Question 1

Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's

Accepted Answer

Nonliquidating distributions are distributions made by a corporation to its shareholders that are not in complete termination of the corporation's operations. These distributions are typically classified as dividends up to the amount of the corporation's earnings and profits. If the distribution exceeds the corporation's earnings and profits, then it is treated as a return of capital to the extent of the shareholder's basis in the stock, and any excess over the basis is treated as a gain. Therefore, choice A is the correct answer.

Question 2

Edward,a single taxpayer,has AGI of $50,000 which includes $1,000 of qualified dividends.Edward has $7,000 of itemized deductions.What is his 2014 federal income tax?

Accepted Answer

First, we need to calculate Edward's taxable income by subtracting his itemized deductions from his AGI:

$50,000 - $7,000 = $43,000

Next, we need to determine his tax bracket using the 2014 tax tables. Based on his taxable income of $43,000, his tax bracket is 15%.

To calculate his federal income tax, we need to multiply his taxable income by his tax rate:

$43,000 x 0.15 = $6,450

Since Edward has $1,000 of qualified dividends, we need to determine if any of this income is taxed at the lower rate for qualified dividends. To do this, we need to compare Edward's taxable income ($43,000) to the upper limit of the 15% tax bracket for qualified dividends, which is $36,900 for single taxpayers in 2014.

Since Edward's taxable income is higher than this limit, all of his qualified dividends will be taxed at the 15% rate.

To calculate the tax on his qualified dividends, we multiply the amount of qualified dividends by their tax rate:

$1,000 x 0.15 = $150

Finally, we add his federal income tax on his taxable income to the tax on his qualified dividends:

$6,450 + $150 = $6,600

Therefore, the correct answer is B) $5,519. Note that the answer choices given are all incorrect, likely due to a mistake in the calculation.

Question 3

Carla redeemed EE bonds which qualify for the educational exclusion.The redemption consisted of $14,000 principal and $6,000 interest.The net qualifying educational expenses are $10,000.Her AGI is below the threshold for phase-out of the exclusion.The taxable interest is

Accepted Answer

The educational exclusion allows taxpayers to exclude from taxable income certain amounts of interest earned on EE bonds if the bonds are redeemed and the proceeds are used to pay for eligible education expenses. The eligible expenses must be incurred in the same calendar year as the redemption.

In this case, Carla's redemption consisted of $14,000 principal and $6,000 interest, all of which is eligible for the educational exclusion. However, since she only incurred $10,000 in qualifying educational expenses, only $10,000 of the $6,000 interest is excluded from taxable income. The remaining $2,000 of interest is taxable.

Therefore, the taxable interest is $2,000, which corresponds to option C.

Question 4

In December of this year,Jake and Stockard,a married couple,redeemed qualified Series EE U.S.Savings Bonds which they had purchased in January 2003.The proceeds were used to help pay for their daughter's college tuition.Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000.The qualified higher educational expenses they paid this year totaled $6,000. Their AGI is below the threshold for phase-out of the exclusion.What is the amount of interest income Jake and Stockard can exclude from their income this year?

Accepted Answer

The exclusion is calculated by the formula: (Qualified expenses / Total proceeds) * Interest. Here, ($6,000 / $8,000) * $3,000 = $2,250.

Question 5

Bridget owns 200 shares of common stock of Jones Corporation.During the current year,Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned.The stock has a fair market value of $10 per share.Bridget chooses to take the additional shares of stock.How much income does Bridget have from the stock dividend?

Accepted Answer

Bridget chose to receive additional shares of stock instead of cash. Therefore, she does not have any income from the stock dividend. Her total investment in Jones Corporation remains at 200 shares.

Question 6

In 2014,Richard,a single taxpayer,has adjusted gross income of $40,000.His AGI includes $4,000 of qualified dividends.Richard has no dependents and does not itemize deductions.What is his 2014 federal income tax?

Accepted Answer

Richard's taxable income is $40,000 - $6,200 (standard deduction) - $3,950 (personal exemption) = $29,850. The tax on $25,850 (ordinary income) is $3,424, and the qualified dividends are taxed at 0% because they fall within the 15% tax bracket.

Question 7

Julia owns 1,000 shares of Orange Corporation.This year,Orange declared a 10% stock dividend.There was no option for shareholders to receive cash. When Julia received 100 shares of Orange stock,it had a fair market value of $50 a share.How much income does Julia have from the dividend?

Accepted Answer

The answer of Julia owns 1,000 shares of Orange Corporation.This...

Question 8

Child support is

Accepted Answer

The answer of Child support is
...

Question 9

Which of the following bonds do not generate tax-exempt Federal income?

Accepted Answer

The answer of Which of the following bonds do not...

Question 10

Hoyt rented office space two years ago to Harris,receiving the first and last months' rent plus a security deposit of $1,000.In early January of this year,Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250.How would this information be reflected on Hoyt's tax return this year?

Accepted Answer

Hoyt received $2,000 in rent at the beginning of the lease. He refunded $250 of the security deposit, which is not considered income. Therefore, he received a total of $1,750 in rental income. He also made repairs to the office space and deducted $500 as a repair expense. Additionally, he deducted the unpaid rent amount of $250. Therefore, his rental income is $1,750 and his deductions are $750 ($500 for repairs and $250 for unpaid rent), resulting in a net rental income of $1,000.

Question 11

Amy's employer provides her with several fringe benefits.Which of the following are included in her taxable income?

Accepted Answer

The answer of Amy's employer provides her with several fringe...

Question 12

Mark purchased 2,000 shares of Darcy Corporation for $13,200.This year,Darcy declared a 10% nontaxable stock dividend,and Mark received 200 shares.After the dividend Mark's per share basis will be

Accepted Answer

The answer of Mark purchased 2,000 shares of Darcy Corporation...

Question 13

In December 2014,Max,a cash basis taxpayer,rents an apartment to Kadeem.Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400.The amount of income reported as taxable in 2014 is

Accepted Answer

As a cash basis taxpayer, Max must report income when it is received. In 2014, Max received $1,800 for the first and last months' rent, which is taxable. The $400 security deposit is not taxable in 2014 as it is refundable and not considered income unless it is forfeited.

Question 14

Alimony is

Accepted Answer

Alimony is deductible by the payor and included in income by the payee. This means that the payor is permitted to deduct the amount of alimony paid from their taxable income, while the payee must include the amount received as taxable income.

Question 15

Jacob,who is single,paid educational expenses of $16,000 in the current year.He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000.Jacob has other adjusted gross income of $80,000. The $3,000 exclusion must be reduced by

Accepted Answer

The exclusion is reduced because Jacob's modified adjusted gross income exceeds the phase-out threshold for the education savings bond program. The reduction is calculated based on the proportion of income over the threshold.

Question 16

Natasha is a single taxpayer with a 28% marginal tax rate. She received distributions of earnings this year as follows:  How much of the $6,000 distribution will be taxed at the 15% tax rate?

Accepted Answer

The answer of Natasha is a single taxpayer with a...

Question 17

Which of the following is not included in gross income when received?

Accepted Answer

Refundable security deposits are not included in gross income when received, as they are typically returned to the individual at a later date. The other options listed (interest received on bank accounts, royalties paid to an author, and amounts received to cancel or modify a lease) are all forms of income that would be included in gross income when received.

Question 18

Tyler has rented a house from Camarah since last year.The rent is usually $1,200 per month,but Camarah reduced the monthly rent down to $200 for all twelve months this year in exchange for Tyler putting in an inground pool in the backyard.The improvement has a fair market value of $20,000.How much total rental income must Camarah report this year?

Accepted Answer

Tyler is only paying $200 per month for all 12 months this year, which means Camarah will receive $2,400 in total rental income from Tyler. However, Camarah must also report the fair market value of the inground pool as rental income, which is $20,000. Therefore, Camarah must report a total rental income of $22,400 this year.

Question 19

With respect to alimony and property settlements in a divorce or separation,all of the following are true with the exception of

Accepted Answer

D)Alimony is taxable to the payee and deductible by the payor; a property settlement has no tax consequences.

Question 20

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

Accepted Answer

The answer of Which of the following is least likely...

Quiz 6: Gross Income: Inclusions