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

True/False

Review LaterAdd Note

Review Later

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.

A) True
B) False

Correct Answer

verified

Show Answer

Question 42

Essay

Review LaterAdd Note

Review Later

Rachel, who is in the 35% marginal tax bracket, is considering purchasing an annuity that will pay her $10,000 per year for the remainder of her life.Her life expectancy is 15 years.The cost of the annuity is $97,120, and the cost is calculated to yield her an expected 6% return on her investment.As an alternative, Rachel could place the $97,120 in a savings account yielding 6% and she could withdraw $10,000 each year for 15 years (reducing the value of the account to zero at the end of 15 years).How might the tax laws applicable to annuities affect Rachel's decision?

Correct Answer

verified

The tax laws favor the purchase of the a...

View Answer

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

Emily is in the 35% marginal tax bracket.She can purchase a York County school bond yielding 3.5% interest and the interest is not subject to a 5% state tax.But she is interested in earning a higher return For comparable risk.Which of the following is correct:

Teal company is an accrual basis taxpayer.On December 1, 2017, a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2018.Teal delivered the item on January 4, 2018.Teal included the sale in its 2017 income for financial accounting purposes.

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

Amber Machinery Company purchased a building from Ted for $250,000 cash and a mortgage of $750,000.One year after the transaction, the mortgage had been reduced to $725,000 by principal payments by Amber, but it was apparent that Amber would not be able to continue to make the monthly payments on the mortgage.Ted reduced the amount owed by Amber to $600,000.This reduced the monthly payments to a level that Amber could pay.Amber must recognize $125,000 income from the reduction in the debt by Ted.

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

The taxpayer incorrectly took a $5,000 deduction (e.g., incorrectly calculated depreciation) in 2017 and as a result his taxable income was reduced by $5,000.The taxpayer discovered his error in 2018.The taxpayer must add $5,000 to his 2018 gross income in accordance with the tax benefit rule to correct for the 2017 error.

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

Linda delivers pizzas for a pizza shop.On Wednesday, December 31, 2017, Linda made several deliveries and collected $400 from customers.However, Linda forgot to turn in the proceeds for the day to her employer until the following Friday, January 2, 2018.The pizza shop owner recognizes the income of $400 when he receives it from Linda in 2018.

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.

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.

A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1, 2015 that will pay $1,100 upon its maturity on June 30, 2017.The taxpayer must recognize a portion of the income in 2016.

In December 2016, Mary collected the December 2016 and January 2017 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2016 for the 2017 rent should be included in her 2017 gross income.

George, an unmarried cash basis taxpayer, received the following amounts during 2017: $\begin{array} { l r } \text { Interest on savings accounts } & \$ 2,000 \\\text { Interest on a State tax refund } & 600 \\\text { Interest on City of Salem school bonds } & 350 \\\text { Interest portion of proceeds of a 5\% bank certificate of deposit } & \\\text { purchased on July 1, 2016, and matured on June 30, 2017 } & 250 \\\text { Dividends on USG common stock } & 300\end{array}$ ? What amount should George report as gross income from dividends and interest for 2017?

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.

The 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, 2017, the company sold a one-year membership and a two-year membership.The company should report as gross income from the two contracts:

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2013, for $10,000, plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31, 2017, she sold the bond for $9,800, which included $200 of accrued interest.

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value.

During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss.Presuming adequate income, how much of these losses may Kim claim?