FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 4: Gross Income

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

A) $4,775.
B) $4,675.
C) $4,575.
D) $4,300.
E) None of these.

F) C) and E)
G) D) and E)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

A) Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B) 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 $2,000.
C) Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D) Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000.
E) None of these.

F) B) and E)
G) B) and D)

Correct Answer

verified

Show Answer

Question 43

True/False

Review LaterAdd Note

Tom, a cash basis taxpayer, purchased a bond on March 31 for $10,000, plus $100 accrued interest.In December, he collected $500 interest from the bond.Tom's interest income from the bond for the year is $500.

The purpose of the tax rules that apply to below-market loans between family members is to:

Maroon & Orange Gym, Inc., uses the accrual method of accounting.The corporation sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $480 ($480/12 = $40 per month) ; a two- year membership costs $720 ($720/24 = $30 per month) .Cash payment is required at the beginning of the membership period.On July 1, 2019, the company sold a one-year membership and a two-year membership.For financial reporting purposes, Maroon reports the membership income ratably over the number of months involved.The company should report as gross income from the two contracts:

A taxpayer incorrectly took a $5,000 deduction (e.g., incorrectly calculated depreciation) in 2019 and as a result, his taxable income was reduced by $5,000.The taxpayer discovered his error in 2020.The taxpayer must add $5,000 to his 2020 gross income in accordance with the tax benefit rule to correct for the 2019 error.

George, an unmarried cash basis taxpayer, received the following amounts this year: What amount should George report as gross income from dividends and interest this year?

During 2019, Madison had salary income of $80,000 and the following capital transactions: How are these transactions handled for income tax purposes?

Daniel purchased a bond on July 1, 2019, at par of $10,000 plus accrued interest of $300.On December 31, 2019, Daniel collected the $600 interest for the year.On January 1, 2020, Daniel sold the bond for $10,200.

Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each.Her husband had paid premiums of $60,000 on the policy.In the first year, Carin collected $17,500 from the insurance company.She must include in gross income:

In the case of interest income from state and Federal bonds:

Heather's interest and gains on investments for the current year are as follows: Heather must report gross income in the amount of:

On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra.The relevant Federal rate on interest was 6 percent.The loan was outstanding for the entire year.

As a general rule: I.Income from property is taxed to the person who owns the property.II.Income from services is taxed to the person who earns the income.III.The assignee of income from property must pay tax on the income. IV.The person who receives the benefit of the income must pay the tax on the income.

Judy is a cash basis attorney.This year, she performed services in connection with the formation of a corporation and received stock with a value of $4,000 for her services.By the end of the year, the value of the stock had decreased to $2,000.She continued to hold the stock.Judy must recognize $4,000 of gross income from the stock for the current year.

Kirby, a single taxpayer, has taxable income of $30,000 and is in the 12% tax bracket.During 2019, she had the following capital asset transactions: Kirby's tax consequences from these gains are as follows:

An advance payment received in June 2019 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Gull Corporation was undergoing reorganization under the bankruptcy laws.Its shareholders, who had made loans of $300,000 to the corporation, agreed to accept additional stock with a value of $200,000 instead of repayment on the debt.The Old Line Insurance Company, which had a $400,000 mortgage on the building, agreed to reduce the principal to $250,000.A trade creditor with a receivable of $150,000 from the company agreed to accept $70,000 in full payment for the debt incurred to purchase goods that were still on hand.Finally, the company transferred some equipment with an adjusted basis of $90,000 in satisfaction of a liability for $120,000.Compute the corporation's gross income and other adjustments necessary as a result of the above transactions.

The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not ensure that the method will be acceptable for tax purposes.

On November 1, 2019, Bob, a cash basis taxpayer, gave Dave common stock.On October 30, 2019, the corporation had declared the dividend payable to shareholders of record as of November 22, 2019.The dividend was paid on December 15, 2019.The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock.When Dave collected the dividend on December 15, 2019: