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Exam 4: Gross Income: Concepts and Inclusions

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Question 41

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Jerry purchased a U.S.Series EE savings bond for $744.The bond has a maturity value in 10 years of $1,000 and yields 3% interest.This is the first Series EE bond that Jerry has ever owned.

A) Jerry can defer the interest income until the bond matures in 10 years.
B) Jerry must report ($1,000 - $744) /10 = $25.60 interest income each year he owns the bond.
C) The interest on the bonds is exempt from Federal income tax.
D) Jerry can report all of the $256 as a capital gain in the year it matures.
E) None of these.

F) None of the above
G) B) and E)

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Question 42

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The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are:

A) The corporation has imputed interest income and the employee is deemed to have received a gift.
B) The corporation has imputed interest income and dividends paid.
C) The employee has no income unless the funds are invested and produce investment income for the year.
D) The employee has imputed compensation income and the corporation has imputed interest income.
E) None of these.

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

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Question 43

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Barney painted his house which saved him $3,000.According to the realization requirement,Barney must recognize $3,000 of income.

Freddy purchased a certificate of deposit for $20,000 on July 1,2015.The certificate's maturity value in two years (June 30,2017) is $21,218,yielding 3% before-tax interest.

Mike contracted with Kram Company,Mike's controlled corporation.Mike was a medical doctor and the contract provided that he 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.

At the beginning of 2015,Mary purchased a 3-year certificate of deposit (CD) for $8,760.The maturity value of the certificate was $10,000 and it was to yield 4.5%.She also purchased a Series EE bond for $6,400 with a maturity value in 10 years of $10,000.Mary must recognize $1,240 of income from the certificate of deposit in 2015,and $3,600 from the Series EE bonds in 2024.

Lois,who is single,received $9,000 of Social Security benefits.She also received $25,000 from dividends,interest,and her employer's pension plan.If Lois sells a capital asset that produces a $1,000 recognized loss,Lois's taxable income will decrease by more than $1,000.

Sharon made a $60,000 interest-free loan to her son,Todd,who used the money to start a new business.Todd's only sources of income were $25,000 from the business and $490 of interest on his checking account.The relevant Federal interest rate was 5%.Based on the above information:

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.

The alimony rules:

The alimony recapture rules are intended to:

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 $.25 per month for $1,000 of protection.How much must Sam include in gross income this year?

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.

Ted was shopping for a new automobile.He found one that met his needs and agreed to purchase it for $23,000.He had shopped around and concluded that he could not get a better price from another dealer.After he had paid for the automobile,the dealer called to notify Ted that he was entitled to a manufacturer's rebate of $1,500.The next week he received a $1,500 check from the manufacturer.How much should Ted include in gross income?

Turner,a successful executive,is negotiating a compensation plan with his potential employer.The employer has offered to pay Turner a $600,000 annual salary,payable at the rate of $50,000 per month.Turner counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in 5 years when Turner will be age 65.

The B & W Partnership earned taxable income of $140,000 for the year.Bryan is entitled to 50% of the profits,but Bryan withdrew only $60,000 during the year.Bryan's gross income from the partnership for the year is $60,000.

Maroon Corporation expects the employees' income tax rates to increase next year.The employees use the cash method.The company presently pays on the last day of each month.The company is considering changing its policy so that the December salaries will be paid on the first day of the following year.What would be the effect on an employee of the proposed change in company policy for paying its salaries beginning December 2015?

Wayne owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership) .For tax year 2014,the partnership earned revenue of $900,000 and had operating expenses of $660,000.During the year,Wayne withdrew from the partnership a total of $90,000.He also invested an additional $30,000 in the partnership.For 2014,Wayne's gross income from the partnership is:

Jessica is a cash basis taxpayer.When Jessica failed to repay a loan,the bank garnished her salary.Each week $60 was withheld from Jessica's salary and paid to the bank.Jessica is required to include the $60 each week in her gross income even though it is the creditor that benefits from the income.

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