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Exam 4: Gross Income

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Question 21

True/False

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In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000.

A) True
B) False

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Question 22

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In the case of a zero interest below-market loan by a corporation to a shareholder-employee, what difference does it make to the corporation and the shareholder whether the loan is characterized as a corporation's loan to its shareholder or a corporation's loan to its employee?

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Imputed interest on the loan to an emplo...

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Question 23

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Office Palace, Inc., leased an all-in-one printer to a new customer, Ashley, on December 27, 2018.The printer was to rent for $600 per month for a period of 36 months beginning January 1, 2019.Ashley was required to pay the first and last month's rent at the time the lease was signed.Ashley was also required to pay a $1,500 damage deposit.Office Palace must recognize as income for the lease:

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

Margaret owns land that appreciates at the rate of 10% each year.Ralph owns a zero coupon i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%.At the end of 10 years, the bond will mature and the land will be sold.At the end of the 10 years,

On January 1, 2018, Faye gave Todd, her son, a 36-month certificate of deposit she purchased December 31, 2016, for $8,638.Faye gave Todd 1,000 shares of ABC, Inc., on December 2, 2018.The certificate had a maturity value of $10,000 and the yield to maturity was 5%.On November 30, 2018, ABC, Inc., had declared a dividend of $1.00 payable to stockholders of record on December 5th.How much interest and dividends should Todd include in his gross income for 2018?

Zack was the beneficiary of a life insurance policy on his wife.Zack had paid $20,000 in premiums on the policy.He collected $50,000 on the policy when his wife died from a terminal illness.Because it took several months to process the claim, the insurance company paid Zack $53,000, the face amount of the policy plus $3,000 interest.Zack must include $23,000 in his gross income.

When stock is sold after the date of declaration but before the record date, the buyer must recognize as income the dividend declared.

Frank sold his personal use automobile for a loss of $9,000.He also sold a personal coin collection for a gain of $10,000.As a result of these sales, $10,000 is subject to income tax.

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.

Linda delivers pizzas for a pizza shop.On Wednesday, December 31, 2018, Linda made several deliveries and collected $400 from customers.However, Linda forgot to turn in the proceeds for the day to her employer until the following Friday, January 2, 2019.The pizza shop owner recognizes the income of $400 when he receives it from Linda in 2019.

Freddy purchased a certificate of deposit for $20,000 on July 1, 2018.The certificate's maturity value in two years June 30, 2020) is $21,218, yielding 3% before-tax interest.

Kirby is in the 12% tax bracket and had the following capital asset transactions during 2018: Kirby’s tax consequences from these gains are as follows: A) 5% × $10,000) + 12% × $13,000). B) 12% × $13,000) + 28% × $11,000). C) 0% × $10,000) + 12% × $13,000). D) 12% × $23,000). E) None of these.

As a general rule: I.Income from property is taxed to the person who owns the property. II.Income from services is taxed to the person who earns the income. III.The assignee of income from property must pay tax on the income. IV.The person who receives the benefit of the income must pay the tax on the income.

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Iris collected $150,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy.Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $18,000 each.

Nicholas owned stock that decreased in value by $20,000 during the year, but he did not sell the stock.He earned $45,000 salary, but received only $34,000 because $11,000 in taxes were withheld.Nicholas saved $10,000 of his salary and used the remainder for personal living expenses.Nicholas's economic income for the year exceeded his gross income for tax purposes.

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

In December 2017, Mary collected the December 2017 and January 2018 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2017 for the 2018 rent should be included in her 2018 gross income.

In 2018, Juan, a cash basis taxpayer, was offered $3 million for signing a professional baseball contract.He counter offered that he would receive $900,000 per year for 4 years beginning in 2019.The team accepted the counteroffer.Juan constructively received $3 million in 2018.