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 1

Multiple Choice

Review LaterAdd Note

Review Later

On November 1,2015,Bob,a cash basis taxpayer,gave Dave common stock.On October 30,2015,the corporation had declared the dividend payable to shareholders of record as of November 22,2015.The dividend was paid on December 15,2015.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 15,2015:

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) D) and E)
G) A) and B)

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Daniel purchased a bond on July 1,2015,at par of $10,000 plus accrued interest of $300.On December 31,2015,Daniel collected the $600 interest for the year.On January 1,2016,Daniel sold the bond for $10,200.

A) Daniel must recognize $300 interest income for 2015 and a $200 gain on the sale of the bond in 2016.
B) Daniel must recognize $600 interest income for 2015 and a $200 gain on the sale of the bond in 2016.
C) Daniel must recognize $600 interest income for 2015 and a $100 loss on the sale of the bond in 2016.
D) Daniel must recognize $300 interest income for 2015 and a $100 loss on the sale of the bond in 2016.
E) None of these.

F) A) and B)
G) B) and C)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

Zork Corporation was very profitable and had accumulated excess cash.The company decided to repurchase some of its bonds that had been issued for $1,000,000.Because of an increase in market interest rates,Zork was able to retire the bonds for $900,000.The company is not required to recognize $100,000 of income from the discharge of its indebtedness but must reduce the basis in its assets.

Calvin miscalculated his income in 2013 and overpaid his state income tax by $10,000.In 2015,he amended his 2013 state income tax return and received a $10,000 refund and $900 interest.Calvin itemized his deductions in 2013,deducting $12,000 in state income tax and $30,000 total itemized deductions.As a result of the amended return in 2015,Calvin must recognize $10,900 of gross income.

Hazel,a solvent individual but a recovering alcoholic,embezzled $6,000 from her employer.In the same year that she embezzled the funds,her employer discovered the theft.Her employer did not fire her and told her she did not have to repay the $6,000 if she would attend Alcoholics Anonymous.Hazel met the conditions and her employer canceled the debt.

Katherine is 60 years old and is bargaining with her employer over deferred compensation.In exchange for reducing her current year's salary by $50,000,she can receive a lump-sum amount in 5 years,when she will retire.If she receives the $50,000 in the current year,she will invest in certificates of deposit that yield 5%.Katherine is in the 28% marginal tax bracket in all relevant years.What is the minimum amount Katherine should accept as a deferred pay option? [Hint: the compound interest factor is 1.1934.]

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.

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.

In early 2015,Ben sold a yacht,held for 9 months and for pleasure,for a $5,000 gain.Concerned about offsetting the gain before year-end,Ben is considering selling one of the following-each of which would yield a $5,000 loss: ∙ Houseboat used for recreation. ∙ Truck used in business. ∙ Stock investment held for 13 months. Evaluate each choice.

In December 2014,Mary collected the December 2014 and January 2015 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2014 for the 2015 rent should be included in her 2015 gross income.

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.

A sole proprietorship purchased an asset for $1,000 in 2015 and its value was $1,500 at the end of 2015.In 2016,the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2016 but an economic loss of $100 in 2016.

Office Palace,Inc. ,leased an all-in-one printer to a new customer,Ashley,on December 27,2015.The printer was to rent for $600 per month for a period of 36 months beginning January 1,2016.Ashley was required to pay the first and last month's rent at the time the lease was signed.Ashley was also required to pay a $1,500 damage deposit.Office Palace must recognize as income for the lease:

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

On a particular Saturday,Tom had planned to paint a room in his house,but his employer gave him the opportunity to work that day.If Tom works,he must hire a painter for $120.For Tom to have a positive cash flow from working and hiring the painter:

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.

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.

Frank sold his personal use automobile for a loss of $9,000.He also sold a personal coin collection for a gain of $10,000.As a result of these sales,$10,000 is subject to income tax.

Theresa,a cash basis taxpayer,purchased a bond on July 1,2011,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2015,she sold the bond for $9,800,which included $200 of accrued interest.

On January 1,2015,an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months.The amount received for the contract was $2,400.The taxpayer should report $1,600 of income in 2016.