Exam 3: Determining Gross Income

Hannah has $20,000 invested in corporate bonds with a stated interest rate of 6 percent and $20,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 5 percent.What is her annual after-tax cash flow from interest income for each investment if her marginal tax rate is 24%?

Under the source principle of international taxation, income will be taxed in a particular jurisdiction if the source of that income is a business operating in that jurisdiction.

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 24 percent and 10 percent marginal tax brackets, respectively.How much family tax savings is achieved through this transaction?

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 competed contract method of accounting, how much profit (loss) should Carbon recognize in years 1, 2, and 3 respectively?

Which of the following doctrines does not affect the timing of income recognition for a cash basis taxpayer?

Multiplying the annuity amount received by the ratio of the investment in the annuity to the expected return determines the annuity's taxable portion.

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

All taxpayers may use the accrual method of determining income but certain taxpayers may not use the cash method.

Elizabeth is the beneficiary of an $800,000 insurance policy on her husband's life.Elizabeth can elect to receive $165,000 per year for 5 years or received the entire $800,000 in a lump sum the first year.If she elects to receive the lump sum, how much is included in income in the first year.

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?

Income of a nonresident alien cannot be taxed by the United States.

Qualified dividends are dividends that are eligible for the reduced tax rates for dividend 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?

Community property states allow income to be taxed to a person who did not earn the income.

All government bonds are exempt from the application of the OID rules.

Cal (an accrual-basis taxpayer) enters into a ten-year lease on some rental property.In year 1, Cal receives $3,000 as a security deposit, $5,000 for the first year's rent, and $5,000 for the last year's rent.How much income must Cal report in this first year?

Constructive receipt requires an accrual basis taxpayer to recognize income when the taxpayer has an unrestricted right to a payment that is to be received.

Marylee and George divorced in 2018 after 20 years of marriage during which time George gave up his career and stayed home with their children.In 2019, Marylee, the CEO of a mail order company, transfers their home valued at $450,000 and held in joint tenancy to George as part of the divorce settlement.She also agreed to pay George $4,000 per month alimony and $6,000 per month in child support beginning in January of 2019.If George has no other income, what is his adjusted gross income for 2019?

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?

Bigtown Advertising Agency, a calendar-year, accrual basis taxpayer, was paid $60,000 for a three-year advertising contract on July 1, 2019, and $36,000 for a 12-month contract on December 1, 2019.How much income must Bigtown recognize for these contracts in years 2019 and 2020, respectively?