Deck 6: Gross Income: Inclusions

Question 1

Except as otherwise provided,gross income means all income from whatever source derived.

Answer 1

True

Question 2

Earnings of a minor child are taxed to the child regardless of the state's property law system.

Answer 2

True

Question 3

Gross income may be realized when a taxpayer receives economic benefit even if no cash is received.

Answer 3

True

Question 4

Under the economist's definition,unrealized gains,as well as gifts and inheritances,are income.

Question 5

Under the cash method of accounting,income is reported in the year the taxpayer actually or constructively receives the income.

Question 6

Internal Revenue Code Section 61 provides an inclusive list of all possible items taxed under the Code.

Question 7

A taxpayer may not avoid responsibility for payment of income taxes by assigning the income to a third party.

Question 8

Gregory receives 100 shares of stock from his employer as a year-end bonus.The fair market value of the stock is included in Gregory's income for the year.

Question 9

Under the tax concept of income,all realized income is recognized and subject to tax.

Question 10

If a taxpayer's method of accounting does not clearly reflect income,the IRS may specify a different accounting method which must be used by the taxpayer.

Question 11

The wherewithal-to-pay concept provides that a tax should be collected when the taxpayer has the financial resources to pay the tax.

Question 12

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

Question 13

Ellen,a CPA,prepares a tax return for Frank,a farmer,in exchange for twenty bushels of rice.Since no cash changed hands,neither taxpayer reports income.

Question 14

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.

Question 15

In community property states,income from separate property owned before marriage is always considered separate income after marriage.

Question 16

Under both the accounting and tax law concepts of income,income must be "realized."

Question 17

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.

Question 18

Gross income is limited to amounts received in the form of cash.

Question 19

For federal income tax purposes,income is allocated between a husband and wife depending on the state of residence.

Question 20

The cash receipts and disbursements method of accounting is used by most individual taxpayers and most noncorporate businesses that do not have inventories.

Question 21

The recipient of a taxable stock dividend includes the value of the stock received in gross income and that amount becomes the basis for the stock received.

Question 22

Under the accrual method of accounting,income is considered earned when all the events have occurred which fix the right to receive the income and when the amount of income can be determined with reasonable accuracy.

Question 23

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

Question 24

Distributions in excess of a corporation's current and accumulated earnings and profits are treated as a nontaxable recovery of capital unless they exceed the basis of the stock.

Question 25

Gains realized from property transactions are included in gross income unless a nonrecognition rule applies.

Question 26

Property settlements made incident to a divorce have no immediate tax consequences; that is,the transfer from one spouse to another is not taxable.

Question 27

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.

Question 28

Interest on the obligations of the U.S.government,states,territories,and U.S.possessions and their political subdivisions are tax-exempt.

Question 29

In order to be treated as alimony for tax purposes,payments must be made in cash.

Question 30

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

Question 31

Payments from an annuity purchased from an insurance company are not taxable until the taxpayer has recovered the purchase price of the annuity.

Question 32

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.

Question 33

A key factor in determining tax treatment of distributions from qualified retirement plans is whether the employee made pre-tax or after-tax contributions.

Question 34

Interest on Series E and Series EE U.S.savings bonds need not be reported until the bonds mature.

Question 35

With some exceptions,amounts withdrawn from a pension plan prior to the normal starting date are subject to a ten percent nondeductible penalty.

Question 36

A check received after banking hours is considered constructively received by the payee even though the check can not be converted to cash.

Question 37

Alimony received is taxable to the recipient while child support payments are not.

Question 38

Improvements to leased property made by a lessee are includable in the lessor's gross income only if made in lieu of rent or if rent is reduced because of the improvements.

Question 39

Qualified dividends received by individuals are taxed at the same rate as ordinary income.

Question 40

For a cash basis taxpayer,security deposits received on rental property are taxable to the landlord upon receipt.

Question 41

Social Security benefits are excluded from taxation for all taxpayers.

Question 42

Examples of income which are constructively received include all of the following except

A)interest credited to a savings account.
B)a check received after banking hours.
C)a paycheck received from employer,when employer does not have funds in the bank to cover the check.
D)dividends available on December 31; unclaimed dividends will be mailed out.

Question 43

Becky wins a car and furniture on a television game show.The fair market value of these items is taxable to Becky.

Question 44

Mike won $700 in a football pool.This amount is not taxable.

Question 45

Unemployment compensation is exempt from federal income tax.

Question 46

One of the requirements that must be met in order to defer recognition of income for advance payments for goods is

A)the taxpayer's method of accounting for the sale for tax purposes is the same as the method used for financial reporting purposes.
B)the goods are on the taxpayer's premises on the last day of the tax year.
C)the goods are produced in the United States.
D)the amount received is more than the taxpayer's cost of the goods.

Question 47

Which of the following criteria is not required under the tax concept of income?

A)There must be economic benefit.
B)Income must be realized.
C)Income must be recognized.
D)Cash must be received.

Question 48

Which one of the following items is not considered gross income for tax purposes?

A)gambling winnings
B)illegal income
C)face amount of life insurance received due to the death of the insured
D)cash dividends

Question 49

Speak Corporation,a calendar year accrual basis taxpayer,sells packages of foreign language lessons to individuals planning to work overseas. In December,2014,it sold and received payment for $600,000 of 24-month lesson packages to be provided evenly through 2015 and 2016. Speak Corporation will recognize the $600,000 of income

A)all in 2014.
B)half in 2015 and half in 2016.
C)all in 2015.
D)all in 2016.

Question 50

Frasier and Marcella,husband and wife,file separate returns.Frasier and Marcella live in a community property state that considers separate property income to be separate.Frasier's salary is $42,000 and Marcella's salary is $46,000.Marcella receives dividend income of $4,000 from stock inherited from her parents.Frasier receives interest income of $1,000 from bonds purchased with his salary after marriage.Frasier and Marcella receive $3,200 dividend income from stock they purchased jointly.Marcella's income would be

A)$50,000.
B)$50,100.
C)$51,100.
D)$51,600.

Question 51

Ms.Marple's books and records for 2014 reflect the following information: What is the amount Ms.Marple should include in her gross income in 2014?

A)$66,000
B)$67,000
C)$68,000
D)$65,000

Question 52

CT Computer Corporation,an accrual 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: The amount of income CT Corporation must report for this year is

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

Question 53

Income from illegal activities is taxable.

Question 54

Norah,who gives music lessons,is a calendar year taxpayer using the cash basis method of accounting.On October 1 of this year,she received $1,200 for a one-year contract beginning on that date to provide 10 lessons.She gave 6 lessons this year.How much should Norah include in income this year?

A)$480
B)$360
C)$720
D)$1,200

Question 55

Which of the following advance payments cannot qualify for income tax deferral?

A)advance collection for services
B)advance collection for merchandise
C)advance collection of rent without associated services
D)advance collection of rent with associated services

Question 56

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

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

Question 57

"Gross income" is a key term in the tax law and is defined in IRC Sec.61. Gross income is not reported on Form 1040.

Question 58

Alex is a calendar year sole proprietor.He began business on December 1,this year.He uses the accrual method of accounting.Alex had the following collections in December: • Collected $7,000 in December,from clients who paid cash for services to be performed next year.
• Collected $5,000 in December,for services performed during December; deposited in an operating account on December 31,this year.
• Collected $12,000 in December; on accounts receivable for services performed in December; deposited in operating account on January 2,next year.
What is the amount Alex must include in his income for December?

A)$7,000
B)$12,000
C)$17,000
D)$24,000

Question 59

Norah's Music Lessons Inc.is a calendar year taxpayer using the accrual method of accounting. On October 1 of this year,the corporation received $1,200 for a one-year contract beginning on that date to provide 10 lessons.The company provided 6 lessons this year under the contract.How much should corporation include in income this year with respect to this contract?

A)$480
B)$360
C)$720
D)$1,200

Question 60

Which of the following statements is false?

A)Under the cash method,prepaid income such as rent is usually taxed when received rather than when earned.
B)Municipal bond interest is taxable.
C)Alimony received by the taxpayer is taxable.
D)Income earned by selling goods on the Internet is taxable.

Question 61

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

A)earnings and profits.
B)retained earnings.
C)taxable income for the year.
D)stock basis.

Question 62

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?

A)$5,619
B)$5,519
C)$5,454
D)$6,506

Question 63

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

A)$0.
B)$2,400.
C)$3,000.
D)$6,000.

Question 64

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?

A)$2,250
B)$2,500
C)$3,000
D)$5,000

Question 65

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?

A)$0
B)$200
C)$400
D)$1,000

Question 66

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?

A)$3,424
B)$4,024
C)$4,054
D)$4,016

Question 67

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?

A)$0
B)$50
C)$5,000
D)$50,000

Question 68

Child support is

A)deductible by both the payor and the payee.
B)deductible by the payor and included in income by the payee.
C)included in income by the payor and deducted by the payee.
D)an item which does not affect the payor's or the payee's tax reporting.

Question 69

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

A)U)S.Treasury bonds
B)bonds issued by fire districts
C)school district bonds
D)bonds issued by cities

Question 70

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?

A)$750 income and $500 deduction
B)$750 income and no deduction
C)$250 income and $500 deduction
D)No income is recognized,but a $250 deduction is allowed.

Question 71

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

A)Christmas bonus check
B)group term life insurance premium paid by employer for $40,000 coverage for Amy
C)employee discount
D)employer's contribution to retirement plans on Amy's behalf

Question 72

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

A)$6.00.
B)$6.57.
C)$6.60.
D)$7.26.

Question 73

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

A)$400.
B)$1,300.
C)$1,800.
D)$2,200.

Question 74

Alimony is

A)deductible by both the payor and the payee.
B)deductible by the payor and included in income by the payee.
C)included in income by the payor and deducted by the payee.
D)an item which does not affect the payor's or the payee's tax reporting.

Question 75

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

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

Question 76

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?

A)$0
B)$1,000
C)$3,000
D)$6,000

Question 77

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

A)interest received on bank accounts
B)royalties paid to an author
C)amounts received to cancel or modify a lease
D)refundable security deposit

Question 78

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?

A)$14,400
B)$12,000
C)$2,400
D)$22,400

Question 79

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

A)a property settlement does not result in income to either spouse.
B)no tax deduction is allowed for payment of a property settlement.
C)the spouse receiving a property settlement has a basis equal to the basis of that property to the paying spouse prior to payment.
D)no deduction is allowed for alimony paid to the former spouse if a property settlement is also paid.

Question 80

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

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