Exam 3: Determining Gross Income

Tighe won a new automobile from his employer for being the top salesperson in the entire firm. The auto cost the employer only $34,000 because he purchased a fleet of cars from the dealer; it had a retail price of $37,000. In addition, Tighe's employer gave him $5,000 with which to pay the taxes on the prize. How much must Tighe include in his gross income?

_____ 8. The completed contract method requires income to be recognized annually based on the costs incurred in that year.

_____ 14. All stock dividends are nontaxable.

_____ 23. International tax treaties help to alleviate the potential of double taxation when companies have business facilities in several countries.

Naomi was the beneficiary of a $100,000 insurance policy on her mother who died in January 2017. It took the insurance company several months to make the payment so she received $100,206 in May 2017. She was a joint tenant on a bank account with her mother. She inherited the $14,000 in the account that had all been deposited by her mother. After a long battle with her medical insurance company, Naomi received a $7,000 reimbursement in 2017 for an operation that she underwent in 2015. As a result of her high medical expenses, she was able to claim $7,000 in itemized deductions on her 2015 tax return rather than taking the $6,300 standard deduction. What are Naomi's taxable income items from these events 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. -_____ t. Foreign income of a controlled foreign corporation that has never paid a dividend.

Cora owns 6,000 shares of KLM stock, 2,000 shares of BBT Mutual fund, and 10,000 shares of Centex Corporation. Her 1099-DIV forms from these investments showed the following: KLM: $3 per share distribution all reinvested in KLM BBT Mutual fund: $5 per share distribution, $1 of which represents a capital gain distribution; none of this is reinvested. Centex: $2 per share distribution, all of which represents a return of capital. How much must Cora include in her income in the current year?

_____ 2. When income is taxed in a different period than it is accrued for financial accounting, there is a timing difference.

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?

Jabo Corporation has its home office and manufacturing facilities in Peru. It sells products via the Internet in both Brazil and Chile, although it has a small sales and manufacturing facility in Santiago, Chile.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ l. Lottery winnings

Explain the normal tax treatment of life insurance proceeds.

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -____ q. Cash dividends from a U.S. corporation paid to a nonresident alien.

_____ 4. A calendar year always ends on December 31.

Colin and Coleen divorced in the current year. Colin is willing to pay Coleen $20,000 of alimony for five years so that she can return to school and obtain a degree. Coleen has stated that she needs no less than $20,000 after taxes and will not accept Colin's offer of alimony. Coleen is in the 15 percent tax bracket and Colin is in the 33 percent tax bracket. How much alimony must Coleen receive to have $20,000 after taxes? What is Colin's after-tax cost of this alimony payment?

Which of the following is not a government transfer payment?

What is the purpose of the original issue discount rules?

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?

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ m. Workers compensation payment

Put T for Taxable income or N for Nontaxable income beside each item below as it normally would be treated for tax purposes. -_____ p. Loan forgiven by father