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Exam 5: Gross Income and Exclusions

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Question 41

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

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 she receives the check.
C) Hillary is taxed on the $5,000 of service income in the year the check was mailed.
D) Hillary is taxed on the $5,000 of service income in the year she provides the services.
E) None of the choices are true.

F) A) and E)
G) C) and D)

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Question 42

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A taxpayer who borrows money will include that amount borrowed in their gross incomeunder the all-inclusive definition of income.

A) True
B) False

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Question 43

Multiple Choice

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This year Barney purchased 500 shares of Bell common stock for $20 per share. Atyear-end the Bell shares were only worth $2 per share. What amount can Barney deduct as a loss this year?

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.

The principle of realization for tax purposes is very different from realization as it isunderstood for financial reporting purposes.

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?

The assignment of income doctrine requires that in order to shift income from the property producing the income to another person, the taxpayer must transfer only the income to the other person.

A below-market loan (e.g., from an employer to an employee) is a common example of a transaction that generates taxable imputed income.

Mike received the following interest payments this year. What amount must Mike include in87h) is gross income (for federal tax purposes) ?

Cyrus is a cash method taxpayer who reports on a calendar-year. Last year Cyrus received salary of$88,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $10,000 in cash and a new TV worth $2,000. Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year. Determine the amount Cyrus should include in his gross income for last year.

Frank received the following benefits from his employer this year. What amount must Frank90) include in his gross income?

When an asset is sold, the taxpayer calculates the gain or loss on the sale of the asset by subtracting the tax basis of the asset from the proceeds of the sale.

Qualified fringe benefits received by an employee can be excluded from gross income.

Gross income includes:

Barter clubs are an effective means of avoiding realization for tax purposes.

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

Anna received $15,000 from life insurance paid upon the death of her grandmother.Anna can exclude the entire amount of the life insurance from her gross income.

Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE saving bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income?

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?

Ben's employer offers employees the following benefits. What amount must Ben include in h91is) gross income?