Deck 4: Gross Income: Concepts and Inclusions

Question 1

The realization requirement gives an incentive to own assets that have increased in value and to sell assets whose value has decreased.

Answer 1

True

Question 2

Ralph purchased his first Series EE bond during the year. He paid $709 for a 10-year bond with a $1,000 maturity value. The yield to maturity on the bonds was 3.5%. Ralph is not required to recognize the $291 ($1,000 - $709) original issue discount until the bond matures. However, Ralph can elect to amortize the discount over the ten-year period.

Answer 2

True

Question 3

ABC Corporation declared a dividend for taxpayers of record as of December 24, 2016. The dividend checks were mailed on December 31, 2016. Ed, a cash basis shareholder, received the dividend check on January 2, 2017. Ed cannot delay reporting the income from the dividend until 2017.

Answer 3

False

Question 4

In December 2016, Mary collected the December 2016 and January 2017 rent from a tenant. Mary is a cash basis taxpayer. The amount collected in December 2016 for the 2017 rent should be included in her 2017 gross income.

Question 5

Jessica is a cash basis taxpayer. When Jessica failed to repay a loan, the bank garnished her salary. Each week $60 was withheld from Jessica's salary and paid to the bank. Jessica is required to include the $60 each week in her gross income even though it is the creditor that benefits from the income.

Question 6

Barney painted his house which saved him $3,000. According to the realization requirement, Barney must recognize $3,000 of income.

Question 7

On January 1, 2017, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months. The amount received for the contract was $2,400. The taxpayer should report $1,600 of income in 2018.

Question 8

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Question 9

In 2017, Juan, a cash basis taxpayer, was offered $3 million for signing a professional baseball contract. He counter offered that he would receive $900,000 per year for 4 years beginning in 2018. The team accepted the counteroffer. Juan constructively received $3 million in 2017.

Question 10

On December 1, 2016, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2016 and $12,000 for January 2017. Daniel must include the $24,000 in 2016 gross income.

Question 11

An advance payment received in June 2017 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Question 12

Judy is a cash basis attorney. In 2017, she performed services in connection with the formation of a corporation and received stock with a value of $4,000 for her services. By the end of the year, the value of the stock had decreased to $2,000. She continued to hold the stock. Judy must recognize $4,000 of gross income from the stock for 2017.

Question 13

A sole proprietorship purchased an asset for $1,000 in 2016 and its value was $1,500 at the end of 2016. In 2017, the sole proprietorship sold the asset for $1,400. The sole proprietorship realized a taxable gain of $400 in 2017 but an economic loss of $100 in 2017.

Question 14

The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not assure that the method will be acceptable for tax purposes.

Question 15

In 2007, Terry purchased land for $150,000. In 2017, Terry received $10,000 from a local cable television company in exchange for Terry allowing the company to run an underground cable across Terry's property. Terry is not required to recognize income from receiving the $10,000 because it was a return of his capital invested in the land.

Question 16

A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1, 2015 that will pay $1,100 upon its maturity on June 30, 2017. The taxpayer must recognize a portion of the income in 2016.

Question 17

Nicholas owned stock that decreased in value by $20,000 during the year, but he did not sell the stock. He earned $45,000 salary, but received only $34,000 because $11,000 in taxes were withheld. Nicholas saved $10,000 of his salary and used the remainder for personal living expenses. Nicholas's economic income for the year exceeded his gross income for tax purposes.

Question 18

Fred is a full-time teacher. He has written a book and receives royalties from it. Fred's mother, Mabel, is age 65 and lives on her Social Security benefits and gifts from her son, Fred. This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support. Fred must include the amount of the royalty check in his gross income.

Question 19

At the beginning of 2017, Mary purchased a 3-year certificate of deposit (CD) for $8,760. The maturity value of the certificate was $10,000 and it was to yield 4.5%. She also purchased a Series EE bond for $6,400 with a maturity value in 10 years of $10,000. Mary must recognize $1,240 of income from the certificate of deposit in 2017, and $3,600 from the Series EE bonds in 2026.

Question 20

The constructive receipt doctrine requires that income must be recognized when it is made available to the cash basis taxpayer, although it has not been actually received. The constructive receipt doctrine does not apply to accrual basis taxpayers.

Question 21

Ted earned $150,000 during the current year. He paid Alice, his former wife, $75,000 in alimony. Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.

Question 22

The B & W Partnership earned taxable income of $140,000 for the year. Bryan is entitled to 50% of the profits, but Bryan withdrew only $60,000 during the year. Bryan's gross income from the partnership for the year is $60,000.

Question 23

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Question 24

Jacob and Emily were co-owners of a personal residence. As part of their divorce agreement, Emily paid Jacob cash for his interest in the personal residence. This cash payment results in a taxable gain to Jacob if he receives more cash than his share of the cost of the residence.

Question 25

When a business is operated as an S corporation, a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

Question 26

If the alimony recapture rules apply, the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

Question 27

Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000. Fred later sells the stock for $100,000. Fred's recognized gain from the sale of the stock is $5,000.

Question 28

Linda delivers pizzas for a pizza shop. On Wednesday, December 31, 2017, Linda made several deliveries and collected $400 from customers. However, Linda forgot to turn in the proceeds for the day to her employer until the following Friday, January 2, 2018. The pizza shop owner recognizes the income of $400 when he receives it from Linda in 2018.

Question 29

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Question 30

After the divorce, Jeff was required to pay $18,000 per year to his former spouse, Darlene, who had custody of their child. Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21. During the year, Jeff paid the $18,000 required under the divorce agreement. Darlene must include the $12,000 in gross income.

Question 31

Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000. On the date of the gift, March 31, 2017, the accrued interest on the bond was $100. On December 31, 2017, Brent collected $400 interest on the bond. Brent must include in gross income the $300 interest earned after the date of the gift.

Question 32

April, a calendar year taxpayer, is a 40% partner in Pale Partnership, whose fiscal year ends on September 30th. For the fiscal year ending September 30, 2017, the partnership had $400,000 net income and for fiscal year ending September 30, 2018, the partnership had $300,000 net income. April withdrew $100,000 in December of each year. April's gross income from the partnership for 2017 is $160,000 ($400,000 × 40%).

Question 33

In all community property states, the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

Question 34

Jake is the sole shareholder of an S corporation that earned $60,000 in 2017. The corporation was short on cash and therefore distributed only $15,000 to Jake in 2017. Jake is required to recognize $60,000 of income from the S corporation in 2017.

Question 35

Tom, a cash basis taxpayer, purchased a bond on March 31 for $10,000, plus $100 accrued interest. In December, Tom collected $500 interest from the bond. Tom's interest income from the bond for the year is $500.

Question 36

Mark is a cash basis taxpayer. He is a partner in the M&M partnership, and his share of the partnership's profits for 2017 is $90,000. Only $40,000 was distributed to him in January 2017, and this was his share of the 2016 partnership profits. None of the 2017 profits were distributed. Mark's gross income from the partnership for 2017 is $40,000.

Question 37

George and Erin are divorced, and George is required to pay Erin $20,000 of alimony each year. George earns $75,000 a year. Erin is required to include the alimony payments in gross income although George earned the income.

Question 38

Alvin is the sole shareholder of an S corporation that earned $200,000 in 2017 and distributed $75,000 to Alvin. Alvin must recognize $75,000 as income from the S corporation in 2017.

Question 39

When stock is sold after the date of declaration but before the record date, the buyer must recognize as income the dividend declared.

Question 40

Rhonda has a 30% interest in the capital and profits of the ABC Partnership. In the first year of the partnership, 2017, it earned $150,000. However, the partners agreed that nothing would be distributed until after the end of March 2018, before Rhonda filed her 2017 tax return. The distributions were to be delayed because it was unclear as to whether business conditions would remain good in 2018. Things were going well in 2018 and therefore the partnership distributed $30,000 to Rhonda at the end of March, as a portion of her share of the partnership's 2017 earnings. The partnership's income for 2018 was $60,000. As a result, Rhonda must recognize $30,000 of gross income in 2017 and $18,000 in 2018.

Question 41

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

A)Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B)Sue is not required to recognize gross income from the receipt of the funds, but she must reduce her cost basis in the land by $2,000.
C)Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D)Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000.
E)None of these.

Question 42

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

Question 43

For purposes of determining gross income, which of the following is true?

A)A mechanic completed repairs on an automobile during the year and collects money from the customer. The customer was not satisfied with the repairs and sued the mechanic for a refund. The mechanic can defer recognition of the income until the suit has been settled.
B)A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.
C)Embezzlement proceeds are not included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)All of these are false.
E)All of these are true.

Question 44

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

A)All of the income must be recognized in the year of maturity by a cash basis taxpayer.
B)The OID will be included in gross income for the year of purchase.
C)The interest income will be the same each year.
D)The interest income will be greater in the third year than in the first year.
E)None of these is correct.

Question 45

Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill. Detroit had created its goodwill through providing high-quality services to its customers. Thus, no basis for the goodwill appeared on Detroit's balance sheet. The suit was settled and Detroit received $1,500,000 for the damages to its goodwill.

A)The $1,500,000 is not taxable because it represents a recovery of capital.
B)The $1,500,000 is taxable because Detroit has no basis in the goodwill.
C)The $1,500,000 is not taxable because Detroit did nothing to earn the money.
D)The $1,500,000 is not taxable because Detroit settled the case.
E)None of these.

Question 46

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day. If Tom works, he must hire a painter for $120. For Tom to have a positive cash flow from working and hiring the painter:

A)Tom must earn more than $160 if he is in the 25% marginal tax bracket.
B)Tom must earn at least $160 if he is in the 33% marginal tax bracket.
C)Tom must earn at least $150 if he is in the 25% marginal tax bracket.
D)Tom must earn at least $135 if he is in the 15% marginal tax bracket.
E)None of these.

Question 47

Lois, who is single, received $9,000 of Social Security benefits. She also received $25,000 from dividends, interest, and her employer's pension plan. If Lois sells a capital asset that produces a $1,000 recognized loss, Lois's taxable income will decrease by more than $1,000.

Question 48

In the case of a person with other income of $300,000, 15% of his or her Social Security benefits received are excluded from gross income.

Question 49

Turner, a successful executive, is negotiating a compensation plan with his potential employer. The employer has offered to pay Turner a $600,000 annual salary, payable at the rate of $50,000 per month. Turner counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in 5 years when Turner will be age 65.

A)If the employer accepts Turner's counteroffer, Turner will recognize $660,000 at the time the offer is accepted.
B)If the employer accepts Turner's counteroffer, Turner will recognize as gross income $55,000 per month [($480,000 + $180,000)/12].
C)If the employer accepts Turner's counteroffer, Turner will recognize $40,000 income each month for the year and $180,000 in year 5.
D)If the employer accepts Turner's counteroffer, Turner must recognize imputed interest income on the $180,000 to be received in 5 years.
E)None of these.

Question 50

Freddy purchased a certificate of deposit for $20,000 on July 1, 2017. The certificate's maturity value in two years (June 30, 2019) is $21,218, yielding 3% before-tax interest.

A)Freddy must recognize $1,218 gross income in 2017.
B)Freddy must recognize $1,218 gross income in 2019.
C)Freddy must recognize $600 (.03 × $20,000) gross income in 2019.
D)Freddy must recognize $300 (.03 × $20,000 × .5) gross income in 2017.
E)None of these.

Question 51

The annual increase in the cash surrender value of a life insurance policy:

A)Is taxed when the individual dies and the heirs collect the insurance proceeds.
B)Must be included in gross income each year under the original issue discount rules.
C)Reduces the deduction for life insurance expense.
D)Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
E)None of these.

Question 52

The annual increase in the cash surrender value of a life insurance policy:

A)Is taxed according to the original issue discount rules.
B)Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
C)Reduces the deduction for life insurance expense.
D)Is exempt because it is life insurance proceeds.
E)None of these.

Question 53

Maroon Corporation expects the employees' income tax rates to increase next year. The employees use the cash method. The company presently pays on the last day of each month. The company is considering changing its policy so that the December salaries will be paid on the first day of the following year. What would be the effect on an employee of the proposed change in company policy for paying its salaries beginning December 2017?

A)The employee would be required to recognize the income in December 2017 because it is constructively received at the end of the month.
B)The employee would be required to recognize the income in December 2017 because the employee has a claim of right to the income when it is earned.
C)The employee will not be required to recognize the income until it is received, in 2018.
D)The employee can elect to either include the pay in 2017 or 2018.
E)None of these.

Question 54

Norma's income for 2017 is $27,000 from part-time work and $9,000 of Social Security benefits. Norma is not married. A portion of her Social Security benefits must be included in her gross income.

Question 55

In the case of a below-market gift loan for which there is no exception to the imputed interest rules, the lender is deemed to have received interest income even though no interest is charged and collected.

Question 56

Susan purchased an annuity for $200,000. She is to receive $18,000 each year and her life expectancy is 13 years. If Susan collects under the annuity for 14 years, the entire $18,000 received in the 14th year must be included in her gross income.

Question 57

The tax concept and economic concept of income are in agreement on which of the following:

A)The fair rental value of an owner-occupied home should be included in income.
B)The increase in value of assets held for the entire year should be included in income for the year.
C)Rent income for 2018 collected in 2017 is income for 2017.
D)All of these.

Question 58

In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000.

Question 59

Terri purchased an annuity for $100,000. She was to receive $10,000 per year and her life expectancy was 20 years. She died after receiving 8 payments. Terri's final return should reflect a loss of $20,000 ($100,000 - $80,000).

Question 60

If the employer provides all employees with group term life insurance equal to twice the employee's annual salary, an employee with a salary of $50,000 has no gross income from the life insurance protection provided by the employer.

Question 61

With respect to the prepaid income from services, which of the following is true?

A)The treatment of prepaid income is the same for tax and financial accounting.
B)A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
C)An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
D)An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.
E)None of these.

Question 62

Under the alimony rules:

A)To determine whether a cash payment is alimony, one must consult the state laws that define alimony.
B)A person who receives a property division has experienced an increase in wealth and thus should be subject to tax.
C)The income is included in the gross income of the recipient of the payments.
D)A person who earns $90,000 and pays $20,000 in alimony is taxed on $90,000 because the $20,000 alimony is income assigned to the former spouse.
E)None of these.

Question 63

Daniel purchased a bond on July 1, 2017, at par of $10,000 plus accrued interest of $300. On December 31, 2017, Daniel collected the $600 interest for the year. On January 1, 2018, Daniel sold the bond for $10,200.

A)Daniel must recognize $300 interest income for 2017 and a $200 gain on the sale of the bond in 2018.
B)Daniel must recognize $600 interest income for 2017 and a $200 gain on the sale of the bond in 2018.
C)Daniel must recognize $600 interest income for 2017 and a $100 loss on the sale of the bond in 2018.
D)Daniel must recognize $300 interest income for 2017 and a $100 loss on the sale of the bond in 2018.
E)None of these.

Question 64

Mike contracted with Kram Company, Mike's controlled corporation. Mike was a medical doctor and the contract provided that he would work exclusively for the corporation. No other doctor worked for the corporation. The corporation contracted to perform an operation for Rosa for $8,000. The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

A)Mike's gross income is $6,500.
B)Mike must recognize the $8,000 gross income because he provided the service.
C)Mike must recognize $8,000 gross income since the patient obviously wanted him to perform the operation.
D)The Kram Company corporation's gross income is $1,500.
E)None of these.

Question 65

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2013, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2017, she sold the bond for $9,800, which included $200 of accrued interest.

A)Theresa has $200 interest income and a $400 loss from the bond in 2017.
B)Theresa has $200 interest income and a $200 gain from the bond in 2017.
C)Theresa has a $100 loss from the sale of the bond and no interest income.
D)Theresa's loss on the sale of the bond is $600.
E)None of these.

Question 66

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($500 per year), or two years in advance ($950). In September 2017, the company collected the following amounts applicable to future services: As a result of the above, Orange Cable should report as gross income:

A)$272,000 in 2017.
B)$128,000 in 2017.
C)$168,000 in 2018.
D)$222,000 in 2018.
E)None of these.

Question 67

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2017. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2017.

A)The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $2,000.
B)Darryl must recognize the income of $2,000 because the purpose of the gift was to avoid taxes.
C)Darryl must recognize $1,500 of the dividend because he owned the stock for three-fourths of the year.
D)Darryl must recognize the $2,000 dividend as his income because he constructively received the dividend.
E)None of these.

Question 68

Office Palace, Inc., leased an all-in-one printer to a new customer, Ashley, on December 27, 2017. The printer was to rent for $600 per month for a period of 36 months beginning January 1, 2018. Ashley was required to pay the first and last month's rent at the time the lease was signed. Ashley was also required to pay a $1,500 damage deposit. Office Palace must recognize as income for the lease:

A)$0 in 2017, if Office Palace is an accrual basis taxpayer.
B)$7,800 in 2018, if Office Palace is a cash basis taxpayer.
C)$2,700 in 2017, if Office Palace is a cash basis taxpayer.
D)$1,200 in 2017, if Office Palace is an accrual basis taxpayer.
E)None of these.

Question 69

With respect to income from services, which of the following is true?

A)The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)A cash basis taxpayer can spread the income from a 24-month service contract over the contract period.
C)If an accrual basis taxpayer sells a 36-month service contract on July 1, 2017 for $3,600, the taxpayer's 2017 gross income from the contract is $600.
D)If an accrual basis taxpayer sells a 24-month service contract on July 1, 2017, one-half (12/24) the income is recognized in 2018.
E)None of these.

Question 70

Teal company is an accrual basis taxpayer. On December 1, 2017, a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2018. Teal delivered the item on January 4, 2018. Teal included the sale in its 2017 income for financial accounting purposes.

A)Teal must recognize the income in 2017.
B)Teal must recognize the income in the year title to the goods passed to the customer, as determined under the state laws in which the store is located.
C)Teal can elect to recognize the income in either 2017 or 2018.
D)Teal must recognize the income in 2018.
E)None of these.

Question 71

On January 5, 2017, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2017, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2017: ​

A)Tim must include all of the interest in his gross income.
B)Jane must report $1,800 gross income for 2017.
C)Jane reports $1,350 of interest income in 2017, and Tim reports $450 of interest income in 2017.
D)Jane reports $450 of interest income in 2017, and Tim reports $1,350 of interest income in 2017.
E)None of these is correct.

Question 72

Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity value in 10 years of $1,000 and yields 3% interest. This is the first Series EE bond that Jerry has ever owned.

A)Jerry can defer the interest income until the bond matures in 10 years.
B)Jerry must report ($1,000 - $744)/10 = $25.60 interest income each year he owns the bond.
C)The interest on the bonds is exempt from Federal income tax.
D)Jerry can report all of the $256 as a capital gain in the year it matures.
E)None of these.

Question 73

The Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 ($480/12 = $40 per month); a two-year membership costs $720 ($720/24 = $30 per month). Cash payment is required at the beginning of the membership period. On July 1, 2017, the company sold a one-year membership and a two-year membership. The company should report as gross income from the two contracts:

A)$1,200 in 2017.
B)$960 in 2017.
C)$180 in 2019.
D)$780 in 2018
E)None of these.

Question 74

Travis and Andrea were divorced. Their only marital property consisted of a personal residence (fair market value of $400,000, cost of $200,000), and publicly-traded stocks (fair market value of $800,000, cost basis of $500,000). Under the terms of the divorce agreement, Andrea received the personal residence and Travis received the stocks. In addition, Andrea was to receive $50,000 for eight years. I.
​
If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years), the payments will qualify as alimony.
II)
​
Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash.
III)
If Travis sells the stocks for $900,000, he must recognize a $400,000 gain.

A)Only III is true.
B)Only I and III are true.
C)Only I and II are true.
D)I, II, and III are true.
E)None of these are true.

Question 75

On November 1, 2017, Bob, a cash basis taxpayer, gave Dave common stock. On October 30, 2017, the corporation had declared the dividend payable to shareholders of record as of November 22, 2017. The dividend was paid on December 15, 2017. The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock. When Dave collected the dividend on December 15, 2017:

A)Bob must include $1,000 (10/12 x $1,200) of the dividend in his gross income.
B)Bob must include all of the dividend in his gross income.
C)Dave must include all of the dividend in his gross income.
D)Dave should treat the $1,200 as a recovery of capital.
E)None of these is correct.

Question 76

As a general rule: I.
Income from property is taxed to the person who owns the property.
II)
Income from services is taxed to the person who earns the income.III.
The assignee of income from property must pay tax on the income.IV.
The person who receives the benefit of the income must pay the tax on the income.

A)Only I and II are true.
B)Only III and IV are true.
C)I, II, and III are true, but IV is false.
D)I, II, III, and IV are true.
E)None of these is true.

Question 77

The Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $500 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of the tax year, the company had $50,000 of unearned revenues from these contracts. The company also had $10,000 in unearned rent income received from excess office space leased to other companies. Based on the above, Green must include in gross income for the current year:

A)$60,000.
B)$50,000.
C)$10,000.
D)$0.
E)None of these.

Question 78

Jim and Nora, residents of a community property state, were married in early 2016. Late in 2016 they separated, and in 2017 they were divorced. Each earned a salary, and they received income from community owned investments in all relevant years. They filed separate returns in 2016 and 2017.

A)In 2017, Nora must report only her salary and one-half of the income from community property on her separate return.
B)In 2017, Nora must report on her separate return one-half of the Jim and Nora salary and one-half of the community property income.
C)In 2017 Nora must report on her separate return one-half of the Jim and Nora salary for the period they were married as well as one-half of the community property income and her income earned after the divorce.
D)In 2017, Nora must report only her salary on her separate return.
E)None of these.

Question 79

Wayne owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership). For tax year 2017, the partnership earned revenue of $900,000 and had operating expenses of $660,000. During the year, Wayne withdrew from the partnership a total of $90,000. He also invested an additional $30,000 in the partnership. For 2017, Wayne's gross income from the partnership is:

A)$72,000.
B)$90,000.
C)$132,000.
D)$162,000.

Question 80

Harry and Wanda were married in Texas, a community property state, but moved to Virginia, a common law state. The calculation of their income on a joint return:

A)Will increase as a result of changing their state of residence.
B)Will decrease as a result of changing their state of residence.
C)Will not change as a result of changing their state of residence.
D)Will not be permitted.
E)None of these.