Question 1

Ed died while employed by Violet Company.His wife collected $50,000 on a group-term life insurance policy that Violet provided its employees,and $5,000 of accrued salary Ed had earned prior to his death.Ed's wife is not required to recognize any income from the receipt of the $55,000.

Accepted Answer

A) True 
 B)False

Question 2

The plant union is negotiating with the Eagle Company,which is on the verge of bankruptcy.Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction.The employees each currently pay premiums of $4,000 a year for their insurance.

Accepted Answer

A)  If an employee's wages are reduced by $5,000 and the employee is in the 28% marginal tax bracket,the employee would benefit from the offer.
B)  If an employee's wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket,the employee would benefit from the offer.
C)  If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket,the employee would benefit from the offer.
D)  a. ,b. ,and c.
E)  None of the above.F) C) and E)
G) B) and D)

Question 3

Generally,a U.S.citizen is not required to include in gross income the salary and wages earned while working in a foreign country if the foreign country taxes the income.

Accepted Answer

A) True 
 B)False

Question 4

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Accepted Answer

A) True 
 B)False

Question 5

Gold Company was experiencing financial difficulties,but was not bankrupt or insolvent.The National Bank,which held a mortgage on other real estate owned by Gold,reduced the principal from $110,000 to $85,000.The bank had made the loan to Gold when it purchased the real estate from Silver,Inc.Pink,Inc. ,the holder of a mortgage on Gold's building,agreed to accept $40,000 in full payment of the $55,000 due.Pink had sold the building to Gold for $150,000 that was to be paid in installments over 8 years.As a result of the above,Gold must:

Accepted Answer

A)  Include $40,000 in gross income.
B)  Reduce the basis in its assets by $40,000.
C)  Include $25,000 in gross income and reduce its basis in its assets by $15,000.
D)  Include $15,000 in gross income and reduce its basis in the building by $25,000.
E)  None of the above.F) A) and D)
G) C) and D)

Question 6

Doug and Pattie received the following interest income in the current year:  Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Accepted Answer

A)  $4,775.
B)  $4,675.
C)  $4,575.
D)  $4,300.
E)  None of the above.F) None of the above
G) A) and E)

Question 7

Section 119 excludes the value of meals from the employee's gross income:

Accepted Answer

A)  Whenever the employee is working during the normal mealtimes.
B)  When the employer pays for the meals,if the employee makes an accounting to the employer.
C)  When the meals are provided for the employee,on the employer's business premises,and as a convenience to the employer.
D)  When the meals are provided for the employee on the employer's business premises as a convenience to the employee.
E)  None of the above.F) B) and E)
G) B) and D)

Question 8

George is employed by the Quality Appliance Company.All the full time employees are allowed to purchase appliances at the company's cost plus 5%.The employee also is given,at no cost,a 1-year service contract on all the goods purchased from the company.George purchased a refrigerator for $420.The company's normal selling price for the refrigerator is $800.George also received a service contract,at no charge,that had a value of $120.During the year,George was required to have his refrigerator serviced once.The cost of the call would have been $50 if he had not had the service contract.Is George required to recognize any income from the purchase of the refrigerator and the receipt of the service contract?

Accepted Answer

George will probably be required to reco...

Question 9

Assuming a taxpayer qualifies for the exclusion treatment,the interest income on educational savings bonds:

Accepted Answer

A)  Is gross income to the person who purchased the bond in the year the interest is earned.
B)  Is gross income to the student in the year the interest is earned.
C)  Is included in the student's gross income in the year the savings bonds are sold or redeemed to pay educational expenses.
D)  Is not included in anyone's gross income if the proceeds are used to pay college tuition.
E)  None of the above.F) B) and D)
G) C) and D)

Question 10

Martha participated in a qualified tuition program for the benefit of her son.She invested $5,000 in the fund.Four years later her son withdrew $7,500,the entire balance in the program,to pay his college tuition.

Accepted Answer

A)  Martha must include the $2,500 ($7,500 - $5,000) in her gross income when the funds are used to pay the tuition.
B)  Martha must include the portion of the $2,500 accumulated each year in her gross income (i.e. ,interest) .
C)  Martha's son must include the $2,500 ($7,500 - $5,000) in his gross income when the funds are used to pay the tuition.
D)  Martha's son must include the portion of the $2,500 accumulated each year in his gross income (i.e. ,interest) .
E)  None of the above.F) C) and D)
G) A) and C)

Question 11

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes,provided the privilege is not abused.Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings.The copies made during the year would have cost $125 at a local office supply.

Accepted Answer

A)  Ed must include $125 in his gross income.
B)  Ed may exclude the cost of the copies as a no-additional cost fringe benefit.
C)  Ed may exclude the cost of the copies only if the organization is a client of Mauve.
D)  Ed may exclude the cost of the copies as a de minimis fringe benefit.
E)  None of the above.F) A) and C)
G) A) and B)

Question 12

In his will,John named his nephew Steve as executor of the estate.Steve is to receive a fee of $12,000 for serving as executor.When John died,Steve performed the executorial services and received the fee.Steve can exclude the $12,000 from gross income as an inheritance from his uncle's estate.

Accepted Answer

A) True 
 B)False

Question 13

On January 1,2000,Yellow corporation issued 6% 25-year bonds at par and used the $10,000,000 proceeds to finance the construction of a new plant.On January 1,2010,the company acquired the bonds on the open market for $9,500,000.Assuming that Yellow Corporation is neither bankrupt nor insolvent,the acquisition and retirement of the bonds results in which of the following:

Accepted Answer

A)  The company must recognize a $500,000 gain.
B)  The company can make an election to recognize a $500,000 gain or reduce the company's basis in the plant by $500,000.
C)  The company must recognize a $500,000 gain and increase the company's basis in the plant by $500,000.
D)  The company can amortize the $500,000 gain,recognizing income over the remaining life of the bonds.
E)  None of the above.F) A) and E)
G) B) and C)

Question 14

Sungho is married,files a joint return,and expects to be in the 35% marginal tax bracket for the foreseeable future.All of his income is from salary and all of it is used to maintain the household.He has a paid-up life insurance policy with a cash surrender value of $50,000.He paid $20,000 of premiums on the policy.His gain from cashing in the life insurance policy would be ordinary income.If he retains the policy,the insurance company will pay him $2,500 (5%)interest each year.Sungho thinks he can earn a higher return if he cashes in the policy and invests the proceeds.

Accepted Answer

The answer of Sungho is married,files a joint return,and expects...

Question 15

Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life,according to his doctor.Albert had a life insurance policy with a face amount of $100,000.Albert had paid $10,000 of premiums on the policy.The insurance company has offered to pay him $75,000 to cancel the policy,although its cash surrender value was only $60,000.Albert accepted the $75,000.Albert used $5,000 to pay his medical expenses.Albert made a miraculous recovery and lived another 20 years.As a result of cashing in the policy:

Accepted Answer

A)  Albert is not required to recognize any gross income because of his terminal illness.
B)  Albert must recognize $65,000 ($75,000 - $10,000) of gross income.
C)  Albert must recognize $10,000 ($75,000 - $60,000 - $5,000) of gross income.
D)  Albert must recognize $75,000 of gross income,but he has $5,000 of deductible medical expenses.
E)  None of the above.F) A) and D)
G) B) and D)

Question 16

Adam repairs power lines for the Egret Utilities Company.He is generally working on a power line during the lunch hour.He must eat when and where he can and still get his work done.He usually purchases something at a convenience store and eats in his truck.Egret reimburses Adam for the cost of his meals.

Accepted Answer

A)  Adam must include the reimbursement in his gross income.
B)  Adam can exclude the reimbursement from his gross income since the meals are provided for the convenience of the employer.
C)  Adam can exclude the reimbursement from his gross income because he eats the meals on the employer's business premises (the truck) .
D)  Adam may exclude from his gross income the difference between what he paid for the meals and what it would have cost him to eat at home.
E)  None of the above.F) A) and B)
G) B) and C)

Question 17

Flora Company owed $100,000 to the National Bank.Flora borrowed the funds to purchase land from another party.The land serves as security for the loan.

Accepted Answer

A)  If the bank accepts $90,000 in full payment of the debt,and Flora is solvent after the transfer,Flora must reduce the cost of the land by $10,000.
B)  If the bank forecloses on the land (takes the land and cancels the debt) with a basis of $125,000 and fair market value of $90,000,when Flora is solvent,Flora must recognize a $10,000 gain.
C)  If Flora transfers to the bank other property,with a basis of $90,000 and a fair market value of $100,000,in full payment of the debt,Flora must reduce its basis in the land by $10,000.
D)  If the bank accepts the land in full payment of the debt,and Flora is solvent after the transfer,when the basis in the land is $90,000 and the amount of the debt is $100,000,Flora must recognize $10,000 gain.
E)  None of the above.F) A) and D)
G) B) and E)

Question 18

Sharon's automobile slid into a ditch.A stranger pulled her out.Sharon offered to pay $25,but the stranger refused.Sharon slipped the $25 in the stranger's truck when he was not looking.

Accepted Answer

A)  The $25 is a nontaxable gift received by the stranger because Sharon was not legally required to pay him.
B)  The $25 is a nontaxable gift because the stranger did not ask to receive it.
C)  The $25 is taxable compensation for services rendered.
D)  The $25 is a nontaxable service award.
E)  None of the above.F) B) and C)
G) A) and C)

Question 19

Iris collected $100,000 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 $12,500 each.

Accepted Answer

A)  None of the payments must be included in Iris's gross income.
B)  The first 8 payments are a return of her capital and thus Iris is not required to recognize any income from the policy until she receives the ninth payment.
C)  For each $12,500 payment that Iris receives,she can exclude $10,000 ($100,000/$125,000 * $12,500) from gross income.
D)  For each $12,500 that Iris receives,she can exclude from gross income $500 ($5,000/$125,000 * $12,500) .
E)  None of the above.F) None of the above
G) D) and E)

Question 20

Bob had a terminal illness and realized that he "can't take it with him." Therefore,he cashed in his insurance policy and received $100,000.He had paid $40,000 in premiums on the policy.He used the money to fulfill his lifelong ambitions of going to the Super Bowl and driving an expensive sports car.
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 his...

Exam 5: Gross Income: Exclusions

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George will probably be required to reco...
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Assuming a taxpayer qualifies for the exclusion treatment,the interest income on educational savings bonds:

Correct Answer
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Correct Answer
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No.Bob was permitted to exclude from his...
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Martha participated in a qualified tuition program for the benefit of her son.She invested $5,000 in the fund.Four years later her son withdrew $7,500,the entire balance in the program,to pay his college tuition.

Correct Answer
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Correct Answer
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Correct Answer
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Sharon's automobile slid into a ditch.A stranger pulled her out.Sharon offered to pay $25,but the stranger refused.Sharon slipped the $25 in the stranger's truck when he was not looking.

Correct Answer
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Flora Company owed $100,000 to the National Bank.Flora borrowed the funds to purchase land from another party.The land serves as security for the loan.

Correct Answer
verified

Correct Answer
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Ed died while employed by Violet Company.His wife collected $50,000 on a group-term life insurance policy that Violet provided its employees,and $5,000 of accrued salary Ed had earned prior to his death.Ed's wife is not required to recognize any income from the receipt of the $55,000.

Correct Answer
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The plant union is negotiating with the Eagle Company,which is on the verge of bankruptcy.Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction.The employees each currently pay premiums of $4,000 a year for their insurance.

Correct Answer
verified

Generally,a U.S.citizen is not required to include in gross income the salary and wages earned while working in a foreign country if the foreign country taxes the income.

Correct Answer
verified

Correct Answer
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Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Correct Answer
verified

Section 119 excludes the value of meals from the employee's gross income:

Correct Answer
verified

In his will,John named his nephew Steve as executor of the estate.Steve is to receive a fee of $12,000 for serving as executor.When John died,Steve performed the executorial services and received the fee.Steve can exclude the $12,000 from gross income as an inheritance from his uncle's estate.

Correct Answer
verified

Exam 5: Gross Income: Exclusions

Correct AnswerverifiedShow Answer

Correct AnswerverifiedGeorge will probably be required to reco...View AnswerShow Answer

Assuming a taxpayer qualifies for the exclusion treatment,the interest income on educational savings bonds:

Correct AnswerverifiedShow Answer

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

Martha participated in a qualified tuition program for the benefit of her son.She invested $5,000 in the fund.Four years later her son withdrew $7,500,the entire balance in the program,to pay his college tuition.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Sharon's automobile slid into a ditch.A stranger pulled her out.Sharon offered to pay $25,but the stranger refused.Sharon slipped the $25 in the stranger's truck when he was not looking.

Correct AnswerverifiedShow Answer

Flora Company owed $100,000 to the National Bank.Flora borrowed the funds to purchase land from another party.The land serves as security for the loan.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Ed died while employed by Violet Company.His wife collected $50,000 on a group-term life insurance policy that Violet provided its employees,and $5,000 of accrued salary Ed had earned prior to his death.Ed's wife is not required to recognize any income from the receipt of the $55,000.

Correct AnswerverifiedShow Answer

The plant union is negotiating with the Eagle Company,which is on the verge of bankruptcy.Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction.The employees each currently pay premiums of $4,000 a year for their insurance.

Correct AnswerverifiedShow Answer

Generally,a U.S.citizen is not required to include in gross income the salary and wages earned while working in a foreign country if the foreign country taxes the income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Doug and Pattie received the following interest income in the current year: Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account.What amount of interest income should they report on their joint income tax return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Correct AnswerverifiedShow Answer

Section 119 excludes the value of meals from the employee's gross income:

Correct AnswerverifiedShow Answer

In his will,John named his nephew Steve as executor of the estate.Steve is to receive a fee of $12,000 for serving as executor.When John died,Steve performed the executorial services and received the fee.Steve can exclude the $12,000 from gross income as an inheritance from his uncle's estate.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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George will probably be required to reco...
View Answer

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Correct Answer
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No.Bob was permitted to exclude from his...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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