Deck 4: Gross Income: Concepts and Inclusions

Question 1

The realization requirement applies to taxable income but not to the economist's concept of income.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

In 2003,Terry purchased land for $150,000.In 2010,Terry received $5,000 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 $5,000 because it was a return of his capital invested in the land.

Question 5

Daniel,an accrual basis taxpayer,collects the rent for December 2010 and January 2011 on December 1,2010.Daniel must include the December 2010 rent but not the January 2011 rent in his 2010 gross income.

Question 6

In December 2010,Mary collected the December 2010 and January 2011 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2010 for the 2011 rent should be included in her 2011 gross income.

Question 7

At the beginning of 2010,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 income from the certificate of deposit each year,2010-2012,and $3,600 from the Series EE bonds in 2019.

Question 8

An accrual basis taxpayer who owns and operates a professional basketball team cannot allocate income from season ticket sales on the basis of the number of games played during the year.

Question 9

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

Question 10

In 2010,Jimmy,a cash basis taxpayer,was offered $3,000,000 for signing a professional baseball contract.He rejected the offer in favor of $900,000 per year for 4 years beginning in 2010.He collected $900,000 in 2010.Jimmy did not constructively receive $3,000,000 in 2010.

Question 11

A cash basis taxpayer purchased a certificate of deposit for $900 on July 1,2010 that will pay $1,000 upon its maturity on June 30,2012.The taxpayer must recognize a portion of the income in 2010.

Question 12

The financial accounting principle of conservatism is well-suited to the task of measuring taxable income.

Question 13

Fred painted his house which saved him $2,000.According to the realization requirement,the taxpayer must recognize $2,000 of income.

Question 14

On January 1,2010,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 $1,800.The taxpayer should report $600 of income each year in 2010,2011,and 2012.

Question 15

If the taxpayer's method of measuring income is consistent with GAAP,it will be acceptable for tax purposes.

Question 16

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 17

An accrual basis taxpayer can defer all advance payments for services until the services are performed if the method of accounting for the services is the same for tax and financial reporting purposes.

Question 18

Judy is a cash basis attorney.In 2010,she performed services in connection with the formation of a corporation and received stock with a value of $3,000 for her services.By the end of the year,the value of the stock had decreased to $1,000.She continued to hold the stock.Judy must recognize $3,000 of gross income from the stock for 2010.

Question 19

Jessica is a cash basis taxpayer.When Jessica failed to repay a loan,the bank garnished her salary.Each week $40 was withheld from Jessica's salary and paid to the bank.Jessica is not required to include the $40 each week in her gross income because she does not have the ability to pay tax on money she did not receive.

Question 20

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 gross income for tax purposes exceeded his economic income for the year.

Question 21

Tom purchased a bond on March 31 for $10,000,plus $150 accrued interest.In December,Tom collected $600 interest from the bond.Tom's interest income from the bond for the year is $450.

Question 22

Mark is a cash basis taxpayer.He is a partner in the M&M partnership,and his share of the partnership's profits for 2010 is $70,000.Only $30,000 was distributed to him in January 2010,and this was his share of the 2009 partnership profits.None of the 2010 profits were distributed because the partnership needed the cash for operations.Mark's gross income from the partnership for 2010 is $70,000.

Question 23

Ted earned $100,000 during the current year.He paid April,his former wife,$40,000 in alimony.The $40,000 payment reduces Ted's AGI and increases April's AGI.

Question 24

Linda delivers pizzas for a pizza shop.On Wednesday,December 31,2010,Linda made several deliveries and collected $350 from customers.However,Linda forgot to turn in the proceeds for the day to her employer until the following Friday,January 2,2011.The pizza shop owner recognizes the income of $350 when he receives it from Linda in 2011.

Question 25

Rhonda has a 30% interest in the capital and profits of the ABC Partnership.Her share of the profits for 2010 was $60,000.She withdrew $40,000 from the partnership in 2010.In January 2011,after her share of the profits for 2010 had been computed,she withdrew her remaining $20,000 share of 2010 profits.As a result,Rhonda must recognize $40,000 of gross income in 2010 and $20,000 in 2011.

Question 26

In all community property states,the income from property that was inherited by a spouse after the marriage is treated as if one-half is earned by each spouse.

Question 27

A partner must include in gross income his or her share of the partnership's income for the year whether or not the partner withdraws anything from the partnership.

Question 28

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

Question 29

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 not required to include the alimony payments in gross income because George earned the income and therefore he should pay the tax on the income.

Question 30

Paula transfers stock to her former spouse,Fred.The transfer is pursuant to a divorce agreement.Paula's cost of the stock was $50,000 and its fair market value on the date of the transfer is $75,000.Fred later sells the stock for $78,000.Fred's recognized gain from the sale of the stock is $3,000.

Question 31

Jake is the sole shareholder of an S corporation that earned $50,000 in 2010.The corporation was short on cash and therefore distributed only $15,000 to Jake in 2010.Jake is required to recognize $50,000 of income from the S corporation in 2010.

Question 32

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 33

Amos is the sole shareholder of an S corporation that earned $100,000 in 2010 and distributed $25,000 to Amos.Amos must recognize $25,000 as income from the S corporation in 2010.

Question 34

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement,Emily received sole ownership of their personal residence.This property transfer is classified as a property settlement rather than as alimony as the transfer was a result of a divorce.

Question 35

An advantage to operating a business as an S corporation is that the shareholder has no gross income from the S corporation unless the shareholder makes a withdrawal during the tax year.

Question 36

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,September 30,2010,the accrued interest on the bond was $150.On December 31,2010,Brent collected $300 interest on the bond.Samantha is taxed on the $150 accrued interest,and Brent must include in gross income the $150 interest earned after the date of the gift.

Question 37

April is a 50% partner in Pale Partnership.During the year,she withdraws $100,000 and her share of the partnership profits is $125,000.April must include $125,000 in her gross income.

Question 38

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 39

ABC Corporation mails out its annual Christmas bonuses to employees on December 23rd.Ed,a cash basis taxpayer,is an employee who is on a ski trip until January 3rd of the new year,but is aware that his annual Christmas bonus arrives on the 28th of December.Ed can delay reporting the income from the bonus until the new year.

Question 40

When stock is sold after the dividend is declared but prior to the record date,the buyer must recognize as income the dividend received,rather than a recovery of the amount of the dividend that is included in the price of the stock.

Question 41

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 $40,000 has no gross income from the life insurance protection provided by the employer.

Question 42

The amount of an individual's salary withheld and paid into the Social Security program reduces the amount of benefits received that must be included in gross income after the individual reaches retirement age.

Question 43

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 the above.

Question 44

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 $1,000,000 for the damages to its goodwill.

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

Question 45

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 25% of the winner's AGI.

Question 46

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 the above.

Question 47

The Blue Utilities Company paid Sue $1,500 for the right to lay an underground electric cable across her property anytime in the future.

A)Sue must recognize $1,500 gross income in the current year if the company did not install the cable during the year.
B)Sue must recognize $1,500 gross income in the current year regardless of whether the company installed the cable during the year.
C)Sue must recognize $1,500 gross income in the current year,and when the cable is installed she must reduce her cost basis in the land by $1,500.
D)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 $1,500.
E)None of the above.

Question 48

Turner,a successful executive,is negotiating a compensation plan with his potential employer.The employer has offered to pay Turner a $720,000 annual salary,payable at the rate of $60,000 per month.Turner counteroffers to receive a monthly salary of $50,000 ($600,000 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 $65,000 ($780,000 $\div$ 12)each month.
B)If the employer accepts Turner's counteroffer,Turner will be in constructive receipt of $60,000 per month.
C)If the employer accepts Turner's counteroffer,Turner will be in constructive receipt of $60,000 per month and the $180,000 bonus.
D)If the employer accepts Turner's counteroffer,Turner will recognize as gross income $50,000 per month and $180,000 in year 5.
E)None of the above.

Question 49

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)The decrease in value of assets held for the entire year should reduce income for the year.
D)All of the above.
E)None of the above.

Question 50

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 51

Norma's income for 2010 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 52

Lois,who is single,received $9,000 of Social Security benefits.She also received $30,000 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 less than $1,000.

Question 53

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 $100.For Tom to have a positive cash flow from working and hiring the painter:

A)Tom must earn at least $125 if Tom is in the 25% marginal tax bracket.
B)Tom must earn at least $150 if Tom 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 $115 if he is in the 15% marginal tax bracket.
E)None of the above.

Question 54

Susan purchased an annuity for $120,000.She is to receive $15,000 each year and her life expectancy is 12 years.If Susan collects under the annuity for 13 years,the entire $15,000 received in the 13th year must be included in her gross income.

Question 55

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 purchase.
B)The OID will not be included in gross income until the end of the third year.
C)The interest income for the first year will be greater than the interest income for the second year.
D)The original issue discount must be amortized using the effective interest method.
E)None of the above is correct.

Question 56

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 57

Terri purchased an annuity for $100,000.She was to receive $8,000 per year and her life expectancy was 20 years.She died after receiving 15 payments.Terri's final return should reflect a loss of $40,000 (5 payments not made ´ $8,000).

Question 58

Maroon Corporation is considering deferred compensation plans for its executive employees over age 55.All of the employees use the cash method of accounting.One plan is to allow the employee to make an election at the beginning of the year to defer 10% of his or her salary until retirement,at which time the executive would receive the deferred pay plus 6% interest.

A)The 10% of salary and the interest must be included in gross income before retirement.
B)The employee cannot defer the income (both the salary and the interest)for tax purposes because it is constructively received each year.
C)The employee must recognize the salary each year,but can defer the interest.
D)The salary and the related interest can be deferred from inclusion in gross income until they are received.
E)None of the above is correct.

Question 59

Father made an interest-free loan of $15,000 to Son who used the money to buy a certificate of deposit.If Son's investment income for the year is less than $1,000,Father is not required to impute interest income.

Question 60

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

A)A taxpayer who finds a wallet full of money is not required to recognize income because someone will eventually ask for the return of the money.
B)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 cannot defer recognition of the income until the suit has been settled.
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 the above are true.
E)None of the above is true.

Question 61

Wayne owns a 25% interest in the capital and profits of Emerald Company (a calendar year partnership).For tax year 2010,the partnership earned revenue of $500,000 and had operating expenses of $200,000.During the year,Wayne withdrew from the partnership a total of $64,000.He also invested an additional $20,000 in the partnership.For 2010,Wayne's gross income from the partnership is:

A)$44,000.
B)$55,000.
C)$64,000.
D)$75,000.
E)None of the above.

Question 62

Jim and Nora,residents of a community property state,were married in early 2008.Late in 2008 they separated,and in 2010 they were divorced.Each earned a salary,and they received income from community owned investments in all relevant years.They filed separate returns in 2008 and 2009.

A)In 2009,Nora must report only her salary and one-half of the income from community property on her separate return.
B)In 2009,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 2010,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 2010,Nora must report only her salary on her separate return.
E)None of the above.

Question 63

On October 1,2010,Bob,a cash basis taxpayer,gave Dave common stock that paid a dividend of $1,000 on December 15,2010.On November 15,2010,the corporation declared the dividend payable to shareholders of record as of November 22,2010.The corporation has paid the $1,000 dividend once each year for the past ten years,during which Bob owned the stock.When Dave collected the dividend on December 15,2010:

A)Bob must include all of the dividend in his gross income.
B)Dave must include all of the dividend in his gross income
C)Bob must report $750 of dividend income,and Dave must report $250 of dividend income
D)Bob must report $250 of dividend income,and Dave must report $750 of dividend income.
E)None of the above is correct.

Question 64

Harry and Wanda were married in Virginia,a common law state,but moved to Texas,a community property 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 the above.

Question 65

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 the above.

Question 66

Kathy operates a gym.She sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $360 ($360/12 = $30 per month);a two-year membership costs $600 ($600/24 = $25 per month).Cash payment is required at the beginning of the membership period.On July 1,2010,Kathy sold a one-year membership and a two-year membership.

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

Question 67

The underlying rationale for the alimony rules is that:

A)The income should be taxed to the person with a claim of right to the income.
B)The income should be taxed to the person who enjoys the benefits of the income.
C)The fruit and tree metaphor should be rigorously applied.
D)Alimony is a payment for the taxpayer's property and,therefore,it is taxed to the recipient.
E)None of the above.

Question 68

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 $2,400.The corporation paid Mike $2,000 to perform the operation under the terms of his employment contract.

A)Mike's gross income is $2,000.
B)Mike must recognize the $2,400 gross income because he provided the service.
C)Mike must recognize $2,400 gross income since the patient obviously wanted him to perform the operation.
D)The Kram Company corporation's gross income is $400.
E)None of the above.

Question 69

Freddy purchased a certificate of deposit for $20,000 on January 1,2010.The certificate's maturity value in two years (December 31,2011)is $22,050,yielding 5% before-tax interest.

A)Freddy must recognize $2,050 gross income in 2011.
B)Freddy must recognize $2,050 gross income in 2010.
C)Freddy must recognize $1,000 (.05 ´ $20,000)gross income in 2010.
D)Freddy must recognize $1,025 ($2,050/2)gross income in 2010 and 2011.
E)None of the above.

Question 70

Daniel purchased a bond on July 1,2010,at par of $10,000 plus accrued interest of $400.On December 31,2010,Daniel collected the $800 interest for the year.On January 1,2011,Daniel sold the bond for $10,200.

A)Daniel must recognize $400 interest income for 2010 and a $200 gain on the sale of the bond in 2011.
B)Daniel must recognize $800 interest income for 2010 and a $200 gain on the sale of the bond in 2011.
C)Daniel must recognize $800 interest income for 2010 and a $200 loss on the sale of the bond in 2011.
D)Daniel must recognize $400 interest income for 2010 and a $200 loss on the sale of the bond in 2011.
E)None of the above.

Question 71

Orange Cable TV Company,an accrual basis taxpayer,allows its customers to pay by the year in advance ($350 per year),or two years in advance ($680).In September 2010,the company collected the following amounts applicable to future services: As a result of the above,Orange Cable should report as gross income:

A)$136,000 in 2010.
B)$64,000 in 2010.
C)$84,000 in 2011.
D)$111,000 in 2011.
E)None of the above.

Question 72

As a general rule:

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 the above is true.

Question 73

On January 5,2010,Jane purchased a bond paying interest at 6% for $30,000.On September 30,2010,she gave the bond to Tim.The bond pays $1,800 interest on December 31.Jane and Tim are cash basis taxpayers.When Tim collects the interest in December 2010:

A)Jane must include all of the interest in her gross income.
B)Tim must include all of the interest in his gross income.
C)Jane reports $450 of interest income in 2010,and Tim reports $1,350 of interest income in 2010.
D)Jane reports $1,350 of interest income in 2010,and Tim reports $450 of interest income in 2010.
E)None of the above is correct.

Question 74

Theresa,a cash basis taxpayer,purchased a bond on July 1,2007,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2010,she sold the bond for $10,150,which included $200 of accrued interest.

A)Theresa's 2010 interest income from the bond is $150.
B)Theresa's gain on the sale of the bond is $150.
C)Theresa has a $250 loss from the sale of the bond.
D)Theresa has $200 of interest income and a $50 loss from the bond in 2010.
E)None of the above.

Question 75

Darryl,a cash basis taxpayer,gave 1,000 shares of Copper Company common stock to his daughter on September 29,2010.Copper Company is a publicly held company that has declared a $1.00 per share dividend on September 30th every year for the last 20 years.Just as Darryl had expected,Copper Company declared a $1.00 per share dividend on September 30th,payable on October 15th,to stockholders of record as of October 10th.The daughter received the $1,000 dividend on October 18,2010.

A)Darryl must recognize the $1,000 dividend as his income because he knew the dividend would be paid.
B)Darryl must recognize $750 of the dividend because he owned the stock for three-fourths of the year.
C)Darryl must recognize the income of $1,000 because he constructively received the $1,000.
D)The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $1,000.
E)None of the above.

Question 76

Jerry purchased a U.S.Series EE savings bond for $279.The bond has a maturity value in 10 years of $500 and yields 6% interest.This is the first Series EE bond that Jerry has ever owned.

A)Jerry must report the interest income each year using the original issue discount rules.
B)Jerry can report all of the $221 interest income in the year the bond matures.
C)The interest on the bonds is exempt from Federal income tax.
D)Jerry must report ($500 - $279)/10 = $22.10 interest income each year he owns the bond.
E)None of the above.

Question 77

Office Palace,Inc. ,leased an all-in-one printer to a new customer,Ashley,on December 27,2010.The printer was to rent for $700 per month for a period of 36 months beginning January 1,2011.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 $1,000 damage deposit.Office Palace must recognize as income for the lease:

A)$0 in 2010,if Office Palace is an accrual basis taxpayer.
B)$1,400 in 2011,if Office Palace is a cash basis taxpayer.
C)$2,400 in 2010,if Office Palace is a cash basis taxpayer.
D)$1,400 in 2010,if Office Palace is an accrual basis taxpayer.
E)None of the above.

Question 78

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 $400 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 $40,000 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)$0.
B)$10,000.
C)$40,000.
D)$50,000.
E)None of the above.

Question 79

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 12-month service contract over the contract period.
C)If an accrual basis taxpayer sells a 24-month service contract on July 1,2010,for $2,400,the taxpayer's 2011 gross income from the contract is $1,800.
D)If the accrual basis taxpayer sells a 12-month service contract on July 1,2010,all of the income is recognized in 2011.
E)None of the above.

Question 80

Teal company is an accrual basis taxpayer.On December 1,2010,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2011.Teal delivered the item on January 4,2011.Teal included the sale in its 2010 income for financial accounting purposes.

A)Teal must recognize the income in 2010.
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 2010 or 2011.
D)Teal must recognize the income in 2011.
E)None of the above.