Question 1

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. However, Ralph can elect to amortize the discount over the 10-year period.

Accepted Answer

A) True 
 B)False

Question 2

In all community property states, the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

Accepted Answer

A) True 
 B)False

Question 3

Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee's annual salary. Sam, a vice president, worked all year for Green, Inc., and received $200,000 of coverage for the year at a cost to Green of $1,500. The Uniform Premiums (based on Sam's age)  are $0.25 per month for $1,000 of protection. How much must Sam include in gross income this year?

Accepted Answer

A)   $0.
B)   $375.
C)   $450.
D)   $600.
E)   None of these.F) B) and E)
G) A) and D)

Question 4

The tax concept and economic concept of income are in agreement on which of the following:

Accepted Answer

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)   Rent income for 2020 collected in 2019 is income for 2019.
D)   All of these.E) C) and D)
F) None of the above

Question 5

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:

Accepted Answer

A)   Bob must include $1,000 (10/12 x $1,200)  of the dividend in his gross income.
B)   Bob must include all of the dividend in his gross income.
C)   Dave must include all of the dividend in his gross income.
D)   Dave should treat the $1,200 as a recovery of capital.
E)   None of these is correct.F) B) and D)
G) C) and D)

Question 6

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.

Accepted Answer

A)   If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
B)   Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income.
C)   Debra must recognize $6,090 of imputed interest income.
D)   Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income.
E)   None of these.F) B) and C)
G) A) and E)

Question 7

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.

Accepted Answer

A)   Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
B)   Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
C)   Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
D)   Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
E)   None of these.F) None of the above
G) B) and D)

Question 8

In the case of a person with other income of $300,000, 15% of his or her Social Security benefits received are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

On January 2, 2019, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2019, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2019:

Accepted Answer

A)   Tim must include all of the interest in his gross income.
B)   Jane must report $1,800 gross income for 2019.
C)   Jane reports $1,350 of interest income in 2019, and Tim reports $450 of interest income in 2019.
D)   Jane reports $450 of interest income in 2019, and Tim reports $1,350 of interest income in 2019.
E)   None of these is correct.F) B) and E)
G) None of the above C

Question 11

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2014, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2019, she sold the bond for $9,800, which included $200 of accrued interest.

Accepted Answer

A)   Theresa has $200 interest income and a $400 loss from the bond in 2019.
B)   Theresa has $200 interest income and a $200 gain from the bond in 2019.
C)   Theresa has a $100 loss from the sale of the bond and no interest income.
D)   Theresa's loss on the sale of the bond is $600.
E)   None of these.F) C) and E)
G) A) and E)

Question 12

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2019. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September
30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2019.

Accepted Answer

A)   The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $2,000.
B)   Darryl must recognize the income of $2,000 because the purpose of the gift was to avoid taxes.
C)   Darryl must recognize $1,500 of the dividend because he owned the stock for three-fourths of the year.
D)   Darryl must recognize the $2,000 dividend as his income because he constructively received the dividend.
E)   None of these.F) A) and B)
G) B) and E)

Question 13

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Accepted Answer

A) True 
 B)False  False

Question 14

Norma's income for 2019 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.

Accepted Answer

A) True 
 B)False  True

Question 15

The taxable portion of Social Security benefits may be affected by:

Accepted Answer

A)   The taxpayer's itemized deductions.
B)   The individual's tax-exempt interest income.
C)   The number of quarters the individual worked.
D)   The individual's standard deduction.
E)   None of these.F) A) and B)
G) A) and C)

Question 16

A sole proprietor purchased an asset for $1,000 in 2019. Its value was $1,500 at the end of 2019. In 2020, the taxpayer sold the asset for $1,400. In 2020, the proprietor realized a taxable gain of $400 but an economic loss of
$100.

Accepted Answer

A) True 
 B)False

Question 17

Mike, a medical doctor, contracted with Kram Company, Mike's controlled corporation. The contract provided that Mike would work exclusively for the corporation. No other doctor worked for the corporation. The corporation contracted to perform an operation for Rosa for $8,000. The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

Accepted Answer

A)   Mike's gross income is $6,500.
B)   Mike must recognize the $8,000 gross income because he provided the service.
C)   Mike must recognize $8,000 gross income since the patient obviously wanted him to perform the operation.
D)   The Kram Company corporation's gross income is $1,500.
E)   None of these.F) None of the above
G) C) and D)

Question 18

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

Accepted Answer

A)   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 can defer recognition of the income until the suit has been settled.
B)   A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.
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 these are false.
E)   All of these are true.F) B) and C)
G) A) and B)

Question 19

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, March 31, 2019, the accrued interest on the bond was
$100. On December 31, 2019, Brent collected $400 interest on the bond. Brent must include in gross income the
$300 interest earned after the date of the gift.

Accepted Answer

A) True 
 B)False

Question 20

The annual increase in the cash surrender value of a life insurance policy:

Accepted Answer

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 these.F) B) and E)
G) C) and E)

Exam 4: Gross Income: Concepts and Inclusions

Correct Answer
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In all community property states, the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

Correct Answer
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The tax concept and economic concept of income are in agreement on which of the following:

Correct Answer
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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.

Correct Answer
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Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.

Correct Answer
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In the case of a person with other income of $300,000, 15% of his or her Social Security benefits received are excluded from gross income.

Correct Answer
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On January 2, 2019, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2019, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2019:

Correct Answer
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C

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2014, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2019, she sold the bond for $9,800, which included $200 of accrued interest.

Correct Answer
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Correct Answer
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Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Correct Answer
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False

Norma's income for 2019 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.

Correct Answer
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True

The taxable portion of Social Security benefits may be affected by:

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A sole proprietor purchased an asset for $1,000 in 2019. Its value was $1,500 at the end of 2019. In 2020, the taxpayer sold the asset for $1,400. In 2020, the proprietor realized a taxable gain of $400 but an economic loss of $100.

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

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The annual increase in the cash surrender value of a life insurance policy:

Correct Answer
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Exam 4: Gross Income: Concepts and Inclusions

Correct AnswerverifiedShow Answer

In all community property states, the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The tax concept and economic concept of income are in agreement on which of the following:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.

Correct AnswerverifiedShow Answer

In the case of a person with other income of $300,000, 15% of his or her Social Security benefits received are excluded from gross income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On January 2, 2019, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2019, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2019:

Correct AnswerverifiedC

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2014, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2019, she sold the bond for $9,800, which included $200 of accrued interest.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Correct AnswerverifiedFalse

Norma's income for 2019 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.

Correct AnswerverifiedTrue

The taxable portion of Social Security benefits may be affected by:

Correct AnswerverifiedShow Answer

A sole proprietor purchased an asset for $1,000 in 2019. Its value was $1,500 at the end of 2019. In 2020, the taxpayer sold the asset for $1,400. In 2020, the proprietor realized a taxable gain of $400 but an economic loss of $100.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The annual increase in the cash surrender value of a life insurance policy:

Correct AnswerverifiedShow Answer

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C

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False

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True

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