Question 1

Which of the following are included in gross income?

Accepted Answer

A) Jury duty fees 
B) Gambling winnings 
C) Interest on federal tax refund 
D) All are included in income 
A) Jury duty fees 
B) Gambling winnings 
C) Interest on federal tax refund 
D) All are included in income D

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

Abdo Corporation wants to determine if it can qualify to use the cash method under the $26 million gross receipts test for 2019.Its gross receipts were $27 million for 2019, $24 million for 2018, $23 million for 2017, and $22 million for 2016.What amount of gross receipts is relevant for determining if Abdo can use the cash method for 2019?

Accepted Answer

A) $23 million 
B) $23.5 million 
C) $23.75 million 
D) $24 million 
A) $23 million 
B) $23.5 million 
C) $23.75 million 
D) $24 million A

Question 4

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?

Accepted Answer

A) $0 
B) $16,000 
C) $90,000 
D) $220,000 
A) $0 
B) $16,000 
C) $90,000 
D) $220,000

Question 5

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:  
Under the percentage-of-completion method, how much profit should Carbon recognize in year 1?

Accepted Answer

A) $0 
B) $75,000 
C) $100,000 
D) $400,000 
A) $0 
B) $75,000 
C) $100,000 
D) $400,000

Question 6

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?

Accepted Answer

A) zero 
B) $5,000 
C) $15,000 
D) $23,500 
A) zero 
B) $5,000 
C) $15,000 
D) $23,500

Question 7

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: 
$\begin{array}{lll}
\underline{\text { Year } }&\underline{ \text { Payments }}& \underline{\text { Expenses }}\
1 & \$ 400,000 & \$ 300,000 \
2 & \$ 1,200,000 & \$ 900,000 \
3 & \$ 400,000 & \$ 550,000
\end{array}$

Under the percentage-of-completion method, how much profit should Carbon recognize in year 2?

Accepted Answer

A) $400,000 
B) $300,000 
C) $225,000 
D) $150,000 
A) $400,000 
B) $300,000 
C) $225,000 
D) $150,000

Question 8

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?

Accepted Answer

A) Recognize $30,000 revenue in year 1 only. 
B) Recognize $30,000 revenue in year 4 only. 
C) Deduct $30,000 as a bad debt in year 1. 
D) Deduct $30,000 as a bad debt in year 1; recognize $30,000 income in year 4. 
A) Recognize $30,000 revenue in year 1 only. 
B) Recognize $30,000 revenue in year 4 only. 
C) Deduct $30,000 as a bad debt in year 1. 
D) Deduct $30,000 as a bad debt in year 1; recognize $30,000 income in year 4.

Question 9

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: 
Under the percentage-of-completion method, how much profit (loss) should Carbon recognize in year 3?

Accepted Answer

A) ($150,000) 
B) ($50,000) 
C) $150,000 
D) $250,000 
A) ($150,000) 
B) ($50,000) 
C) $150,000 
D) $250,000

Question 10

To whom do the doctrines of constructive receipt and claim of right apply?

Accepted Answer

A) Cash basis taxpayers only 
B) Accrual basis taxpayers only 
C) Cash basis, accrual basis, respectively 
D) Accrual basis, cash basis, respectively 
A) Cash basis taxpayers only 
B) Accrual basis taxpayers only 
C) Cash basis, accrual basis, respectively 
D) Accrual basis, cash basis, respectively

Question 11

Which of the following is not a government transfer payment?

Accepted Answer

A) Social Security benefits 
B) Food stamps 
C) Interest on T-Bills 
D) Unemployment compensation 
A) Social Security benefits 
B) Food stamps 
C) Interest on T-Bills 
D) Unemployment compensation

Question 12

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 2019, Myra receives twelve $1,500 payments.What is her taxable income?

Accepted Answer

A) $18,000 
B) $17,091 
C) $14,364 
D) $13,455 
A) $18,000 
B) $17,091 
C) $14,364 
D) $13,455

Question 13

The basis in inherited property is normally determined at the decedent's date of death.

Accepted Answer

A) True 
 B)False

Question 14

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: $\begin{array}{lr}
\text { Dormitory room } & \$ 1,500 \
\text { Cafeteria meals } & 1,000 \
\text { Tuition } & 6,600 \
\text { Books and supplies } & 900
\end{array}$
 How much of the $10,000 should Natasha report as gross income?

Accepted Answer

A) $10,000 
B) $3,400 
C) $2,500 
D) $1,500 
E) zero 
A) $10,000 
B) $3,400 
C) $2,500 
D) $1,500 
E) zero

Question 15

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?

Accepted Answer

A) $48,000 
B) $28,000 
C) $22,000 
D) $20,000 
A) $48,000 
B) $28,000 
C) $22,000 
D) $20,000

Question 16

Taylor Corporation, an accrual-basis calendar-year corporation, rented an office building to Austin for $3,000 per month.On December 28, 2018, Taylor received a deposit of $4,000 in addition to the first and last months' rent.Occupancy began on January 1, 2019.On August 15, 2019 Austin closed the business.In 2019, 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 2019?

Accepted Answer

A) $13,500 
B) $14,600 
C) $19,500 
D) $20,600 
A) $13,500 
B) $14,600 
C) $19,500 
D) $20,600

Question 17

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.

Accepted Answer

A) Under the source principle, all of Jabo's income could be taxed in Peru. 
B) Under the source principle, Chile could tax all of the profits from goods sold in Chile and Brazil. 
C) Under the residency principle Peru could tax all of the company's income. 
D) Under the residency principle, only sales in Brazil could be taxed in Brazil. 
A) Under the source principle, all of Jabo's income could be taxed in Peru. 
B) Under the source principle, Chile could tax all of the profits from goods sold in Chile and Brazil. 
C) Under the residency principle Peru could tax all of the company's income. 
D) Under the residency principle, only sales in Brazil could be taxed in Brazil.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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?

Accepted Answer

A) Blinder has neither income nor loss 
B) Blinder must recognize $15,000 of income 
C) Blinder must reduce the basis of assets by $15,000 
D) Blinder must reduce tax attributes by $15,000 
A) Blinder has neither income nor loss 
B) Blinder must recognize $15,000 of income 
C) Blinder must reduce the basis of assets by $15,000 
D) Blinder must reduce tax attributes by $15,000

Question 20

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?

Accepted Answer

A) 0 
B) $4,000 
C) $6,000 
D) $10,000 
A) 0 
B) $4,000 
C) $6,000 
D) $10,000

Which of the following are included in gross income?

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

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?

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?

To whom do the doctrines of constructive receipt and claim of right apply?

Which of the following is not a government transfer payment?

The basis in inherited property is normally determined at the decedent's date of death.

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.

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

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?

Introduction to Taxation

The Tax Practice Environment

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 3: Determining Gross Income

Which of the following are included in gross income?

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

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?

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?

To whom do the doctrines of constructive receipt and claim of right apply?

Which of the following is not a government transfer payment?

The basis in inherited property is normally determined at the decedent's date of death.

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.

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

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?

Introduction to Taxation

The Tax Practice Environment

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters