tuition; $1,700 living expenses in an apartment; $250 for books and fees. She used the remaining money from the scholarship to purchase clothes for job hunting in April, year 2. Does Carol have any income as a result of the scholarship? If yes, how much is her income and in what years would it be included in income?

Explain the doctrine of constructive receipt and the claim of right doctrine.

Bryan, age 66, is retired. His wife, Rebecca, age 64, still works part-time. They have income from the following sources: Rebecca's salary \ 10,000 Bryan's pension (all contributions made by his employer) 15,000 Bryan's social security benefits 5,000 Interest income from State of Montana bonds 1,000 Dividend income from Ford Motor Co. stock 500 Lottery prize 50 What is their joint gross income?

Explain the tax treatment of a gift loan.

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?

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?

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?

All of the following are allowable tax years except:

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

_____ 17. Up to 85 percent of a person's Social Security benefits may be included in gross income.