Question 1

In early 2018, 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.

Accepted Answer

The sale of the houseboat produces no be...

Question 2

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?

Accepted Answer

A)  $0.
B)  $1,000.
C)  $2,000.
D)  $3,000.
E)  None of these.F) A) and B)
G) A) and C)

Question 3

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 2018?

Accepted Answer

A)  The employee would be required to recognize the income in December 2018 because it is constructively received at the end of the month.
B)  The employee would be required to recognize the income in December 2018 because the employee has a claim of right to the income when it is earned.
C)  The employee will not be required to recognize the income until it is received, in 2019.
D)  The employee can elect to either include the pay in 2018 or 2019.
E)  None of these.F) A) and E)
G) A) and B)

Question 4

Mel was the beneficiary of a $45,000 group term life insurance policy on his wife.His wife's employer paid all of the premiums on the policy.Mel used the life insurance proceeds to purchase a United States Government bond, which paid him $2,500 interest during the current year.Mel's Federal gross income from the above is $2,500.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  Interest on United States government bonds received by a state resident can be subject to that state's income tax.
B)  Interest on United States government bonds is subject to Federal income tax.
C)  Interest on bonds issued by State A received by a resident of State B cannot be subject to income tax in State B.
D)  All of these are correct.
E)  None of these are correct.F) A) and E)
G) A) and D)

Question 6

ABC Corporation declared a dividend for taxpayers of record as of December 24, 2017.The dividend checks were mailed on December 31, 2017.Ed, a cash basis shareholder, received the dividend check on January 2, 2018.Ed cannot delay reporting the income from the dividend until 2018.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

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

Question 8

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  If Flora had borrowed the funds from a bank, the bank accepts $85,000 in full payment of the debt, and Flora is solvent after the transfer, Flora does not recognize income, but the company must reduce the cost of the land by $10,000.
B)  If Flora had borrowed the funds from a bank, and the bank accepts $85,000 in full payment of the debt, when the value of the property is $80,000, Flora can deduct a loss.
C)  If Flora transfers to the bank other property, with a basis of $90,000 and a fair market value of $95,000, in full payment of the debt, Flora can recognize a $5,000 loss.
D)  If the $95,000 is owed to the person who sold the property to Flora, and the creditor accepts $85,000 in full payment for the debt, Flora does not recognize gain but must reduce its basis in the land.
E)  None of these.F) B) and D)
G) A) and E)

Question 10

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

Accepted Answer

A)  A mechanic completed repairs on an automobile during the year and collects money from the customer.The customer was not satisfied with the repairs and sued the mechanic for a refund.The mechanic can defer recognition of the income until the suit has been settled.
B)  A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.
C)  Embezzlement proceeds are not included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)  All of these are false.
E)  All of these are true.F) All of the above
G) B) and D)

Question 11

During 2018, Madison had salary income of $80,000 and the following capital transactions:

Accepted Answer

Combining the long-term transactions yie...

Question 12

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:

Accepted Answer

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) C) and D)
G) A) and D)

Question 13

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.

Accepted Answer

A)  Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
B)  Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
C)  Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
D)  Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
E)  None of these.F) C) and D)
G) B) and E)

Question 14

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 24% 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.]

Accepted Answer

$59,670
The $50,000 salary will be $38,0...

Question 15

The purpose of the tax rules that apply to below-market loans between family members is to:

Accepted Answer

A)  Discourage loans between related parties.
B)  Prevent shifting of income among family members.
C)  Prevent gifts from being disguised as bad debt expenses.
D)  Prevent gift tax avoidance.
E)  None of these is true.F) B) and C)
G) A) and B)

Question 16

Doug and Pattie received the following interest income in the current year:  Greenbacks Bank also gave Doug and Pattie a cellular phone worth $100)  for opening the savings account.What amount of interest income should they report on their joint income tax return?

Accepted Answer

A)  $4,775.
B)  $4,675.
C)  $4,575.
D)  $4,300.
E)  None of these.F) C) and D)
G) A) and B)

Question 17

When Betty was diagnosed as having a terminal illness, she sold her life insurance policy to Insurance Purchase, Inc., a company that is licensed to invest in these types of contracts.Betty sold the policy for $32,000 and Insurance Purchase, Inc., became the beneficiary.She had paid total premiums of $19,000.Betty died 8 months after the sale.Insurance Purchase, Inc., collected $50,000 on the policy.The company had paid additional premiums of $4,000 on the policy.Betty is not required to recognize a $13,000 gain from the sale of her life insurance policy and Insurance Purchase, Inc., is required to recognize a $14,000 gain from the insurance policy.

Accepted Answer

A) True 
 B)False

Question 18

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Accepted Answer

A)  Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B)  Sue is not required to recognize gross income from the receipt of the funds, but she must reduce her cost basis in the land by $2,000.
C)  Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D)  Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000.
E)  None of these.F) B) and E)
G) A) and D)

Question 19

On January 1, 2018, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 24 months.The amount received for the contract was $2,400.The taxpayer reported $1,200 as income on its financial statement for 2018, and should do the same for its tax return.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A)  Mike's gross income is $6,500.
B)  Mike must recognize the $8,000 gross income because he provided the service.
C)  Mike must recognize $8,000 gross income since the patient obviously wanted him to perform the operation.
D)  The Kram Company corporation's gross income is $1,500.
E)  None of these.F) B) and D)
G) A) and B)

Exam 4: Gross Income

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Correct Answer
verified

During 2018, Madison had salary income of $80,000 and the following capital transactions:

Correct Answer
verified
Combining the long-term transactions yie...
View Answer

On January 1, 2018, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 24 months.The amount received for the contract was $2,400.The taxpayer reported $1,200 as income on its financial statement for 2018, and should do the same for its tax return.

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

The purpose of the tax rules that apply to below-market loans between family members is to:

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
verified

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:

Correct Answer
verified

Correct Answer
verified

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Correct Answer
verified

ABC Corporation declared a dividend for taxpayers of record as of December 24, 2017.The dividend checks were mailed on December 31, 2017.Ed, a cash basis shareholder, received the dividend check on January 2, 2018.Ed cannot delay reporting the income from the dividend until 2018.

Correct Answer
verified

Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Correct Answer
verified

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?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
$59,670
The $50,000 salary will be $38,0...
View Answer

Correct Answer
verified

Correct Answer
verified
The sale of the houseboat produces no be...
View Answer

Exam 4: Gross Income

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Correct AnswerverifiedShow Answer

During 2018, Madison had salary income of $80,000 and the following capital transactions:

Correct AnswerverifiedCombining the long-term transactions yie...View AnswerShow Answer

On January 1, 2018, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 24 months.The amount received for the contract was $2,400.The taxpayer reported $1,200 as income on its financial statement for 2018, and should do the same for its tax return.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The purpose of the tax rules that apply to below-market loans between family members is to:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Correct AnswerverifiedShow Answer

ABC Corporation declared a dividend for taxpayers of record as of December 24, 2017.The dividend checks were mailed on December 31, 2017.Ed, a cash basis shareholder, received the dividend check on January 2, 2018.Ed cannot delay reporting the income from the dividend until 2018.

Correct AnswerverifiedShow Answer

Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverified$59,670The $50,000 salary will be $38,0...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe sale of the houseboat produces no be...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified
Combining the long-term transactions yie...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
$59,670
The $50,000 salary will be $38,0...
View Answer

Correct Answer
verified

Correct Answer
verified
The sale of the houseboat produces no be...
View Answer