Question 1

Tom,a cash basis taxpayer,purchased a bond on March 31 for $10,000,plus $100 accrued interest.In December,Tom collected $500 interest from the bond.Tom's interest income from the bond for the year is $500.

Accepted Answer

A) True 
 B)False

Question 2

In 2015,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 2016.The team accepted the counteroffer.Juan constructively received $3 million in 2015.

Accepted Answer

A) True 
 B)False

Question 3

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) None of the above
G) A) and D)

Question 4

In the case of interest income from state and Federal bonds:

Accepted Answer

A)   Interest on United States government bonds received by a state resident can be subject to that state's income tax.
B)   Interest on United States government bonds is subject to Federal income tax.
C)   Interest on bonds issued by State A received by a resident of State B cannot be subject to income tax in State B.
D)   All of these are correct.
E)   None of these are correct.F) B) and C)
G) C) and D)

Question 5

The taxpayer incorrectly took a $5,000 deduction (e.g. ,incorrectly calculated depreciation)in 2015 and as a result his taxable income was reduced by $5,000.The taxpayer discovered his error in 2016.The taxpayer must add $5,000 to his 2016 gross income in accordance with the tax benefit rule to correct for the 2015 error.

Accepted Answer

A) True 
 B)False

Question 6

During the year,Kim sold the following assets: business auto for a $1,000 loss,stock investment for a $1,000 loss,and pleasure yacht for a $1,000 loss.Presuming adequate income,how much of these losses may Kim claim?

Accepted Answer

A)   $0.
B)   $1,000.
C)   $2,000.
D)   $3,000.
E)   None of these.F) A) and B)
G) D) and E)

Question 7

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) A) and E)
G) A) and C)

Question 8

For purposes of determining gross income,which of the following is true?

Accepted Answer

A)   A mechanic completed repairs on an automobile during the year and collects money from the customer.The customer was not satisfied with the repairs and sued the mechanic for a refund.The mechanic can defer recognition of the income until the suit has been settled.
B)   A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.
C)   Embezzlement proceeds are not included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)   All of these are false.
E)   All of these are true.F) B) and E)
G) B) and D)

Question 9

An advance payment received in June 2015 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Accepted Answer

A) True 
 B)False

Question 10

On January 1,Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans.There were no other loans outstanding between Dave and Debra.The relevant Federal rate on interest was 6 percent.The loan was outstanding for the entire year.

Accepted Answer

A)   If Debra has $15,000 of investment income,Dave must recognize $6,090 of imputed interest income.
B)   Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income.
C)   Debra must recognize $6,090 of imputed interest income.
D)   Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income.
E)   None of these.F) A) and C)
G) C) and E)

Question 11

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

Accepted Answer

A)   $1.00 taxable income rather than $1.25 tax-exempt income.
B)   $1.00 taxable income rather than $.75 tax-exempt income.
C)   $1.25 taxable income rather than $1.00 tax-exempt income.
D)   $1.40 taxable income rather than $1.00 tax-exempt income.
E)   None of these.F) C) and D)
G) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Ralph purchased his first Series EE bond during the year.He paid $709 for a 10-year bond with a $1,000 maturity value.The yield to maturity on the bonds was 3.5%.Ralph is not required to recognize the $291 ($1,000 - $709)original issue discount until the bond matures.However,Ralph can elect to amortize the discount over the ten-year period.

Accepted Answer

A) True 
 B)False

Question 14

Rachel owns rental properties.When Rachel rents to a new tenant,she usually requires the tenant to pay an amount in addition to the first month's rent.The additional amount serves as security for damages to the property and the tenant's failure to pay future rents.How should the payments be characterized (e.g. ,on lease documents)to minimize Rachel's current tax liability?

Accepted Answer

The payments should be characterized as ...

Question 15

The Maroon & Orange Gym,Inc. ,uses the accrual method of accounting.The corporation sells memberships that entitle the member to use the facilities at any time.A one-year membership costs $480 ($480/12 = $40 per month) ;a two-year membership costs $720 ($720/24 = $30 per month) .Cash payment is required at the beginning of the membership period.On July 1,2015,the company sold a one-year membership and a two-year membership.The company should report as gross income from the two contracts:

Accepted Answer

A)   $1,200 in 2015.
B)   $960 in 2015.
C)   $180 in 2017.
D)   $780 in 2016.
E)   None of these.F) C) and D)
G) A) and C)

Question 16

Teal company is an accrual basis taxpayer.On December 1,2015,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2016.Teal delivered the item on January 4,2016.Teal included the sale in its 2015 income for financial accounting purposes.

Accepted Answer

A)   Teal must recognize the income in 2015.
B)   Teal must recognize the income in the year title to the goods passed to the customer,as determined under the state laws in which the store is located.
C)   Teal can elect to recognize the income in either 2015 or 2016.
D)   Teal must recognize the income in 2016.
E)   None of these.F) B) and C)
G) A) and B)

Question 17

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Accepted Answer

A) True 
 B)False

Question 18

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value.

Accepted Answer

A)   sell;keep.
B)   sell;sell.
C)   keep;sell.
D)   keep;keep.
E)   None of these.F) C) and D)
G) A) and E)

Question 19

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Accepted Answer

A)   Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B)   Sue is not required to recognize gross income from the receipt of the funds,but she must reduce her cost basis in the land by $2,000.
C)   Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D)   Sue must recognize $2,000 gross income in the current year,and when the cable is installed,she must reduce her cost basis in the land by $2,000.
E)   None of these.F) A) and C)
G) D) and E)

Question 20

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

In 2015,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 2016.The team accepted the counteroffer.Juan constructively received $3 million in 2015.

Correct Answer
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Correct Answer
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Correct Answer
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Tom,a cash basis taxpayer,purchased a bond on March 31 for $10,000,plus $100 accrued interest.In December,Tom collected $500 interest from the bond.Tom's interest income from the bond for the year is $500.

Correct Answer
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On January 1,Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans.There were no other loans outstanding between Dave and Debra.The relevant Federal rate on interest was 6 percent.The loan was outstanding for the entire year.

Correct Answer
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In the case of interest income from state and Federal bonds:

Correct Answer
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During the year,Kim sold the following assets: business auto for a $1,000 loss,stock investment for a $1,000 loss,and pleasure yacht for a $1,000 loss.Presuming adequate income,how much of these losses may Kim claim?

Correct Answer
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Correct Answer
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Our tax laws encourage taxpayers to assets that have appreciated in value and assets that have declined in value.

Correct Answer
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Correct Answer
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The payments should be characterized as ...
View Answer

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

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

Correct Answer
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For purposes of determining gross income,which of the following is true?

Correct Answer
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The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

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

Correct Answer
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Teal company is an accrual basis taxpayer.On December 1,2015,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2016.Teal delivered the item on January 4,2016.Teal included the sale in its 2015 income for financial accounting purposes.

Correct Answer
verified

An advance payment received in June 2015 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Correct Answer
verified

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Correct Answer
verified

Correct Answer
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Exam 4: Gross Income

In 2015,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 2016.The team accepted the counteroffer.Juan constructively received $3 million in 2015.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Tom,a cash basis taxpayer,purchased a bond on March 31 for $10,000,plus $100 accrued interest.In December,Tom collected $500 interest from the bond.Tom's interest income from the bond for the year is $500.

Correct AnswerverifiedShow Answer

On January 1,Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans.There were no other loans outstanding between Dave and Debra.The relevant Federal rate on interest was 6 percent.The loan was outstanding for the entire year.

Correct AnswerverifiedShow Answer

In the case of interest income from state and Federal bonds:

Correct AnswerverifiedShow Answer

During the year,Kim sold the following assets: business auto for a $1,000 loss,stock investment for a $1,000 loss,and pleasure yacht for a $1,000 loss.Presuming adequate income,how much of these losses may Kim claim?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe payments should be characterized as ...View AnswerShow Answer

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For purposes of determining gross income,which of the following is true?

Correct AnswerverifiedShow Answer

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Teal company is an accrual basis taxpayer.On December 1,2015,a customer paid for an item that was on hand,but the customer wanted the item delivered in early January 2016.Teal delivered the item on January 4,2016.Teal included the sale in its 2015 income for financial accounting purposes.

Correct AnswerverifiedShow Answer

An advance payment received in June 2015 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Correct AnswerverifiedShow Answer

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

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
verified

Correct Answer
verified

Correct Answer
verified

Our tax laws encourage taxpayers to assets that have appreciated in value and assets that have declined in value.

Correct Answer
verified

Correct Answer
verified
The payments should be characterized as ...
View Answer

Correct Answer
verified

Correct Answer
verified

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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Correct Answer
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Correct Answer
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Correct Answer
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