Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2014.He received $120 interest on the bonds in 2014,2015,and 2016.In 2016,he sells the bonds for a gain of $300.Ferris excludes the value of the bonds received and the bond interest,but must include a $300 capital gain in his 2016 gross income.Which of the following Concepts,Constructs,and/or Doctrines form the basis for this treatment?
I.Capital Recovery Concept
II.Legislative Grace Concept
III.Constructive Receipt Doctrine
IV.Realization Concept

Question

Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2014.He received $120 interest on the bonds in 2014,2015,and 2016.In 2016,he sells the bonds for a gain of $300.Ferris excludes the value of the bonds received and the bond interest,but must include a $300 capital gain in his 2016 gross income.Which of the following Concepts,Constructs,and/or Doctrines form the basis for this treatment?
I.Capital Recovery Concept
II.Legislative Grace Concept
III.Constructive Receipt Doctrine
IV.Realization Concept
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Quizplus · Accepted Answer

The Capital Recovery Concept applies to the exclusion of the value of the bonds received and bond interest from gross income. The Legislative Grace Concept is not applicable here because it does not involve any tax preferences or incentives granted by the government. The Constructive Receipt Doctrine is not relevant because Ferris actually received the interest income in each of the three years. The Realization Concept applies to the recognition of the $300 capital gain in 2016 when the bonds were sold. Therefore, choice E, Statements I, II, and IV are correct.

Ferris Inherited State of Florida General-Purpose Bonds Worth $2,400 from His