Question 1

Carin,a widow,elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each.Her husband had paid premiums of $60,000 on the policy.In the first year,Carin collected $17,500 from the insurance company.She must include in gross income:

Accepted Answer

A)  $0.
B)  $2,500.
C)  $10,000.
D)  $25,000.
E)  None of the above.F) A) and E)
G) B) and D)

Question 2

Rachel owns rental properties.When Rachel rents to a new tenant,she usually requires the tenant to pay an amount in addition to the first month's rent.The additional amount serves as security for damages to the property and the tenant's failure to pay future rents.How should the payments be characterized (e.g.,on lease documents)to minimize Rachel's current tax liability?

Accepted Answer

The payments should be characterized as ...

Question 3

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

Accepted Answer

A)  All of the income must be recognized in the year of maturity by a cash basis taxpayer.
B)  The OID will be included in gross income for the year of purchase.
C)  The interest income will be the same each year.
D)  The interest income will be greater in the third year than in the first year.
E)  None of the above is correct.F) C) and D)
G) All of the above

Question 4

On January 5,2013,Tim purchased a bond paying interest at 6% for $30,000.On March 31,2013,he gave the bond to Jane.The bond pays $1,800 interest on December 31.Tim and Jane are cash basis taxpayers.When Jane collects the interest in December 2013:

Accepted Answer

A)  Tim must include all of the interest in his gross income.
B)  Jane must report $1,800 gross income for 2013.
C)  Jane reports $1,350 of interest income in 2013,and Tim reports $450 of interest income in 2013.
D)  Jane reports $450 of interest income in 2013,and Tim reports $1,350 of interest income in 2013.
E)  None of the above is correct.F) A) and E)
G) All of the above

Question 5

With respect to the prepaid income from services,which of the following is true?

Accepted Answer

A)  The treatment of prepaid income is the same for tax and financial accounting.
B)  A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
C)  An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
D)  An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.
E)  None of the above.F) A) and C)
G) C) and D)

Question 6

Theresa,a cash basis taxpayer,purchased a bond on July 1,2009,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2013,she sold the bond for $9,800,which included $200 of accrued interest.

Accepted Answer

A)  Theresa has $200 interest income and a $400 loss from the bond in 2013.
B)  Theresa has $200 interest income and a $200 gain from the bond in 2013.
C)  Theresa has a $100 loss from the sale of the bond and no interest income.
D)  Theresa's loss on the sale of the bond is $600.
E)  None of the above.F) A) and B)
G) All of the above

Question 7

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.

Accepted Answer

A)  If the employer accepts Turner's counteroffer,Turner will recognize $660,000 at the time the offer is accepted.
B)  If the employer accepts Turner's counteroffer,Turner will recognize as gross income $55,000 per month [($480,000 + $180,000) /12].
C)  If the employer accepts Turner's counteroffer,Turner will recognize $40,000 income each month for the year and $180,000 in year 5.
D)  If the employer accepts Turner's counteroffer,Turner must recognize imputed interest income on the $180,000 to be received in 5 years.
E)  None of the above.F) C) and D)
G) B) and E)

Question 8

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.

Accepted Answer

A) True 
 B)False

Exam 4: Gross Income

Correct Answer
verified
The payments should be characterized as ...
View Answer

Correct Answer
verified

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

Correct Answer
verified

Theresa,a cash basis taxpayer,purchased a bond on July 1,2009,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2013,she sold the bond for $9,800,which included $200 of accrued interest.

Correct Answer
verified

On January 5,2013,Tim purchased a bond paying interest at 6% for $30,000.On March 31,2013,he gave the bond to Jane.The bond pays $1,800 interest on December 31.Tim and Jane are cash basis taxpayers.When Jane collects the interest in December 2013:

Correct Answer
verified

With respect to the prepaid income from services,which of the following is true?

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

Exam 4: Gross Income

Correct AnswerverifiedThe payments should be characterized as ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

Correct AnswerverifiedShow Answer

Theresa,a cash basis taxpayer,purchased a bond on July 1,2009,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2013,she sold the bond for $9,800,which included $200 of accrued interest.

Correct AnswerverifiedShow Answer

On January 5,2013,Tim purchased a bond paying interest at 6% for $30,000.On March 31,2013,he gave the bond to Jane.The bond pays $1,800 interest on December 31.Tim and Jane are cash basis taxpayers.When Jane collects the interest in December 2013:

Correct AnswerverifiedShow Answer

With respect to the prepaid income from services,which of the following is true?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
The payments should be characterized as ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified