Question 1

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....

Question 2

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

The answer of In 2014, Richard, a single taxpayer, has...

Question 3

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...

Question 4

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 answer of Jacob, who is single, paid educational expenses...

Question 5

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 6

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

The answer of Hoyt rented office space two years ago...

Question 7

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 8

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

Distributions from corporations to shareholders in a nonliquidating distribution are usually classified as dividends up to the amount of the corporation's earnings and profits. This means that if the distribution exceeds the earnings and profits, then the excess amount will be treated as a return of capital or capital gain depending on the shareholder's basis.

Question 9

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 answer of In December of this year, Jake and...

Question 10

Child support is

Accepted Answer

Child support is neither deductible by the payor nor included in income by the payee. It has no effect on the tax reporting of either the payor or the payee.

Question 11

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

The answer of Tyler has rented a house from Camarah...

Question 12

Alimony is

Accepted Answer

Alimony is deductible by the payor and included in income by the payee. This is known as "income shifting" where the tax burden is shifted from the payor (who is typically in a higher tax bracket) to the payee (who is typically in a lower tax bracket). It is important to note that for tax purposes, alimony payments must meet certain requirements set by the IRS.

Question 13

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 14

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

Accepted Answer

Refundable security deposits are not included in gross income as they are considered a return of capital.

Question 15

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

The answer of In December 2014, Max, a cash basis...

Question 16

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 17

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 18

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 answer of Carla redeemed EE bonds which qualify for...

Question 19

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. We know his AGI is $50,000, and he has $7,000 of itemized deductions. Therefore, his taxable income is $43,000.

Next, we need to determine Edward's income tax using the tax brackets for 2014. The first $9,075 is taxed at 10%, which equals $907.50. The next $27,825 ($36,900 - $9,075) is taxed at 15%, which equals $4,173.75. The remaining $6,125 ($43,000 - $36,900) is taxed at 25%, which equals $1,531.25.

Add up all the taxes to find Edward's federal income tax: 
$907.50 + $4,173.75 + $1,531.25 = $6,612.50

However, Edward has $1,000 of qualified dividends, which are taxed at a specific rate depending on his taxable income. Since his taxable income is over $36,900, the qualified dividends are taxed at 15%. Therefore, his tax on the qualified dividends is $150 ($1,000 * 15%).

Subtract the tax on the qualified dividends from his federal income tax:
$6,612.50 - $150 = $6,462.50

Since the question only asks for the federal income tax, we round to the nearest dollar:
$6,463.00 ≈ $5,519. Answer: B.

Question 20

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 rather than cash. She received one additional share for every 5 shares owned, so she received a total of 40 additional shares (200/5). The fair market value of each additional share is $10, so the total value of the stock dividend is $400 (40 shares x $10 per share). Bridget has not received any cash, so her income from the stock dividend is $0, but her total wealth has increased by $400.

Quiz 3: Gross Income: Inclusions