Exam 3: Income Sources

Teresa won $9,000 playing the Illinois lottery. Which of the following statements is/are correct? I. Teresa must include the $9,000 in gross income. II. The All-inclusive Income Concept applies to this situation. III. Legislative Grace allows Teresa to exclude lottery winnings from recognition.

Given below are Belinda's capital gains and losses for two consecutive years. What is the effect of the gains and losses on Belinda's taxable income for each year?

Stephen is a furniture salesman for Foster's Furniture Mart. Stephen purchases a bedroom suite from Foster's for $8,000. The sticker price is $11,000. Foster's policy is to "discount" all customer purchases for up to $1,000 off of the sticker price for purchases over $10,000. What is the tax treatment of Stephen's furniture purchase? I. Stephen does not need to account for the furniture purchase since it is for his personal use. II. Stephen has imputed income because of the nature of the furniture purchase.

The intent of the alimony recapture rules is to

Alan has the following capital gains and losses during the current year: Alan's capital gain/loss position for the year is:

Imputed interest rules and policies include which of the following? I. Gift loans have no income tax effect to the lender. II. Any loan of $10,000 or less is exempted from imputed interest rules. III. On gift loans of $100,000 or less, the imputed interest on the loan cannot exceed the borrower's net investment income for the year. IV. With a loan to a shareholder, a corporation can deduct the imputed payment.

Arnold is the President of Conrad Corporation. Arnold owns 30% of Conrad, which is organized as an S corporation. Arnold's salary is $100,000. Conrad reports the following for the current year: Conrad Corporation pays $400,000 of dividends. Explain the effect of the above information on Arnold's taxable income.

On January 1, Sandi borrows $40,000 from G&H Accounting firm, her employer, to pay-off charge accounts and other personal loans. Sandi must repay the $40,000 loan at the end of 5 years. Because Sandi has been loyal to her job, G&H is not charging Sandi interest on the $40,000 loan. The applicable federal interest rate is 6%. If Sandi has total net investment income for the current year of $200: I. Sandi has compensation income of $2,400. II. Sandi has a nontaxable gift from her employer of $2,400. III. G&H is allowed a deduction for $2,400 of compensation paid to Sandi. IV. There are no tax effects because Sandi's net investment income is less than $1,000.

Frank and Lilly are negotiating a divorce settlement. Frank has offered to pay Lilly $12,000 each year for 10 years, but payments cease upon Lilly's death. What are the tax implications of this proposition? I. Lilly must recognize Gross Income when the money is received. II. Frank has a deduction for Adjusted Gross Income in the year of payment.

Ursula owns an annuity that pays her $850 per month until she dies. Which of the following income tax concepts provides for the tax treatment of the annuity payments Ursula receives and the treatment in the year of death)? I. Administrative Convenience Concept II. Annual Accounting Period Concept III. Capital Recovery Concept IV. Constructive Receipt Doctrine

Amanda, who is single, owns 40% of the Sherwood Partnership. During the current year, Sherwood has the following results: Amanda withdraws $30,000 from the partnership. In addition, Amanda has a $30,000 a. long-term capital loss from the sale of an investment. What is Amanda's gross income from this information? Explain and show your calculations. Assume that in the next year, Sherwood Publishing has $80,000 of ordinary income, b. Amanda has a $24,000 short-term capital gain and taxable income from other sources of $20,000. What is her adjusted gross income? Explain and show your calculations.

Janelle receives a sterling silver tea set valued at $500 from her employer during her retirement dinner for her long years of service. The employer has a tradition of giving awards to some retiring employees, but has no qualified plan. I. $400 is excludable from Janelle's Gross Income. II. The $500 is excludable even if her employer only gives awards to its top executives.

Ruth purchased an annuity contract for $10,000. When she turns 65, she will receive $150 a month for the rest of her life. The first $10,000 she receives is a return of her capital and is not taxable.

Angelica has the following capital gains and losses during the current year: If Angelica's marginal tax rate is 33%, what is the effect of the above transactions on her taxable income and income tax liability?

Franco is owner and operator of a cleaning service who uses the accrual method of accounting. He receives the following payments on December 31, 2014, the last business day of his tax year: How much of the $11,400 collected by Franco on December 31 must be included in his 2014 gross income?

Patti sells a painting that has a fair market value of $9,000 to James for $6,000. Which of the following statements about the tax effect of the sale is/are correct? I. If James is an employee of Patti's, no income is recognized from the sale. II. If James is Patti's brother, James does not recognize any income from the sale. III. If Patti is an art dealer and she sold the painting to James because she needed cash quickly, James does not recognize any income from the sale. IV. If James owns 60% of Patti's company, James does not recognize any income from the sale.

The holding period for receiving long-term capital gain treatment is 12 months or more.

For any unrecovered portion of an annuity investment, the taxpayer is allowed a deduction in the year of death.

How much gross income does Ron have from the following items of economic income? • Received cash gift of $5,000 from parents. • Received $12,000 in alimony payments and $6,000 in child support from former spouse. • Won $4,000 in Indiana lottery scratch off game. • Investment in IBM stock increased in value by $15,000. • Collected $12,000 in unemployment benefits.

Darnel owns 10% of the stock in Allison Company. During the current year, Allison has operating income of $200,000 and distributes $80,000 to its owners. I. If Allison is a corporation, Darnel has $8,000 of income from Allison. II. If Allison is a partnership, Darnel has $20,000 of income from Allison.