Question 1

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Accepted Answer

A) True 
 B)False

Question 2

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700)  ,her emotional distress ($6,000 - she now fears peanut butter)  ,and punitive damages ($44,000)  .What amount must Pam include in her gross income?

Accepted Answer

A)  $44,000
B)  $50,000
C)  $47,700
D)  $9,700
E)  Zero - none of these benefits is included in gross incomeF) A) and E)
G) B) and D)

Question 3

This year Ed celebrated his 25th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

Accepted Answer

A)  $2,250
B)  $2,000
C)  $250
D)  Zero if Ed offers to contribute his watch and bonus to a qualified charity
E)  Zero - all employee awards are excluded from gross incomeF) None of the above
G) A) and E)

Question 4

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

Accepted Answer

A)  $80
B)  $72
C)  $48
D)  $32
E)  None of theseF) A) and E)
G) All of the above

Question 5

This year,Barney and Betty sold their home (sales price $750,000;cost $200,000)  .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.How much of the gain is included in gross income?

Accepted Answer

A)  $550,000
B)  $300,000
C)  $250,000
D)  $50,000
E)  NoneF) All of the above
G) A) and E)

Question 6

Prizes and awards are generally taxable.

Accepted Answer

A) True 
 B)False

Question 7

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Accepted Answer

A) True 
 B)False

Question 8

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 9

Janine's employer loaned her $5,000 this year (interest-free)  to buy a used car.If the federal interest rate was 4%,which of the following is correct?

Accepted Answer

A)  Janine recognizes $200 of taxable interest income.
B)  Janine's employer recognizes $200 of deductible interest expense.
C)  Janine recognizes $200 of imputed compensation income.
D)  Janine recognizes $200 of imputed dividend income.
E)  None of thesE.The imputed interest rules do not apply to loans of $10,000 or less.F) None of the above
G) A) and E)

Question 10

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Accepted Answer

A) True 
 B)False

Question 11

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

Accepted Answer

A)  Dave is taxed on $62,000 of plumbing income this year.
B)  Steve is taxed on $62,000 of plumbing income this year.
C)  Steve is taxed on $62,000 of income from gifts received this year.
D)  Dave may deduct the $62,000 received by Steve.
E)  All of these are trueF) A) and B)
G) C) and D)

Question 12

An employee may exclude up to a 40 percent employer-provided discount on services.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements about alimony payments is true?

Accepted Answer

A)  To qualify as alimony,payments must be made in cash.
B)  Alimony payments are includible in the gross income of the recipient.
C)  To qualify as alimony,payments cannot continue after the death of the recipient.
D)  To qualify as alimony,payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support.
E)  All of theseF) A) and B)
G) A) and E)

Question 14

Unemployment benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 15

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services.Which of the following is a true statement?

Accepted Answer

A)  Hillary is taxed on the $5,000 of service income in the year she cashes the check.
B)  Hillary is taxed on the $5,000 of service income in the year the check was mailed.
C)  Hillary is taxed on the $5,000 of service income in the year she receives the check.
D)  Hillary is taxed on the $5,000 of service income in the year she provides the services.
E)  None of these is truE.Under constructive receipt Hillary is taxed on income when property is received or made available to her.F) A) and D)
G) C) and E)

Question 16

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives.Later this year Harold will recover the remainder of his cost of the annuity.Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

Accepted Answer

A)  Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income.
B)  Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity.
C)  The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity.
D)  Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy.
E)  All of theseF) A) and D)
G) C) and D)

Question 17

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Accepted Answer

A)  Cash
B)  Shares of stock listed on the New York Stock Exchange
C)  A used car
D)  Gold coins
E)  All of these are included in gross incomeF) B) and E)
G) All of the above

Question 18

Mike received the following interest payments this year.What amount must Mike include in his gross income (for federal tax purposes)  ?

Accepted Answer

A)  $2,650
B)  $2,350
C)  $2,050
D)  $2,300
E)  $3,500F) B) and C)
G) C) and D)

Question 19

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Accepted Answer

A) True 
 B)False

Question 20

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes) .

Accepted Answer

A) True 
 B)False

Exam 5: Gross Income and Exclusions

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700) ,her emotional distress ($6,000 - she now fears peanut butter) ,and punitive damages ($44,000) .What amount must Pam include in her gross income?

Correct Answer
verified

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Correct Answer
verified

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Correct Answer
verified

Prizes and awards are generally taxable.

Correct Answer
verified

Which of the following statements about alimony payments is true?

Correct Answer
verified

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services.Which of the following is a true statement?

Correct Answer
verified

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

Correct Answer
verified

Mike received the following interest payments this year.What amount must Mike include in his gross income (for federal tax purposes) ?

Correct Answer
verified

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4%,which of the following is correct?

Correct Answer
verified

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

Correct Answer
verified

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Correct Answer
verified

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

Correct Answer
verified

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Correct Answer
verified

Correct Answer
verified

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Correct Answer
verified

An employee may exclude up to a 40 percent employer-provided discount on services.

Correct Answer
verified

Unemployment benefits are excluded from gross income.

Correct Answer
verified

This year,Barney and Betty sold their home (sales price $750,000;cost $200,000) .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.How much of the gain is included in gross income?

Correct Answer
verified

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes) .

Correct Answer
verified

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Correct Answer
verified

Exam 5: Gross Income and Exclusions

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700) ,her emotional distress ($6,000 - she now fears peanut butter) ,and punitive damages ($44,000) .What amount must Pam include in her gross income?

Correct AnswerverifiedShow Answer

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Correct AnswerverifiedShow Answer

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Correct AnswerverifiedShow Answer

Prizes and awards are generally taxable.

Correct AnswerverifiedShow Answer

Which of the following statements about alimony payments is true?

Correct AnswerverifiedShow Answer

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services.Which of the following is a true statement?

Correct AnswerverifiedShow Answer

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

Correct AnswerverifiedShow Answer

Mike received the following interest payments this year.What amount must Mike include in his gross income (for federal tax purposes) ?

Correct AnswerverifiedShow Answer

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4%,which of the following is correct?

Correct AnswerverifiedShow Answer

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

Correct AnswerverifiedShow Answer

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Correct AnswerverifiedShow Answer

This year Ed celebrated his 25th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

Correct AnswerverifiedShow Answer

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Correct AnswerverifiedShow Answer

An employee may exclude up to a 40 percent employer-provided discount on services.

Correct AnswerverifiedShow Answer

Unemployment benefits are excluded from gross income.

Correct AnswerverifiedShow Answer

This year,Barney and Betty sold their home (sales price $750,000;cost $200,000) .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.How much of the gain is included in gross income?

Correct AnswerverifiedShow Answer

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes) .

Correct AnswerverifiedShow Answer

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Correct AnswerverifiedShow Answer

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This year Ed celebrated his 25^th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

Correct Answer
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Correct Answer
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