Exam 3: Determining Gross Income

Which of the following statements explain permanent differences between 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?

What are acceptable fiscal years for tax purposes?

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?

_____ 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.

_____ 9. The completed contract method allows the taxpayer to defer taxes on the contract income.

In 1992, when Sherry was 56 years old with an additional life expectancy of 20 years, she purchased a single life annuity for $200,000 that was to pay her $15,000 per year for life starting in 1995. Sherry just received her $15,000 payment for 2017. How much of the $15,000 must Sherry include in income?

Chloe owns 200 shares of TPP stock that she purchased 10 years ago for $1,500. Five years ago, there was a 3 for 2 stock split and she received 100 additional shares. This year, there was another 3 for 2 stock split and she received 150 additional shares. If the stock is currently selling for $10 per share, how much income does she recognize and what is her basis in these last 150 shares?

Marylee and George divorced in 2016 after 20 years of marriage during which time George gave up his career and stayed home with their children. In 2017, 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 will also pay George $4,000 per month alimony and $6,000 per month in child support beginning in January of 2017. If George has no other income, what is his adjusted gross income for 2017?

Natasha graduated at the top of her high school class and received a $10,000 scholarship to attend the college of her choice. Natasha decided to attend State University and spent her $10,000 as follows: Dormitory room \ 1,500 Cafeteria meals 1,000 Tuition 6,600 Books and supplies 900 How much of the $10,000 should Natasha report as gross income?

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

Geraldine worked in the produce section of a grocery store. She slipped on the wet floor, shattering her leg in several places, and was unable to work for four months. During that time she received $7,400 in disability insurance from a policy for which she and her employer each paid half of the premium. How much mush Geraldine include in income from these payments?

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

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 (loss) should Carbon recognize in year 3?

Brandon and Jessica, a married couple, receive $21,000 in Social Security benefits in the current year. They receive $88,000 in taxable pension payments and $6,000 in municipal bond interest income. How much of their Social Security benefits are included in 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.

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

George and Georgette divorced last year. George was ordered to pay (and does pay) Georgette $600 per month alimony and $800 per month child support. In addition, George transferred title to his half of their stock to Georgette last year. The stock had a basis of $120,000 and a fair market value of $260,000 at the date of the transfer. This year Georgette sells the stock for $280,000. What is Georgette's income for this year if she has no other income items?

_____ 18. 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 two acceptable methods for recognizing income on long-term contracts.