Question 1

All of the following are allowable tax years except:

Accepted Answer

A) The last Friday of July 
B) .December 31 
C) .The Sunday closest to March 1 
D) .August 31 
A) The last Friday of July 
B) .December 31 
C) .The Sunday closest to March 1 
D) .August 31

Question 2

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

Accepted Answer

A) Timing differences 
B) Permanent differences 
C) All deferrals for a cash basis taxpayer 
D) All of the above 
A) Timing differences 
B) Permanent differences 
C) All deferrals for a cash basis taxpayer 
D) All of the above

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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.

Accepted Answer

A) ii.only 
B) i.and ii. 
C) i.and iv. 
D) ii.and iii. 
A) ii.only 
B) i.and ii. 
C) i.and iv. 
D) ii.and iii.

Question 5

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 2019.How much of the $15,000 must Sherry include in income?

Accepted Answer

A) 0 
B) $5,000 
C) $10,000 
D) $15,000 
A) 0 
B) $5,000 
C) $10,000 
D) $15,000

Question 6

When a taxpayer has a tax year of less than 12 months, the taxpayer must always annualize income.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

A) $21,000 
B) $17,850 
C) $10,500 
D) $0 
A) $21,000 
B) $17,850 
C) $10,500 
D) $0

Question 8

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?

Accepted Answer

A) No tax consequences to either Tomohiro or Matt 
B) No income to Matt, $2,000 deduction for Tomohiro 
C) $2,000 income to Matt, no income to Tomohiro 
D) $2,000 income to Matt and $2,000 deduction for Tomohiro 
E) $2,000 income to Matt and $2,000 income to Tomohiro 
A) No tax consequences to either Tomohiro or Matt 
B) No income to Matt, $2,000 deduction for Tomohiro 
C) $2,000 income to Matt, no income to Tomohiro 
D) $2,000 income to Matt and $2,000 deduction for Tomohiro 
E) $2,000 income to Matt and $2,000 income to Tomohiro

Question 9

Fannie purchased ten $1,000 bonds from her broker this year.The bonds were issued four years ago and mature in six years.Due to a change in interest rates, the purchase price of the bonds was only $8,200.If the issuing company redeems the bonds for $10,000 at maturity, how will Fannie treat the $10,000 proceeds?

Accepted Answer

A) $10,000 ordinary income 
B) $1,800 ordinary income, $8,200 return of capital 
C) $1,800 capital gain, $8,200 return of capital 
D) $10,000 return of capital 
A) $10,000 ordinary income 
B) $1,800 ordinary income, $8,200 return of capital 
C) $1,800 capital gain, $8,200 return of capital 
D) $10,000 return of capital

Question 10

Which of the following explain why it is important to determine the period in which income is recognized?

Accepted Answer

A) Marginal tax rates may be different in different periods. 
B) Tax laws may change 
C) The time value of money 
D) All of the above are explanations 
A) Marginal tax rates may be different in different periods. 
B) Tax laws may change 
C) The time value of money 
D) All of the above are explanations

Question 11

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.

Accepted Answer

A) 0 
B) $10,000 
C) $140,000 
D) $150,000 
A) 0 
B) $10,000 
C) $140,000 
D) $150,000

Question 12

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?

Accepted Answer

A) $600 
B) $1,500 
C) $6,000 
D) $12,000 
A) $600 
B) $1,500 
C) $6,000 
D) $12,000

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Bryan, age 66, is retired.His wife, Rebecca, age 64, still works part-time.They have income from the following sources: $\begin{array}{lr}
\text { Rebecca's salary } & \$ 10,000 \
\text { Bryan's pension (all contributions made by his employer) } & 15,000 \
\text { Bryan's social security benefits } & 5,000 \
\text { Interest income from State of Montana bonds } & 1,000 \
\text { Dividend income from Ford Motor Co. stock } & 500 \
\text { Lottery prize }&50
\end{array}$
 What is their joint gross income?

Accepted Answer

A) $10,500 
B) $11,050 
C) $25,500 
D) $25,550 
E) $30,550 
A) $10,500 
B) $11,050 
C) $25,500 
D) $25,550 
E) $30,550

Question 15

Income must be realized before it can be recognized.

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) i.only 
B) i.and ii. 
C) i.and iv. 
D) ii.and iii. 
A) i.only 
B) i.and ii. 
C) i.and iv. 
D) ii.and iii.

Question 17

The installment method of income recognition is an application of the wherewithal to pay concept.

Accepted Answer

A) True 
 B)False

Question 18

Billy's father owns a controlling interest in Big Top Corporation.Billy needed $20,000 to pay a gambling debt and the corporation made a loan to Billy at no interest for the $20,000.This transaction can be characterized as:

Accepted Answer

A) A gift loan to Billy 
B) An employment-related loan 
C) An arm's length loan 
D) A disguised dividend to the father 
A) A gift loan to Billy 
B) An employment-related loan 
C) An arm's length loan 
D) A disguised dividend to the father

Question 19

In 2019, 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?

Accepted Answer

A) 0 
B) $4,000 
C) $4,400 
D) $4,600 
A) 0 
B) $4,000 
C) $4,400 
D) $4,600

Question 20

George and Georgette divorced in 2017.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?

Accepted Answer

A) $7,200 
B) $19,200 
C) $159,200 
D) $167,200 
A) $7,200 
B) $19,200 
C) $159,200 
D) $167,200

All of the following are allowable tax years except:

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

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

When a taxpayer has a tax year of less than 12 months, the taxpayer must always annualize income.

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?

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?

Which of the following explain why it is important to determine the period in which income is recognized?

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.

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

Income must be realized before it can be recognized.

The installment method of income recognition is an application of the wherewithal to pay concept.

Billy's father owns a controlling interest in Big Top Corporation.Billy needed $20,000 to pay a gambling debt and the corporation made a loan to Billy at no interest for the $20,000.This transaction can be characterized as:

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

All of the following are allowable tax years except:

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

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

When a taxpayer has a tax year of less than 12 months, the taxpayer must always annualize income.

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?

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?

Which of the following explain why it is important to determine the period in which income is recognized?

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.

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

Income must be realized before it can be recognized.

The installment method of income recognition is an application of the wherewithal to pay concept.

Billy's father owns a controlling interest in Big Top Corporation.Billy needed $20,000 to pay a gambling debt and the corporation made a loan to Billy at no interest for the $20,000.This transaction can be characterized as:

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