Exam 3: Determining Gross Income

George can invest $10,000 in a tax-exempt bond paying 6 percent interest or a $10,000 corporate bond paying 8 percent interest.What is the lowest marginal tax rate at which George will be better off investing in the tax-exempt bond?

All businesses whose average annual gross receipts for the three prior years do not exceed $26 million in 2019 ($25 million in 2018) may use the cash method.

Which of the following is an application of the wherewithal-to-pay concept?

In 1998, Carol purchased a single life annuity for $150,000 that would pay her $15,000 per year for life beginning in 2011.Carol's life expectancy from 2011 forward on which the payments were based was 20 years.

Clayton Corporation receives $100,000 to provide garbage service for the next four years:

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?

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

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

Which of the following is not included in income?

Which of the following types of income would a nonresident alien avoid paying tax on in the U.S.?

If a beneficiary of a life insurance policy receives the insurance proceeds over time in installments, then each installment received is fully taxable.

All stock dividends are nontaxable.

Up to 85 percent of a person's Social Security benefits may be included in gross income.

Meg was the beneficiary of a $50,000 life insurance policy when her father died at the end of last year.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 2019.Meg takes the annuity option.What amount must Meg include in her income in 2019?

Chloe owns 200 shares of TPP stock that she purchased 10 years ago for $1,500.Five years ago, there was a 3 for 2 stock split and she received 100 additional shares.This year, there was another 3 for 2 stock split and she received 150 additional shares.If the stock is currently selling for $10 per share, how much income does she recognize and what is her basis in these last 150 shares?

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.

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

All of the following result in nontaxable income except:

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?

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?