Question 1

Paul Penn, a cash basis taxpayer, received a desk in exchange for bookkeeping services. He should report the fair market value of the desk as income.

Accepted Answer

ftis is an example of bartering.

Question 2

An amount called a security deposit which is to be used as a ﬁnal payment of rent should not be included in rental income in the year received, but should be included in income in the year the lease expires.

Accepted Answer

If it is prepaid rent it must be included in the year received

Question 3

A scholarship received by a student that represents compensation for past, present, or future services is includible in gross income.

Accepted Answer

Scholarships that represent compensation for past, present, or future services are considered taxable income and must be included in the student's gross income. However, scholarships that are used for qualified educational expenses such as tuition and books may be tax-free.

Question 4

Dan Drew owned two shares of a corporation's common stock. He paid $60 for one share and $30 for the other share. fte corporation declared a stock dividend which gave stockholders two new shares of common stock for each share they held. After the distribution, Dan owns six shares of stock with an adjusted basis of $15 each.

Accepted Answer

the re are two lots of stock and a basis is determined for each.

Question 5

Ms. Clara Crayola, a teacher, received a cash award of $5,000 from the Chamber of Commerce in recognition of her past accomplishments in the ﬁeld of education. She was chosen without action on her part and is not expected to perform any future services. fte $5,000 award is the same as any other prize and must be reported by Clara as income in 2012.

Accepted Answer

Ms. Crayola may not assign this award to a charitable organization because it is not in the ﬁelds of science, charity, or the arts.

Question 6

Zelda Zayer leased a room to Victor Vaughn for one year. He paid her $500 for November's and December's rent and $100 as a security deposit to be returned to him at the end of the lease. Zelda must include the $600 as income when received.

Accepted Answer

Security deposits, if they are to be returned at the end of the lease period, are not considered rental income

Question 7

Payments of a former wife's medical expenses under a divorce decree requiring that the husband pay the wife's future medical expenses in addition to qualifying alimony are deductible as alimony.

Accepted Answer

the medical expenses paid by a former husband are not considered alimony. He may deduct the expenses on his tax return only as medical expenses.

Question 8

Advance rent must be included in rental income in the year received regardless of the period covered or the accounting method used.

Accepted Answer

ftis is prepaid rent.

Question 9

fte fair market value of property or services received in bartering must be included in gross income.

Accepted Answer

According to the IRS, the fair market value of property or services received in bartering must be included in gross income.

Question 10

Rick Rambler is divorced from his wife, who has custody of their child. fte divorce decree provides that Rick must pay his former wife $15 per week toward the child's support, which he did throughout the calendar year. fte decree also provides that he may claim the child as his exemption. Rick's former wife can prove that during the year she contributed $7,500 toward the support of the child. Rick is entitled to claim the exemption for the child.

Accepted Answer

The divorce decree allows Rick to claim the exemption for the child, and there is no information given to suggest that he is not entitled to it. The fact that his former wife contributed $7,500 toward the child's support does not impact his right to claim the exemption.

Question 11

When corporate bonds are sold between interest dates, the purchaser may take a deduction for that part of the purchase price that represents accrued interest as a return on capital from the next interest payment.

Accepted Answer

the buyer may subtract from the next interest income payment received the accrued interest as a return of capital.

Question 12

If both alimony and child support payments are required by the divorce decree or agreement and less than the required amount is paid, the payments apply ﬁrst to child support and then to alimony.

Accepted Answer

If both alimony and child support payments are required, the payments are applied first to child support and then to alimony if the full amount is not paid.

Question 13

Dr. Yomo, a cash basis taxpayer, received a check for $250 after banking hours on December 30, 2012, from a patient. Since Dr. Yomo could not deposit the check in his business checking account until January 2, 2013, the fee of $250 is not included in his income for 2012.

Accepted Answer

Dr. Yomo has income when he receives the check. It does not matter whether or not he can cash it at his bank or grocery store or if he can sign it over to his creditors.

Question 14

Tim ftayer, a lessee of part of an oﬃce building from an unrelated lessor, made permanent improvements which had a useful life longer than the remaining term of the lease. fte improvements are not recovery property. Tim may amortize the cost of the improvement over the remaining term of the lease.

Accepted Answer

According to IRS regulations, a lessee can amortize the cost of permanent improvements over the remaining term of the lease, even if the useful life of the improvement exceeds the remaining lease term. However, the improvements must not be considered recovery property, which includes items like equipment and furniture.

Question 15

Dr. Nelly Newman recently graduated from medical school and has begun her internship in a university hospital. Dr. Newman receives a $1,200 per month stipend, the same as all other interns. fte internship is a required part of Dr. Newman's training as it is of all other medical school graduates entering her ﬁeld of speciality. fte $1,200 per month stipend represents a nontaxable grant.

Accepted Answer

the $1,200 is received for services performed

Question 16

Alan Anderson, a lessor, entered into a 10-year lease with a lessee in 2012. In addition to the $5,000 received for the 2012 rent, Alan received $5,000 in advance rent for the last year of the lease. Alan must include $10,000 in rental income in 2012.

Accepted Answer

ftis is rent received in advance

Question 17

Compensation for damages to a person's character or for personal injury or illness is taxable.

Accepted Answer

Compensatory damages are not taxable

Question 18

If the tenant pays any expenses of the landlord, these payments are rental income to the landlord and must be included in the landlord's return.

Accepted Answer

ftis is an example of bartering.

Question 19

In 2012, Greta Grady received $50,000 in advance payments under a 50-month lease agreement. fte $50,000 represented the entire amount due under the lease. ftere were no restrictions on the use or enjoyment of the payments. Greta must include the $50,000 as income in 2012.

Accepted Answer

ftis is prepaid rent.

Question 20

On December 31, 2012, George Gaines' bank credited his savings account with interest earned from October 1, 2012 through December 31, 2012. fte bank posted this interest to his passbook on January 15, 2013, when he made a withdrawal. George, a calendar year cash method taxpayer, must report this interest on his 2012 income tax return.

Accepted Answer

ftis is an example of the constructive receipt doctrine

Quiz 4: Gross Income

Paul Penn, a cash basis taxpayer, received a desk in exchange for bookkeeping services. He should report the fair market value of the desk as income.

An amount called a security deposit which is to be used as a ﬁnal payment of rent should not be included in rental income in the year received, but should be included in income in the year the lease expires.

A scholarship received by a student that represents compensation for past, present, or future services is includible in gross income.

Zelda Zayer leased a room to Victor Vaughn for one year. He paid her $500 for November's and December's rent and $100 as a security deposit to be returned to him at the end of the lease. Zelda must include the $600 as income when received.

Payments of a former wife's medical expenses under a divorce decree requiring that the husband pay the wife's future medical expenses in addition to qualifying alimony are deductible as alimony.

Advance rent must be included in rental income in the year received regardless of the period covered or the accounting method used.

fte fair market value of property or services received in bartering must be included in gross income.

When corporate bonds are sold between interest dates, the purchaser may take a deduction for that part of the purchase price that represents accrued interest as a return on capital from the next interest payment.

If both alimony and child support payments are required by the divorce decree or agreement and less than the required amount is paid, the payments apply ﬁrst to child support and then to alimony.

Dr. Yomo, a cash basis taxpayer, received a check for $250 after banking hours on December 30, 2012, from a patient. Since Dr. Yomo could not deposit the check in his business checking account until January 2, 2013, the fee of $250 is not included in his income for 2012.

Alan Anderson, a lessor, entered into a 10-year lease with a lessee in 2012. In addition to the $5,000 received for the 2012 rent, Alan received $5,000 in advance rent for the last year of the lease. Alan must include $10,000 in rental income in 2012.

Compensation for damages to a person's character or for personal injury or illness is taxable.

If the tenant pays any expenses of the landlord, these payments are rental income to the landlord and must be included in the landlord's return.

In 2012, Greta Grady received $50,000 in advance payments under a 50-month lease agreement. fte $50,000 represented the entire amount due under the lease. ftere were no restrictions on the use or enjoyment of the payments. Greta must include the $50,000 as income in 2012.