Question 1

Meg's employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness. The premiums for Meg's coverage were $1,800. Meg was absent from work for two months as a result of a kidney infection. Meg's employer's insurance company paid Meg's regular salary of $8,000 while she was away from work. Meg also collected $2,000 on a wage continuation policy she had purchased. Meg must include $11,800 in her gross income.

Accepted Answer

A) True 
 B)False

Question 2

Theresa sued her former employer for age, race, and gender discrimination. She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages. She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income:

Accepted Answer

A)   $700,000.
B)   $500,000.
C)   $490,000 [($700,000/$1,000,000)  × $700,000].
D)   $0.
E)   None of the above.F) A) and C)
G) B) and E)

Question 3

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees. The CEO is concerned about retaining his talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

Accepted Answer

Cafeteria plans are beneficial where emp...

Question 4

For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

Accepted Answer

A) True 
 B)False

Question 5

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 the above.F) None of the above
G) A) and C)

Question 6

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 the above.F) A) and B)
G) None of the above

Question 7

Employees of a CPA firm located in Maryland may exclude from gross income the meals and lodging provided by the employer while they were on an audit in Delaware.

Accepted Answer

A) True 
 B)False

Question 8

If an employer pays for the employee's long­term care insurance premiums, the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

Accepted Answer

A) True 
 B)False

Question 9

Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent. Her only source of income is a $10,000 athletic scholarship ($1,000 for books, $5,500 tuition, $500 student activity fee, and $3,000 room and board) . Jena's gross income for the year is:

Accepted Answer

A)   $10,000.
B)   $4,000.
C)   $3,000.
D)   $500.
E)   None of the above.F) All of the above
G) C) and D)

Question 10

Generally, a U.S. citizen is required to include in gross income the salary and wages earned while working in a foreign country even if the foreign country taxes the income.

Accepted Answer

A) True 
 B)False

Question 11

Heather is a full­time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?

Accepted Answer

A)   Heather reduced her salary by $1,200, actually spent $1,500, and received only $1,200 as reimbursement for her medical expenses. Heather's gross income will be reduced by $1,500.
B)   Heather reduced her salary by $1,200, and received only $900 as reimbursement for her actual medical expenses. She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200.
C)   Heather reduced her salary by $1,200, and received only $800 as reimbursement for her medical expenses. She is not refunded the $400. Her gross income is reduced by $800.
D)   Heather reduced her salary by $1,200, and received only $900 as reimbursement for her medical expenses. She forfeits the $300. Her gross income is reduced by $300.
E)   None of the above.F) A) and C)
G) A) and D)

Question 12

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime, approximately 25 days each year. The supper money received:

Accepted Answer

A)   Must be included in the employee's gross income.
B)   Must be included in the employee's gross income if the employee does not spend it for supper.
C)   May be excluded from the employee's gross income as a "no­additional cost" fringe benefit.
D)   May be excluded from the employee's gross income as a de minimis fringe benefit.
E)   None of the above.F) None of the above
G) C) and D)

Question 13

Under the Swan Company's cafeteria plan, all full­time employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year.
Which of the following statements is true?

Accepted Answer

A)   Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000.
B)   Paul, a full­time employee, elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him. Paul is not required to include the $8,000 in gross income.
C)   Sue, a full-time employee, elects to receive choices I, II and $3,200 for III. Sue is required to include $3,200 in gross income.
D)   All of the above.
E)   None of the above.F) A) and D)
G) C) and E)

Question 14

A U.S. citizen who works in France from February 1, 2014 until January 31, 2015 is eligible for the foreign earned income exclusion in 2014 and 2015.

Accepted Answer

A) True 
 B)False

Question 15

Bob had a terminal illness and realized that he "can't take it with him." Therefore, he cashed in his insurance policy and received $120,000. He had paid $50,000 in premiums on the policy. He used the money to fulfill his lifelong ambitions of going to the Super Bowl, driving an expensive sports car, and vacationing in Bermuda.
Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?

Accepted Answer

No. Bob was permitted to exclude from hi...

Exam 5: Gross Income: Exclusions

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees. The CEO is concerned about retaining his talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

Correct Answer
verified
Cafeteria plans are beneficial where emp...
View Answer

Correct Answer
verified
No. Bob was permitted to exclude from hi...
View Answer

Correct Answer
verified

If an employer pays for the employee's longterm care insurance premiums, the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

Correct Answer
verified

Heather is a fulltime employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?

Correct Answer
verified

A U.S. citizen who works in France from February 1, 2014 until January 31, 2015 is eligible for the foreign earned income exclusion in 2014 and 2015.

Correct Answer
verified

Theresa sued her former employer for age, race, and gender discrimination. She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages. She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income:

Correct Answer
verified

Generally, a U.S. citizen is required to include in gross income the salary and wages earned while working in a foreign country even if the foreign country taxes the income.

Correct Answer
verified

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

Correct Answer
verified

Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent. Her only source of income is a $10,000 athletic scholarship ($1,000 for books, $5,500 tuition, $500 student activity fee, and $3,000 room and board) . Jena's gross income for the year is:

Correct Answer
verified

Correct Answer
verified

Under the Swan Company's cafeteria plan, all fulltime employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Correct Answer
verified

Employees of a CPA firm located in Maryland may exclude from gross income the meals and lodging provided by the employer while they were on an audit in Delaware.

Correct Answer
verified

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime, approximately 25 days each year. The supper money received:

Correct Answer
verified

For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

Correct Answer
verified

Exam 5: Gross Income: Exclusions

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees. The CEO is concerned about retaining his talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

Correct AnswerverifiedCafeteria plans are beneficial where emp...View AnswerShow Answer

Correct AnswerverifiedNo. Bob was permitted to exclude from hi...View AnswerShow Answer

Correct AnswerverifiedShow Answer

If an employer pays for the employee's long­term care insurance premiums, the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

Correct AnswerverifiedShow Answer

Heather is a full­time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?

Correct AnswerverifiedShow Answer

A U.S. citizen who works in France from February 1, 2014 until January 31, 2015 is eligible for the foreign earned income exclusion in 2014 and 2015.

Correct AnswerverifiedShow Answer

Theresa sued her former employer for age, race, and gender discrimination. She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages. She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income:

Correct AnswerverifiedShow Answer

Generally, a U.S. citizen is required to include in gross income the salary and wages earned while working in a foreign country even if the foreign country taxes the income.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent. Her only source of income is a $10,000 athletic scholarship ($1,000 for books, $5,500 tuition, $500 student activity fee, and $3,000 room and board) . Jena's gross income for the year is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Under the Swan Company's cafeteria plan, all full­time employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Employees of a CPA firm located in Maryland may exclude from gross income the meals and lodging provided by the employer while they were on an audit in Delaware.

Correct AnswerverifiedShow Answer

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime, approximately 25 days each year. The supper money received:

Correct AnswerverifiedShow Answer

For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

Correct AnswerverifiedShow Answer

Correct Answer
verified
Cafeteria plans are beneficial where emp...
View Answer

Correct Answer
verified
No. Bob was permitted to exclude from hi...
View Answer

Correct Answer
verified

If an employer pays for the employee's longterm care insurance premiums, the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

Correct Answer
verified

Heather is a fulltime employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Under the Swan Company's cafeteria plan, all fulltime employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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