Question 1

A consulting firm,organized as partnership and owned by 20 individual partners,reports about $40 million of gross receipts per year.The partnership must use the accrual method.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is least likely to result in a constructive dividend?

Accepted Answer

A) an unreasonable salary paid to a shareholder 
B) a sale of a corporation's asset to a shareholder at fair market value 
C) a payment by a corporation of a shareholder's debts 
D) a payment by a corporation of a shareholder's personal expenses

Question 3

AAA Corporation distributes an automobile to Alexandria,a shareholder,in lieu of a cash dividend.Alexandria must report the value of the automobile as dividend income.

Accepted Answer

A) True 
 B)False

Question 4

An electrician completes a rewiring job and is paid $1,000 by the customer in November.The customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages in December.The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee.How should the electrician treat these events when he files his tax return in April?

Accepted Answer

A) No income will be reported. 
B) The income will be reported for the year of receipt,and a tax deduction will be claimed on the tax return for the year of repayment. 
C) The income will be reported for the year of receipt,and then an amended return will be filed in the following year to claim the refund. 
D) Both the income and the deduction will be reported on the same tax return (for the year of receipt).

Question 5

Jacob,who is single,paid educational expenses of $16,000 in 2019.He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000.Jacob has other adjusted gross income of $85,100.The $3,000 exclusion must be reduced by

Accepted Answer

A) $0. 
B) $1,400. 
C) $1,600. 
D) $3,000.

Question 6

A cash-basis taxpayer can defer income recognition by refusing to accept payment.

Accepted Answer

A) True 
 B)False

Question 7

The portion of a taxpayer's wages that are garnished by court order and forwarded to pay a delinquent bank loan are not taxable income to the taxpayer.

Accepted Answer

A) True 
 B)False

Question 8

Todd and Hillary,husband and wife,file separate returns.Todd and Hillary live in a community property state that considers separate property income to be community income.Todd's salary is $82,000 and Hillary's salary is $80,000.Hillary receives dividend income of $7,000 from stock inherited from her parents.Todd receives interest income of $5,000 from bonds purchased with his salary after marriage.Todd and Hillary receive $10,000 dividend income from stock they purchased jointly.Todd's income would be

Accepted Answer

A) $92,000. 
B) $93,000. 
C) $94,500. 
D) $97,000.

Question 9

Unemployment compensation is exempt from federal income tax.

Accepted Answer

A) True 
 B)False

Question 10

CT Computer Corporation,a cash-basis taxpayer,sells service contracts on the computers it sells.At the beginning of January of this year,CT Corporation sold contracts with service to begin immediately: $$\begin{array} { | l | r | } 
\hline \text { One for three months } & \$ 200 \
\hline \text { One for } 20 \text { months } & 800 \
\hline \text { One for } 48 \text { months } & 4,000 \
\hline
\end{array}$$ The amount of income CT Corporation must report for this year is

Accepted Answer

A) $200. 
B) $1,000. 
C) $1,680. 
D) $5,000.

Question 11

XYZ Corporation declares a 10 percent stock dividend distributable to all shareholders.There is only the one class of stock outstanding,and shareholders do not have any choices with respect to the distribution.Carol had owned 100 shares of stock,and she received 10 new shares as a result of the stock dividend.The stock is trading at $25 per share as of the distribution.Carol will recognize $250 of dividend income.

Accepted Answer

A) True 
 B)False

Question 12

Under the terms of their divorce agreement,Humphrey transferred Corporation H stock to his former wife,Greta,as a property settlement.At the time of the transfer,the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000.What is the tax consequence of this transaction to Humphrey,and what is Greta's basis in the Corporation H stock?

Accepted Answer

A) Humphrey has no gain or loss; Greta's basis is $55,000. 
B) Humphrey has no gain or loss; Greta's basis is $40,000. 
C) Humphrey has a gain of $15,000; Greta's basis is $55,000. 
D) Humphrey has a gain of $15,000; Greta's basis is $40,000.

Question 13

The Cable TV Company,an accrual-basis taxpayer,allows its customers to pay by the month,by the year,or two years in advance.In December 2019,the company collected the following amounts applicable to future services:
Jan 2020 services (monthly contracts)$10,000
Dec 2019 - Nov 2020 services (annual contracts)48,000
Dec 2019 - Nov 2021 contracts (2-year contracts)72,000
Assuming Cable TV wants to minimize income reported for 2019,what is the amount of gross income that must be reported for 2019 and how much of the income from these contracts will be reported in 2020?

Accepted Answer

The answer of The Cable TV Company,an accrual-basis taxpayer,allows its...

Question 14

An accrual-basis taxpayer receives advance payment for services to be provided over three future years.The taxpayer can recognize the income over the three-year period as services are provided,consistent with its financial statements.

Accepted Answer

A) True 
 B)False

Question 15

Insurance proceeds received because of the destruction of property are

Accepted Answer

A) included in gross income in all cases. 
B) excluded from gross income completely. 
C) included in gross income to the extent the proceeds are less than the adjusted basis of the replacement property. 
D) included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property.

Question 16

An individual buys 200 shares of Target Corporation stock.In lieu of receiving quarterly dividends,the individual signs an agreement to have dividends reinvested by Target into additional shares of stock.The individual does not receive dividend checks so he need not recognize the quarterly dividends for tax purposes.

Accepted Answer

A) True 
 B)False

Question 17

Interest credited to a bank savings account is taxed regardless of whether or not it is withdrawn.

Accepted Answer

A) True 
 B)False

Question 18

Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate.The bonds have an equivalent level of risk.Daniel has a 35% marginal tax rate and wants to maximize his after-tax earnings.Daniel should

Accepted Answer

A) invest in the corporate bond due to its higher stated interest rate. 
B) invest in the tax-exempt bond since its yield is more than the after-tax return on the corporate bond. 
C) invest in the corporate bond because its after-tax earnings are more than the return on the tax-exempt bond. 
D) allocate his money equally between the two investments.

Question 19

Lily had the following income and losses during the current year: $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 75,000 \
\hline \text { Prize from quiz show } & 25,000 \
\hline \text { Unemployment compensation } & 8,000 \
\hline \text { Embezzled funds } & 30,000 \
\hline \text { Share of partnership income } & 35,000 \
\hline
\end{array}$$ What is Lily's adjusted gross income?

Accepted Answer

A) $135,000 
B) $143,000 
C) $165,000 
D) $173,000

Question 20

Tarik,a single taxpayer,has AGI of $55,000 which includes $1,000 of qualified dividends.Tarik does not of itemize deductions.What is his 2019 federal income tax?

Accepted Answer

A) $5,425 
B) $5,205 
C) $7,889 
D) None of the above

Exam 19: Gross Income: Inclusions

A consulting firm,organized as partnership and owned by 20 individual partners,reports about $40 million of gross receipts per year.The partnership must use the accrual method.

Which of the following is least likely to result in a constructive dividend?

AAA Corporation distributes an automobile to Alexandria,a shareholder,in lieu of a cash dividend.Alexandria must report the value of the automobile as dividend income.

Jacob,who is single,paid educational expenses of $16,000 in 2019.He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000.Jacob has other adjusted gross income of $85,100.The $3,000 exclusion must be reduced by

A cash-basis taxpayer can defer income recognition by refusing to accept payment.

The portion of a taxpayer's wages that are garnished by court order and forwarded to pay a delinquent bank loan are not taxable income to the taxpayer.

Unemployment compensation is exempt from federal income tax.

An accrual-basis taxpayer receives advance payment for services to be provided over three future years.The taxpayer can recognize the income over the three-year period as services are provided,consistent with its financial statements.

Insurance proceeds received because of the destruction of property are

Interest credited to a bank savings account is taxed regardless of whether or not it is withdrawn.

Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate.The bonds have an equivalent level of risk.Daniel has a 35% marginal tax rate and wants to maximize his after-tax earnings.Daniel should

Tarik,a single taxpayer,has AGI of $55,000 which includes $1,000 of qualified dividends.Tarik does not of itemize deductions.What is his 2019 federal income tax?