Exam 3: Determining Gross Income

Willy, who has no income and no investments, borrows $50,000 from his mother at no interest. The applicable federal rate is 4 percent. a. Explain the tax consequences of this loan if Willy uses the money for an exotic vacation. b. How would your answer change if Willy uses the money to invest in bonds paying 4 percent interest?

All of the following are acceptable methods of accounting for revenue and expenses for tax purposes except:

Explain the relationship between realization and recognition of gains or losses.

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

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 2017, Myra receives twelve $1,500 payments. What is her taxable income?

_____ 19. The recipient's basis in a gift always carries over from the gift's donor.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ f. Income from employer-financed annuity

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ n. Settlement for loss of finger in industrial accident

_____ 15. Qualified dividends are dividends that are eligible for the reduced tax rates for dividend income.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -____ g. Punitive damages received

_____ 24. A nonresident alien can only file a joint return with a United States citizen or resident if they both agree to be taxed on their worldwide income.

Gogo-a-gogo, a manufacturer of dance shoes located in France, is a 90% owned subsidiary of Dance-Togs, Incorporated, a calendar-year corporation. In 2017 it earned a total of $400,000 on its manufacturing operations in France and paid $120,000 in French income taxes on that income. It distributed $60,000 to its parent corporation during the year. How much of Gogo-a-gogo's income must Dance-Togs include in its income for 2017?

All of the following result in nontaxable income except:

Why do tax accounting principles differ from GAAP?

Taylor Corporation, an accrual-basis calendar-year corporation, rented an office building to Austin for $3,000 per month. On December 28, 2016, Taylor received a deposit of $4,000 in addition to the first and last months' rent. Occupancy began on January 1, 2017. On August 15, 2017 Austin closed the business. In 2017, Taylor had collected rent for February, March, April and May, but collected no payments thereafter. Taylor withheld $1,100 from the deposit because of damage to the property and $1,500 for unpaid rent. Taylor refunded the balance of the deposit to Austin. What amount should Taylor report as gross income for 2017?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ r. Scholarship funds used to pay room and board

Meg was the beneficiary of a $50,000 life insurance policy when her father died at the end of 2016. The insurance company gives her the option of taking the $50,000 as a lump sum immediately or receiving an annuity of $8,000 per year for 12 years beginning in 2017. Meg takes the annuity option. What amount must Meg include in her income in 2017?

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?

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?

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?