Question 1

Windjammer Corporation,a cash-basis,calendar-year corporation sold $30,000 of merchandise to Jackpot Company in January,year 1.In November,Jackpot declared bankruptcy without paying Windjammer.In year 4,Jackpot had reorganized under a new owner and paid all its old debts including the $30,000 owed Windjammer.How does Windjammer treat these events?

Accepted Answer

A) Recognize $30,000 revenue in year 1 only. 
B) Recognize $30,000 revenue in year 4 only. 
C) Deduct $30,000 as a bad debt in year 1. 
D) Deduct $30,000 as a bad debt in year 1;recognize $30,000 income in year 4.

Question 2

_____ 15.Up to 85 percent of a person's Social Security payments may be included in gross income.

Accepted Answer

A) True 
 B)False

Question 3

_____ 5.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 4

_____ 8.The completed contract method requires income to be recognized annually based on the costs incurred in that year.

Accepted Answer

A) True 
 B)False

Question 5

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?

Accepted Answer

A) $5,000 
B) $8,000 
C) $10,000 
D) $13,000

Question 6

_____ 9.The assignment of income doctrine allows one taxpayer to assign income to another taxpayer for tax purposes.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

Which of the following is not included in income?

Accepted Answer

A) Alimony 
B) $100 Christmas bonus 
C) $50 interest on New York City general revenue bonds 
D) A television won in a church raffle.

Question 9

Under the percentage-of-completion method,how much profit should Carbon recognize in year 2?

Accepted Answer

A) $400,000 
B) $300,000 
C) $225,000. 
D) $150,000

Question 10

Which of the following are included in gross income?

Accepted Answer

A) Jury fees 
B) Gambling winnings 
C) Interest on federal tax refund 
D) All are included in income

Question 11

_____ 10.All government bonds are exempt from the application of the OID rules.

Accepted Answer

A) True 
 B)False

Question 12

_____ 7.The installment method of income recognition is an application of the wherewithal to pay concept.

Accepted Answer

A) True 
 B)False

Question 13

_____ 17.Income of a nonresident alien cannot be taxed by the United States.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) Installment method 
B) All-events test 
C) Wherewithal-to-pay 
D) Constructive receipt

Question 15

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?

Accepted Answer

A) 0 
B) $233 
C) $350 
D) $420

Question 16

Under the percentage-of-completion method,how much profit should Carbon recognize in year 1?

Accepted Answer

A) $0 
B) $75,000 
C) $100,000 
D) $400,000

Question 17

_____ 1 9.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.

Accepted Answer

A) True 
 B)False

Question 18

_____ 4.A calendar year always ends on December 31.

Accepted Answer

A) True 
 B)False

Question 19

Meg was the beneficiary of a $50,000 life insurance policy when her father died at the end of 2011.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 2013.Meg takes the annuity option.What amount must Meg include in her income in 2013?

Accepted Answer

A) 0 
B) $3,000 
C) $3,833 
D) $8,000

Question 20

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?

Accepted Answer

A) $5,900 
B) $3,800 
C) $2,100 
D) 0

Exam 3: Determining Gross Income

_____ 15.Up to 85 percent of a person's Social Security payments may be included in gross income.

_____ 5.All taxpayers may use the accrual method of determining income but certain taxpayers may not use the cash method.

_____ 8.The completed contract method requires income to be recognized annually based on the costs incurred in that year.

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?

_____ 9.The assignment of income doctrine allows one taxpayer to assign income to another taxpayer for tax purposes.

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:

Which of the following is not included in income?

Under the percentage-of-completion method,how much profit should Carbon recognize in year 2?

Which of the following are included in gross income?

_____ 10.All government bonds are exempt from the application of the OID rules.

_____ 7.The installment method of income recognition is an application of the wherewithal to pay concept.

_____ 17.Income of a nonresident alien cannot be taxed by the United States.

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

Under the percentage-of-completion method,how much profit should Carbon recognize in year 1?

_____ 1 9.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.

_____ 4.A calendar year always ends on December 31.