Question 1

A scholarship recipient at City University must include in gross income the scholarship proceeds used to pay for:

Accepted Answer

Scholarship proceeds used for meals and lodging are considered taxable income and must be included in gross income.

Question 2

Iris collected $100,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy.Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $12,500 each.

Accepted Answer

The answer of Iris collected $100,000 on her deceased husband's...

Question 3

Jack received a court award for $100,000 for damages to his personal reputation by the National Gossip.He also received $50,000 in punitive damages.Jack must include in his gross income as a damage award:

Accepted Answer

The answer of Jack received a court award for $100,000...

Question 4

Jena is a full-time student at State University and is claimed by her parents as a dependent.Her only source of income is an $8,000 scholarship ($800 for books,$3,800 tuition,$200 student activity fee,and $3,200 room and board).Jena's gross income for the year is:

Accepted Answer

The answer of Jena is a full-time student at State...

Question 5

The exclusion for health insurance premiums paid by the employer applies to:

Accepted Answer

The exclusion for health insurance premiums paid by the employer applies to current employees, retired former employees, and their spouses and children.

Question 6

Matilda works for a company with 1,000 employees.The company has a hospitalization insurance plan that covers all employees.However,the employee must pay the first $3,000 of his or her medical expenses each year.Each year,the employer contributes $1,500 to each employee's health savings account (HSA).Matilda's employer made the contributions in 2009 and 2010,and the account earned $100 interest in 2010.At the end of 2010,Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy.As a result,Matilda must include in her 2010 gross income:

Accepted Answer

The contributions to the HSA and the interest earned are not included in gross income if used for qualified medical expenses.

Question 7

Theresa sued her former employer for age,race,and gender discrimination.She claimed $250,000 in damages for loss of income and $500,000 in punitive damages.She settled the claim for $600,000.As a result of the settlement,Theresa must include in gross income:

Accepted Answer

Theresa must include the entire $600,000 settlement in her gross income because settlements for discrimination claims are generally taxable unless they are for physical injuries or sickness.

Question 8

Barney,a full-time graduate student,receives a full tuition waiver ($6,000 during the year)and a monthly stipend for 9 months of $600 ($5,400 for the year)from State University for performing research for the university as a graduate assistant.In addition,he receives a $1,500 research grant to pursue his own research and studies.Barney's gross income from the above is:

Accepted Answer

Barney's gross income is the total amount he receives before any taxes or deductions are taken out. He receives a full tuition waiver worth $6,000, a monthly stipend of $600 for 9 months ($5,400 total), and a research grant of $1,500. Adding these amounts together gives a gross income of $6,000 + $5,400 + $1,500 = $11,400. Therefore, the correct answer is C.

Question 9

Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life,according to his doctor.Albert had a life insurance policy with a face amount of $100,000.Albert had paid $10,000 of premiums on the policy.The insurance company has offered to pay him $75,000 to cancel the policy,although its cash surrender value was only $60,000.Albert accepted the $75,000.Albert used $5,000 to pay his medical expenses.Albert made a miraculous recovery and lived another 20 years.As a result of cashing in the policy:

Accepted Answer

The answer of Albert had a terminal illness which required...

Question 10

The taxpayer is a Ph.D.student in accounting at State University.The student is paid $1,000 per month for teaching two classes.The total amount received for the year is $9,000.

Accepted Answer

The $9,000 received as compensation for teaching is taxable income and should be reported as such on the taxpayer's tax return. The fact that the taxpayer is a Ph.D. student and teaching classes does not make the income excludable or considered a scholarship.

Question 11

Christie sued her former employer for a back injury she suffered on the job in 2009.As a result of the injury,she was partially disabled.In 2010,she received $250,000 for her loss of future income,$150,000 in punitive damages because of the employer's flagrant disregard for the employee's safety,and $10,000 for medical expenses.Christie took the standard deduction in 2009 and 2010.Christie's 2010 gross income from the above is:

Accepted Answer

Punitive damages are considered taxable income, so the $150,000 in punitive damages is included in Christie's gross income for 2010. The other amounts are not taxable as they are compensatory for personal injury and medical expenses.

Question 12

Turquoise Company purchased a life insurance policy on the company's chief executive officer,Joe.After the company had paid $400,000 in premiums,Joe died and the company collected the $1.5 million face amount of the policy.The company also purchased group term life insurance on all its employees.Joe had included $16,000 in gross income for the group term life insurance premiums.Joe's widow,Rebecca,received the $100,000 proceeds from the group term life insurance policy.

Accepted Answer

The answer of Turquoise Company purchased a life insurance policy...

Question 13

As an executive of Cherry,Inc. ,Ollie receives a fringe benefit in the form of annual tuition scholarships of $10,000 to each of his three children.The scholarships are paid by the company directly to each child's educational institution and are payable only if the student maintains a B average.

Accepted Answer

The answer of As an executive of Cherry,Inc. ,Ollie receives...

Question 14

In 2010,Khalid was in an automobile accident and suffered physical injuries.The accident was caused by Rashad's negligence.Khalid threatened to file a lawsuit against Amber Trucking Company,Rashad's employer,claiming $50,000 for pain and suffering,$25,000 for loss of income,and $100,000 in punitive damages.Amber's insurance company will not pay punitive damages;therefore,Amber has offered to settle the case for $120,000 for pain and suffering,$25,000 for loss of income,and nothing for punitive damages.Khalid is in the 35% marginal tax bracket.What is the after-tax difference to Khalid between Khalid's original claim and Amber's offer?

Accepted Answer

The answer of In 2010,Khalid was in an automobile accident...

Question 15

Julie was suffering from a viral infection that caused her to miss work for 90 days.During the first 30 days of her absence,she received her regular salary of $5,000 from her employer.For the next 60 days,she received $10,000 under an accident and health insurance policy that she had purchased for premium payments totaling $6,000.Of the $15,000 she received,Julie must include in gross income:

Accepted Answer

The answer of Julie was suffering from a viral infection...

Question 16

Olaf was injured in an automobile accident and received $25,000 for his physical injury,$10,000 for his loss of income,and $50,000 punitive damages.As a result of the award,the amount Olaf must include in gross income is:

Accepted Answer

The answer of Olaf was injured in an automobile accident...

Question 17

Early in the year,Marcus was in an automobile accident during the course of his employment.As a result of the physical injuries he sustained,he received the following payments during the year:  What is the amount that Marcus must include in gross income for the current year?

Accepted Answer

The answer of Early in the year,Marcus was in an...

Question 18

Swan Finance Company,an accrual method taxpayer,requires all of its customers to carry credit life insurance.If a customer dies,the company receives from the insurance company the balance due on the customer's loan.Ali,a customer,died owing the company $1,000.The balance due included $100 accrued interest that Swan had included in income.When Swan collects $1,000 from the insurance company,Swan:

Accepted Answer

The answer of Swan Finance Company,an accrual method taxpayer,requires all...

Question 19

Ron,age 19,is a full-time graduate student at City University.During 2010,he received the following payments:  Ron served as a resident advisor in a dormitory and,therefore,the university waived the $2,500 charge for the room he occupied.What is Ron's adjusted gross income for 2010?

Accepted Answer

The answer of Ron,age 19,is a full-time graduate student at...

Question 20

Ben was diagnosed with a terminal illness.His physician estimated that Ben would live no more than 18 months.After he received the doctor's diagnosis,Ben cashed in his life insurance policy to pay some medical bills.Ben had paid $12,000 in premiums on the policy,and he collected $50,000,the cash surrender value of the policy.Henry enjoys excellent health,but he cashed in his life insurance policy to purchase a new home.He had paid premiums of $12,000 and collected $50,000 from the insurance company.

Accepted Answer

Ben does not recognize any gross income because the cash surrender value of a life insurance policy is not taxable if the insured is terminally ill. Henry, however, must recognize the $38,000 as gross income because he is in good health and the surrender value exceeds the premiums paid.

Quiz 5: Gross Income: Exclusions