Exam 3: Determining 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. -_____ h. Reimbursements from employer-financed medical plan for medical expenses

What is an annuity? How is annuity income taxed?

Explain the difference in tax treatment of child support and alimony.

What is the tax benefit rule? Provide an example of its application.

Tomohiro Corporation loans $50,000 interest-free for one year to Matt, a shareholder. Matt uses the loan to pay for personal debts. Assume that the applicable federal rate is 4 percent. What are the tax consequences of this loan to Tomohiro and to Matt?

Joseph's employer pays 70% of the premiums for a disability insurance policy and Joseph pays for the other 30%. The policy pays Joseph 60% of his normal salary in the event he is injured and cannot return to work for an extended period. Joseph was injured in an accident and was unable to work for several months. During the current year, Joseph collected $75,000 under his disability policy. How much does Joseph include in his gross income?

Explain what is meant by the all events test.

In 2017, Willy gave his son 4,000 shares of ABC stock valued at $10 per share. Two weeks after the gift, ABC declared a $1 per share dividend. Willy also gave his son some municipal bonds the morning of June 30. On July 3, Willy received a check for $400 for the interest on the bonds. Finally, Willy gave his son five coupons from other bonds that he owned. On August 2, the son exchanged the coupons at a bank receiving the $200 interest due on the coupons. What is the son's taxable income from these events?

Cal (an accrual-basis taxpayer) enters into a ten-year lease on some rental property. In year 1, Cal receives $3,000 as a security deposit, $5,000 for the first year's rent, and $5,000 for the last year's rent. How much income must Cal report in this first year?

Bigtown Advertising Agency, a calendar-year, accrual basis taxpayer, was paid $60,000 for a three-year advertising contract on July 1, 2017, and $36,000 for a 12-month contract on December 1, 2017 How much income must Bigtown recognize for these contracts in years 2016 and 2017, respectively?

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?

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?

Howard can invest $50,000 in land that is expected to increase in value by 8 percent per year. Alternatively he could invest in corporate bonds paying 8 percent interest, with interest reinvested at 8 percent. Howard's capital gains tax rate is 15 percent and his marginal tax rate is 28 percent. Which investment should Howard make and what is the advantage of this alternative over the other investment if he plans to sell the land in five years.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____s. State tax refund of a nonitemzer.

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 competed contract method of accounting, how much profit (loss) should Carbon recognize in years 1, 2, and 3 respectively?

Marbella is the beneficiary of a $700,000 insurance policy on her husband's life. Marbella elects to receive $150,000 per year for 5 years rather than receive the entire $700,000 in a lump sum. How much is included in income in the first year.

_____ 10. The assignment of income doctrine allows one taxpayer to assign income to another taxpayer for tax purposes.

How does an alien achieve residency status for taxation in the United States?

In January, Zelda borrows $7,000 from her mother for moving expenses and clothes for starting her new job after graduating from college. She told her mother she would pay her 9 percent interest on the money but made no payments in the current year. If the applicable federal interest rate is 5 percent, how much interest income must Zelda's mother recognize?

_____ 13. When a corporation lends money to an employee at below-market interest rates, the imputed interest is additional compensation to the employee.