Question 1

Tonya is a cash basis taxpayer. In 2016, she paid state income taxes of $8,000. In early 2017, she filed her 2016 state income tax return and received a $900 refund.

Accepted Answer

A)  If Tonya itemized her deductions in 2016 on her Federal income tax return, she should amend her 2016 return and reduce her itemized deductions by $900.
B)  If Tonya itemized her deductions in 2016 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $900, the refund will not affect her 2017 tax return.
C)  If Tonya itemized her deductions in 2016 on her Federal income tax return, she must amend her 2016 Federal income tax return and use the standard deduction.
D)  If Tonya itemized her deductions in 2016 on her Federal income tax return and her itemized deductions exceeded the standard deduction by more than $900, she must recognize $900 income in 2017 under the tax benefit rule.
E)  None of these.F) A) and C)
G) D) and E)

Question 2

Calvin miscalculated his income in 2014 and overpaid his state income tax by $10,000. In 2016, he amended his 2014 state income tax return and received a $10,000 refund and $900 interest. Calvin itemized his deductions in 2014, deducting $12,000 in state income tax and $30,000 total itemized deductions. As a result of the amended return in 2016, Calvin must recognize $10,900 of gross income.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)  A cash basis taxpayer can spread the income from a 24-month service contract over the contract period.
C)  If an accrual basis taxpayer sells a 36-month service contract on July 1, 2016 for $3,600, the taxpayer's 2016 gross income from the contract is $600.
D)  If an accrual basis taxpayer sells a 24-month service contract on July 1, 2016, one-half (12/24)  the income is recognized in 2017.
E)  None of these.F) A) and B)
G) B) and E)

Question 4

The annual increase in the cash surrender value of a life insurance policy:

Accepted Answer

A)  Is taxed according to the original issue discount rules.
B)  Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
C)  Reduces the deduction for life insurance expense.
D)  Is exempt because it is life insurance proceeds.
E)  None of these.F) B) and C)
G) C) and D)

Question 5

Turquoise Company purchased a life insurance policy on the company's chief executive officer, Joe. After the company had paid $400,000 in premiums, Joe died and the company collected the $1.5 million face amount of the policy. The company also purchased group term life insurance on all its employees. Joe had included $16,000 in gross income for the group term life insurance premiums. Joe's widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy.

Accepted Answer

A)  Rebecca can exclude the life insurance proceeds of $100,000, but Turquoise Company must include $1,100,000 ($1,500,000 - $400,000)  in gross income.
B)  Turquoise Company and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000, respectively, from gross income.
C)  Turquoise Company can exclude $1,100,000 ($1,500,000 - $400,000)  from gross income, but Rebecca must include $84,000 in gross income.
D)  Turquoise Company must include $1,100,000 ($1,500,000 - $400,000)  in gross income and Rebecca must include $100,000 in gross income.
E)  None of these.F) C) and D)
G) B) and C)

Question 6

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Accepted Answer

A) True 
 B)False

Question 7

During 2016, Madison had salary income of $80,000 and the following capital transactions:
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How are these transactions handled for income tax purposes?

Accepted Answer

Combining the long-term transactions yie...

Question 8

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 these is correct.F) C) and D)
G) B) and E)

Question 9

Harold bought land from Jewel for $150,000. Harold paid $50,000 cash and gave Jewel an 8% note for $100,000. The note was to be paid over a five-year period. When the balance on the note was $80,000, Jewel began having financial difficulties. To accelerate her cash inflows, Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal.

Accepted Answer

A)  Harold must recognize $20,000 ($80,000 - $60,000)  of gross income.
B)  Harold is not required to recognize gross income, but must reduce his cost basis in the land to $130,000.
C)  Harold is not required to recognize gross income, since he paid the debt before it was due.
D)  Jewel must recognize gross income of $20,000 ($80,000 - $60,000)  from discharge of the debt.
E)  None of these.F) All of the above
G) B) and E)

Question 10

Fred is a full-time teacher. He has written a book and receives royalties from it. Fred's mother, Mabel, is age 65 and lives on her Social Security benefits and gifts from her son, Fred. This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support. Fred must include the amount of the royalty check in his gross income.

Accepted Answer

A) True 
 B)False

Exam 4: Gross Income

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Correct Answer
verified

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

Correct Answer
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During 2016, Madison had salary income of $80,000 and the following capital transactions: How are these transactions handled for income tax purposes?

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Tonya is a cash basis taxpayer. In 2016, she paid state income taxes of $8,000. In early 2017, she filed her 2016 state income tax return and received a $900 refund.

Correct Answer
verified

Correct Answer
verified

The annual increase in the cash surrender value of a life insurance policy:

Correct Answer
verified

Exam 4: Gross Income

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During 2016, Madison had salary income of $80,000 and the following capital transactions: ​ How are these transactions handled for income tax purposes?

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Tonya is a cash basis taxpayer. In 2016, she paid state income taxes of $8,000. In early 2017, she filed her 2016 state income tax return and received a $900 refund.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The annual increase in the cash surrender value of a life insurance policy:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

During 2016, Madison had salary income of $80,000 and the following capital transactions: How are these transactions handled for income tax purposes?

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