Question 1

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

Question 2

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  True

Question 3

Shelly is in the 25 percent tax bracket and expects to remain in that bracket in the future.She has $100,000 to invest for 5 years and has the following alternatives: (a)corporate bonds paying 7 percent; (b)tax-exempt bonds paying 4.5 percent; (c)land that is expected to increase in value to $140,000 in 5 years.Interest on either the corporate bonds or the tax-exempt bonds can be reinvested at 7 percent interest.Any gain on the sale of the land will be eligible for the 15 percent long-term capital gain tax rate.Calculate the after-tax return for each investment.Which investment do you recommend she choose?

Accepted Answer

aTaxable interest: $100,000 x .07 = $7,000; $7,000 x (1-.25)= $5,250 after tax; $5,250 x 5.751 = $30,193 at the end of 5 years.b.Tax-exempt interest: $100,000 x .045 = $4,500; $4,500 x 5.751 = $25,880 at the end of five years.c.Land: $140,000 - $100,000 = $40,000; $40,000 x (1 - .15)= $34,000.Shelly should invest in the land. Present/Future value tables required for solution.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Carol attends State U.and received a $10,000 scholarship for her senior year that began in September,year 1.Up to the time of her graduation in May,year 2,Carol had paid the following expenses for the two semesters: 1^st semester: $3,000 tuition; $1,550 room and board in a dormitory; $400 for books and fees. 2^nd semester: $3,000 tuition; $1,700 living expenses in an apartment; $250 for books and fees. She used the remaining money from the scholarship to purchase clothes for job hunting in April,year 2. Does Carol have any income as a result of the scholarship? If yes,how much is her income and in what years would it be included in income?

Accepted Answer

The answer of Carol attends State U.and received a $10,000...

Question 6

Most stock dividends are nontaxable.

Accepted Answer

A) True 
 B)False

Question 7

Individuals who live in one state but work in another may be subject to income taxes at the state level in both jurisdictions.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

What is an annuity? How is annuity income taxed?

Accepted Answer

The answer of What is an annuity? How is annuity...

Question 10

Explain the relationship between realization and recognition of gains or losses.

Accepted Answer

The answer of Explain the relationship between realization and recognition...

Question 11

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.

Question 12

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

Question 13

What types of government transfer payments are excluded from gross income?

Accepted Answer

The answer of What types of government transfer payments are...

Question 14

Colin and Coleen divorced in the current year.Colin is willing to pay Coleen $20,000 of alimony for five years so that she can return to school and obtain a degree.Coleen has stated that she needs no less than $20,000 after taxes and will not accept Colin's offer of alimony.Coleen is in the 15 percent tax bracket and Colin is in the 33 percent tax bracket.How much alimony must Coleen receive to have $20,000 after taxes? What is Colin's after-tax cost of this alimony payment?

Accepted Answer

The answer of Colin and Coleen divorced in the current...

Question 15

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.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

James ran a stop sign and smashed into Mary's automobile.Mary was seriously injured and sued James and his insurance company.She was awarded the following:
-12,000 for lost income
-$60,000 for hospital costs
-$10,000 for therapy to overcome her fear of driving
-$100,000 for the loss of function in her right hand
-$50,000 punitive damages
Mary's actual hospital costs were $62,000 and her therapy cost $7,000.How much must Mary include in income?

Accepted Answer

The answer of James ran a stop sign and smashed...

Question 19

Teddy,a single man,has $5,000 of taxable dividends,$3,000 of interest income from State of Oregon bonds,a $5,000 long-term capital gain,and $9,000 of Social Security benefits.What is Teddy's adjusted gross income?

Accepted Answer

The answer of Teddy,a single man,has $5,000 of taxable dividends,$3,000...

Question 20

Income must be realized before it can be recognized.

Accepted Answer

A) True 
 B)False

Exam 3: Determining Gross Income

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?

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

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

Most stock dividends are nontaxable.

Individuals who live in one state but work in another may be subject to income taxes at the state level in both jurisdictions.

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.

What is an annuity? How is annuity income taxed?

Explain the relationship between realization and recognition of gains or losses.

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.

All of the following are allowable tax years except:

What types of government transfer payments are excluded from gross income?

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

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

Teddy,a single man,has $5,000 of taxable dividends,$3,000 of interest income from State of Oregon bonds,a $5,000 long-term capital gain,and $9,000 of Social Security benefits.What is Teddy's adjusted gross income?

Income must be realized before it can be recognized.