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Exam 5: Gross Income: Exclusions

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Question 41

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In 2012,Bob's unincorporated business has a net loss of $30,000.Bob has investment income of $40,000.Itemized deductions and personal exemptions total $26,000.Thus,on his 2012 tax return,his taxable income was a negative $16,000.In 2012,Bob discovered that an employee has stolen $25,000 (pocketing the proceeds from unrecorded sales)from the business.This $25,000 theft loss is included in calculating the net loss of Bob's business of $30,000.In 2013,Bob recovers the $25,000 from the former employee.How can the tax benefit rule assist Bob in 2013?

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Bob realizes a $25,000 increase in wealt...

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Question 42

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Beverly died during the current year.At the time of her death,her accrued salary and commissions totaled $3,000 and were paid to her husband.The employer also paid the husband $35,000 which represented an amount equal to Beverly's salary for the year prior to her death.The employer had a policy of making the salary payments to "help out the family in the time of its greatest need." Beverly's spouse collected her interest in the employer's qualified profit sharing plan amounting to $30,000.As beneficiary of his wife's life insurance policy,Beverly's spouse elected to collect the proceeds in installments.In the year of death,he collected $8,000 which included $1,500 interest income.Which of these items are subject to income tax for Beverly's spouse?

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All nonforfeitable rights to funds are ...

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Question 43

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Tommy,a senior at State College,receives free room and board as full compensation for working as a resident advisor at the university dormitory.The regular housing contract is $2,000 a year in total,$1,200 for lodging and $800 for meals in the dormitory.Tommy had the option of receiving the meals or $800 in cash.Tommy accepted the meals.What is Tommy's gross income from working as a resident advisor?

Swan Finance Company,an accrual method taxpayer,requires all of its customers to carry credit life insurance.If a customer dies,the company receives from the insurance company the balance due on the customer's loan.Ali,a customer,died owing Swan $1,500.The balance due included $200 accrued interest that Swan has included in income.When Swan collects $1,500 from the insurance company,Swan:

Bob had a terminal illness and realized that he "can't take it with him." Therefore,he cashed in his insurance policy and received $120,000.He had paid $50,000 in premiums on the policy.He used the money to fulfill his lifelong ambitions of going to the Super Bowl,driving an expensive sports car,and vacationing in Bermuda. Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?

A U.S.citizen worked in a foreign country for the period July 1,2011 through August 1,2012.Her salary was $10,000 per month.Also,in 2011 she received $5,000 in dividends from foreign corporations (not qualified dividends) .No dividends were received in 2012.Which of the following is correct?

The taxpayer is a Ph.D.student in accounting at City University.The student is paid $1,500 per month for teaching two classes.The total amount received for the year is $13,500.

Brooke works part-time as a waitress in a restaurant.For groups of 7 or more customers,the customer is charged 15% of the bill for Brooke's services.For parties of less than 7,the tips are voluntary.Brooke received $11,000 from the groups of 7 or more and $7,000 in voluntary tips from all other customers.Using the customary 15% rate,her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000)in gross income.

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.

Gold Company was experiencing financial difficulties,but was not bankrupt or insolvent.The National Bank,which held a mortgage on other real estate owned by Gold,reduced the principal from $110,000 to $85,000.The bank had made the loan to Gold when it purchased the real estate from Silver,Inc.Pink,Inc.,the holder of a mortgage on Gold's building,agreed to accept $40,000 in full payment of the $55,000 due.Pink had sold the building to Gold for $150,000 that was to be paid in installments over 8 years.As a result of the above,Gold must:

Flora Company owed $95,000,a debt incurred to purchase land that serves as security for the debt.

Julie was suffering from a viral infection that caused her to miss work for 90 days.During the first 30 days of her absence,she received her regular salary of $4,000 from her employer.For the next 60 days,she received $6,000 under an accident and health insurance policy purchased by her employer.The premiums on the health insurance policy were excluded from her gross income.During the last 30 days,Julie received $2,000 on an income replacement policy she had purchased.Of the $12,000 she received,Julie must include in gross income:

Tonya is a cash basis taxpayer.In 2012,she paid state income taxes of $6,000.In early 2013,she filed her 2012 state income tax return and received a $600 refund.

Carla is a deputy sheriff.Her employer requires that she live in the county where she is employed.Housing is very expensive; so the county agreed to pay her $4,800 per year to cover the higher cost of housing.Carla must include the housing supplement in her gross income.

Employers can provide numerous benefits to their employees and the employees are permitted to exclude the value of these benefits from gross income.What are the effects of the exclusions on:

Harold bought land from Jewel for $150,000.Harold paid $50,000 cash and gave Jewel an 8% note for $100,000.The note was to be paid over a five-year period.When the balance on the note was $80,000,Jewel began having financial difficulties.To accelerate her cash inflows,Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal.

George is employed by the Quality Appliance Company.All the full time employees are allowed to purchase appliances at the company's cost plus 10%.The employee also is given,at no cost,a 1-year service contract on all the goods purchased from the company.George purchased a refrigerator for $500.The company's normal selling price for the refrigerator is $800.George also received a service contract,at no charge,that had a value of $150.During the year,George was required to have his refrigerator serviced once.The cost of the call would have been $75 if he had not had the service contract.Is George required to recognize any income from the purchase of the refrigerator,the receipt of the service contract,and the service call?

If a scholarship does not satisfy the requirements for a gift,the scholarship must be included in gross income.

Mauve Company permits employees to occasionally use the copying machine for personal purposes.The copying machine is located in the office where the higher paid executives work,so they occasionally use the machine.However,the machine is not convenient for use by the lower paid warehouse employees and,thus,they never use the copier.The use of the copy machine may be excluded from gross income as a de minimis fringe benefit.

What Federal income tax benefits are provided for college students?