Tax Acct Chp. 4

Ben lost his job when his employer moved its plant. During the year, he collected unemployment benefits for three months, a total of $1,800. While he was waiting to hear from prospective employers, he painted his house. If Ben had paid someone else to paint his house, the cost would have been $3,000. The cost of the paint Ben used was $800. What is Ben's gross income for tax purposes from the above events? Ben ___ recognize income from the unemployment benefits. His savings from painting his house ___ included in gross income because it ___ income ___. This is because the savings ___ an amount received from another. Therefore, Ben will report $___ as income.

will, are not, was not, realized, were not, $1800

A taxpayer, age 64, purchases an annuity from an insurance company for $50,000. She is to receive $300 per month for life. Her life expectancy 20.8 years from the annuity starting date. Assuming that she receives $3,600 this year, what is the exclusion percentage and how much is included in her gross income? Round the exclusion percentage to two decimal places. Round the final answer for the income to the nearest dollar. Exclusion percentage: Included in income:

66.77% (300 * 12 * 20.8) = 74,880 50,000/74,880 = 66.77% $1,196 (1 - .6677) * (3,600) = $1,196

Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12-month and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2018, Bigham sold the following customer contracts: Length of contract Total Proceeds 12 months $28,000 24 months $56,000 Determine the income to be recognized in taxable income in 2018 and 2019.

Length: 12 months 2018 Income: $14,000 = ($28,000 x 6/12) 2019 Income: $14,000 = ($28,000 x 6/12) Length: 24 months 2018 Income: $14,000 = ($56,000 x 6/24) 2019 Income: $42,000 = ($56,000 x 18/24)

In 2008, Terry purchased land for $150,000. In 2018, Terry received $10,000 from a local cable television company in exchange for Terry allowing the company to run an underground cable across Terry's property. Terry is not required to recognize income from receiving the $10,000 because it was a return of his capital invested in the land.

True

Jessica is a cash basis taxpayer. When Jessica failed to repay a loan, the bank garnished her salary. Each week $60 was withheld from Jessica's salary and paid to the bank. Jessica is required to include the $60 each week in her gross income even though it is the creditor that benefits from the income.

True

Judy is a cash basis attorney. This year, she performed services in connection with the formation of a corporation and received stock with a value of $4,000 for her services. By the end of the year, the value of the stock had decreased to $2,000. She continued to hold the stock. Judy must recognize $4,000 of gross income from the stock for the current year.

True

Casper and Cecile divorced in 2018. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $182,500, and it had a market value of $292,000 on the date of the transfer. Cecile sold the stock for $255,500 a month after receiving it. In addition Casper is required to pay Cecile $9,125 a month in alimony. He made five payments to her during the year. What are the tax consequences for Casper and Cecile regarding these transactions? If an amount is zero, enter "$0". a. How much gain or loss does Casper recognize on the transfer of the stock? b. Does Casper receive a deduction for the $45,625 alimony paid? c. How much income does Cecile have from the $45,625 alimony received? d. When Cecile sells the stock, how much does she report?

a. $0 b. Yes c. $45,625 d. Cecile will report a gain of $73,000 (255,500 - 182,500)

Casper and Cecile divorced in 2018. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of the transfer. Cecile sold the stock for $40,000 a month after receiving it. In addition Casper is required to pay Cecile $1,500 a month in alimony. He made five payments to her during the year. What are the tax consequences for Casper and Cecile regarding these transactions? If an amount is zero, enter "$0". a. How much gain or loss does Casper recognize on the transfer of the stock? b. Does Casper receive a deduction for the $7,500 alimony paid? c. How much income does Cecile have from the $7,500 alimony received? d. When Cecile sells the stock, how much does she report? Cecile will report a ___ of $___.

a. $0 b. Yes c. $7,500 d. gain, $15,000

On January 1, 2018, Kunto, a cash basis taxpayer, pays $46,228 for a 24-month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto receives $50,000. In your computations, round any amounts to the nearest dollar. a. Compute Kunto's gross income from the certificate for 2018. b. Compute Kunto's gross income from the certificate for 2019.

a. $1,849 b. $1,923

Determine the taxable amount of social security benefits for the following situations. If an amount is zero, enter "0". a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $46,000, no tax-exempt interest, and $12,400 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable. b. Assume Erwin and Eleanor have adjusted gross income of $12,000, no tax-exempt interest, and $16,000 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable. c. Assume Erwin and Eleanor have adjusted gross income of $85,000, no tax-exempt interest, and $15,000 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable.

a. $10,540 b. $0 c. $12,750

Determine the taxable amount of social security benefits for the following situations. If required, round your answers to the nearest dollar. If an amount is zero, enter "0". a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $42,600, no tax-exempt interest, and $14,910 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable. b. Assume Erwin and Eleanor have adjusted gross income of $18,200, no tax-exempt interest, and $20,020 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable. c. Assume Erwin and Eleanor have adjusted gross income of $94,000, no tax-exempt interest, and $14,100 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable.

a. $11,147 b. $0 c. $11,985

Under the terms of a divorce agreement entered into in 2017, Lanny was to pay his wife Joyce $2,000 per month in alimony and $500 per month in child support. For a twelve-month period, Lanny can deduct from gross income (and Joyce must include in gross income): a. $24,000. b. $30,000. c. $0. d. $6,000. e. None of these choices are correct.

a. $24,000. ($2,000 * 12) The $500 per month for child support is not deductible by Lanny.

Al is a medical doctor who conducts his practice as a sole proprietor. During 2018, he received cash of $398,800 for medical services. Of the amount collected, $32,400 was for services provided in 2017. At the end of 2018, Al had accounts receivable of $94,800, all for services rendered in 2018. In addition, at the end of the year, Al received $9,500 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2019. Compute Al's gross income for 2018: a. Using the cash basis of accounting. b. Using the accrual basis of accounting. c. Advise Al on which method of accounting he should use. Al should use the ___ of accounting so that he will not have to pay income taxes on the ___.

a. $408,300 (398,800 + 9,500) b. $461,200 [(398,800 + 9,500) - 9,500 - 32,400 + 94,800] c. cash method, uncollected accounts receivable

Determine the taxable amount of social security benefits for the following situations. If an amount is zero, enter "$0". a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $36,000, no tax-exempt interest, and $12,400 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable. b. Assume Erwin and Eleanor have adjusted gross income of $12,000, no tax-exempt interest, and $16,000 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable. c. Assume Erwin and Eleanor have adjusted gross income of $85,000, no tax-exempt interest, and $15,000 of Social Security benefits. As a result, $___ of the Social Security benefits are taxable.

a. $5,100 b. $0 c. $12,750 Chapter 4 page 28-29

On January 1, 2018, Kunto, a cash basis taxpayer, pays $142,382 for a 24-month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto receives $154,000. In your computations, round any amounts to the nearest dollar. a. Compute Kunto's gross income from the certificate for 2018. b. Compute Kunto's gross income from the certificate for 2019.

a. $5,695 b. $5,923

Which of the following statements is true regarding the taxation of Social Security benefits? a. 85% is the maximum amount of taxable Social Security benefits. b. 50% is the maximum amount of taxable Social Security benefits. c. If a taxpayer's only source of income is $10,000 of Social Security benefits, then 50% of the benefits are taxable. d. If a taxpayer's only source of income is $10,000 of Social Security benefits, then 85% of the benefits are taxable.

a. 85% is the maximum amount of taxable Social Security benefits.

Indicate whether the following statements are applicable to the "Cash receipts method" or the "Accrual method" of accounting. a. Property or services received are included in the taxpayer's gross income in the year of actual or constructive receipt by the taxpayer or agent, regardless of whether the income was earned in that year. b. An item is generally included in gross income for the year in which it is earned, regardless of when it is collected. c. All that is necessary for income recognition is that property or services received have a fair market value—a cash equivalent. d. The income is earned when (1) all events have occurred that fix the right to receive such income and (2) the amount to be received can be determined with reasonable accuracy.

a. Cash receipts method b. Accrual method c. Cash receipts method d. Accrual method

Indicate whether the following statements are "True" or "False" regarding the doctrine of constructive receipt. a. The rationale for the constructive receipt doctrine is that if the income is available, the taxpayer should be allowed to postpone the income recognition. b. The constructive receipt doctrine does not apply to income the taxpayer is not yet entitled to receive even though the taxpayer could have contracted to receive the income at an earlier date. c. Income set apart or made available is not constructively received if its actual receipt is subject to substantial restrictions.

a. False b. True c. True

Allen visits Reno, Nevada, once a year to gamble. This year his gambling loss was $25,000. He commented to you, "At least I didn't have to pay for my airfare and hotel room. The casino paid that because I am such a good customer. That was worth at least $3,000." Select "True" or "False" to classify the following statements regarding Allen's relevant tax issues. a. Allen did not receive any cash, therefore no income. b. Under the broad concept, the airfare and hotel accommodations would be considered income. c. Taking into account the losses on this trip, if Allen combines his income and losses, he has an economic loss. d. Allen can report a $25,000 loss on this tax return.

a. False b. True c. True d. False

Indicate whether the following statements are "True" or "False" regarding accounting methods available to a partnership. a. Generally, the cash method may be adopted by a partnership that has one or more C corporation partner. b. A newly formed partnership may adopt either the cash or accrual method of accounting or a hybrid of these two methods. c. The cash method may not be adopted by a partnership that is a tax shelter. d. If a partnership uses the accrual method of accounting, its income must be reported no later than the date that income would be reported on the partnership's "applicable financial statement".

a. False b. True c. True d. True

Indicate whether the following statements are "True" or "False" regarding income from partnerships, S corporations, trusts, and estates. a. A partnership is a separate taxable entity. b. A small business corporation may elect to be taxed similarly to a partnership. c. Each partner report his or her distributive share of the partnership's income and deductions for the partnership's tax year ending in or with the partner's tax year. d. The beneficiaries of estates and trusts generally are taxed on the income earned by the estates or trusts that is actually distributed or required to be distributed to them.

a. False b. True c. True d. True

Patrick and Eva are planning to divorce in 2018. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva common stock that he owns with a fair market value of $100,000. a. Select either "True" or "False" to classify the following regarding the transfer of the stock from Patrick to Eva. • The stock cannot be transferred without recognition of a gain by Patrick or Eva. • Eva's cost basis in the stock will be the same as Patrick's. • Eva's cost basis in the stock will be fair market value on the day Patrick transfers it to her. • The transfer of stock will not qualify as alimony. b. If Patrick's cash payments to Eva are considered alimony, indicate whether the following are true or false? • The payments are considered as income to Eva and are deductible by Patrick. • In the event Eva dies, the payments can continue to be made to her estate. • Eva and Patrick can live in the same household when the payments are made. • The agreement must not specify that the payments are not alimony.

a. False, True, False, True b. True, False, False, True

Wade paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows that he can sell the car for $13,000, but he is very wealthy and does not need the money. On the other hand, his daughter, who has very little income, needs money to make the down payment on a house. a. Would it matter, after taxes, whether Wade sells the car and gives the money to his daughter or whether he gives the car to his daughter and she sells it for $13,000? Select "True" or "False" regarding the tax consequences for each scenario. • Wade should give the car to his daughter to sell. She will not have to pay taxes on the subsequent sale of the car, since it was acquired as a gift. • If Wade sells the car, he would be taxed on the gain. However, if he gives the car to his daughter and she sells, the daughter would be taxed on any gain. • Wade should sell the car. If Wade gives his daughter the car, he will have to pay gift tax as well as income tax, since his daughter is considered a related party. • Wade should sell the car, since his taxable gain will be less due to the time he spent restoring the car than if his daughter sells the car. b. Assume Wade gave the car to his daughter after he had arranged for another person to buy it from his daughter. The daughter then transferred the car to the buyer and received $13,000. Who is taxed on the gain? Wade sold the car and ___should be taxed on the gain. If his daughter received the property without ___, ___ would be the taxpayer on the sale.

a. False, true, false, false b. Wade, a binding commitment, his daughter

Indicate whether the following items are "Included" in or "Excluded" from gross income for tax purposes. a. An employee embezzled $30,000 from his employer. b. A dentist received accounting services in exchange for dental work provided to a patient. c. Mary received $15,000 from the bank for a personal loan. d. A shareholder of Green Company received a $20,000 forgiveness of debt from the company.

a. Included b. Included c. Excluded d. Included

Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year. Borrower Amount Net Investment Richard $5,000 $800 Woody $8,000 $600 Irene $105,000 $0 What are the effects of the imputed interest rules on these transactions? Compute Elizabeth's gross income from each loan.

a. Richard is not subject to the imputed interest rules because the $10,000 exception does apply. Elizabeth's gross income from the loan is $0. b. The $10,000 exception does not apply to the loan to Woody because the proceeds were used to purchase income producing assets. Because the $1,000 exception applies to this loan, no interest is imputed. Elizabeth's gross income from the loan is $0. c. None of the exceptions apply to the loan to Irene because the loan was for more than $100,000. Elizabeth's gross income from the loan is $2,625 (105,000 * 5% * 6/12).

According to the Supreme Court, would it be good tax policy to use income as computed by financial accounting principles as the correct measure of income for Federal income tax purposes? Select from the dropdown lists either "True" or "False" to indicate if the statement made is true or false regarding the goals and mandates of financial and tax accounting. a. The primary goal of financial accounting is to provide useful information to management, shareholders, creditors, and others properly interested. b. The primary goal of financial accounting is to provide useful information needed to prepare the tax return. c. The primary goal of the tax system is the equitable collection of revenue. d. The primary goal of the income tax system is to collect all taxes.

a. True b. False c. True d. False

Howard buys wrecked cars and stores them on his property. Recently, he purchased a 1990 Ford Taurus for $400. If he can sell all of the usable parts, his total proceeds from the Taurus will be over $2,500. As of the end of the year, he has sold only the radio for $75 and he does not know how many, if any, of the remaining parts will ever be sold. What are Howard's income recognition issues? Regarding Howard's income recognition, select either "True" or "False" to properly classify the statements made. a. He could consider all sales proceeds as a recovery of capital until he receives $400, and then all subsequent proceeds would be included in his gross income. b. He could allocate the cost of the car ($400) among the various parts he sells. This would allow him to reduce his gross receipts by the adjusted basis of the parts sold. c. He can consider all sales proceeds as a recovery of capital until he receives $2,500.

a. True b. True c. False

Indicate whether the following statements are "True" or False" regarding tax planning strategies for minimizing gross income. a. The taxpayer can often defer the recognition of income from appreciated property by postponing the event triggering realization. b. Series EE bonds can be purchased for long-term deferrals of income. c. Because no tax is due until a gain has been recognized, the law does not favor investments that yield appreciation rather than annual income. d. For the accrual basis taxpayer who receives advance payments from customers, the transactions should be structured to avoid payment of tax on income before the time the income is actually earned. e. The tax liability of a family can be minimized by shifting income from higher- to lower-bracket family members through gifts of income-producing property.

a. True b. True c. False d. True e. True

Indicate whether the following statements are "True" or "False" regarding the concept of gross income. a. While the Constitution grants Congress the power to tax income, it does not define the term. b. The Supreme Court has held that there is no income subject to tax until the taxpayer has recovered the capital invested. c. Economists measure income (economic income) by first determining the fair market value of the individual's net assets (assets minus liabilities) at the beginning and end of the year (change in net worth). d. Accounting and tax rules regarding income are the same. e. The accounting concept of income is founded on the realization principle. f. Gross income is not limited to cash received.

a. True b. True c. True d. False e. True f. True

In January 2018, Sonja deposited $20,000 in a bank in the Bahamas. She earned $500 interest income. She closed the account in December 2018. a. Is Sonja subject to the FBAR reporting requirement? Sonya __ required to file an FBAR form for 2018 because on at least one day during 2018 she had over $___ in a foreign bank account. b. Is the interest income taxable in the United States? ___, ___ of the interest income earned from this account is taxable in the United States.

a. is, $10,000 b. Yes, all

Complete the following statements regarding possible tax planning strategies for minimizing gross income. a. For pre-2019 agreements, the person ___ the alimony payments favors a divorce settlement that includes a provision for alimony payments. b. Being able to distinguish between separate and community property is vital in the estate tax area because the surviving wife's or husband's share of the community property ___ included in the gross estate of the deceased spouse.

a. making b. is not

Fred and Wilma were divorced in year 1 (before 2019). Fred is required to pay Wilma $12,000 of alimony each year until their child turns 18. At that time, the payment will be reduced to $10,000 per year. In year 3, in accordance with the divorce agreement, Fred paid $6,000 directly to Wilma and $6,000 directly to the law school Wilma is attending. What amount of the payments received in year 3 is income to Wilma? a. $6,000 b. $10,000 c. $12,000 d. $0

b. $10,000 Alimony is taxable to the recipient and deductible by the payor. Child support is not taxable to the recipient and not deductible by the payor. Because the total payment decreases to $10,000 once Fred and Wilma's child turns 18, the $2,000 decrease is deemed child support. The fact that Fred pays the law school in accordance with the divorce agreement on Wilma's behalf does not change the fact that $10,000 is considered alimony.

Mary purchased an annuity that pays her $500 per month for the rest of her life. She paid $70,000 for the annuity. Based on IRS annuity tables, Mary's life expectancy is 16 years. How much of the first $500 payment will Mary include in her gross income (round to two decimals)? a. $0 b. $135.42 c. $364.58 d. $500.00

b. $135.42 Based on IRS tables, Mary is expected to receive 192 (16 years x 12 months) annuity payments. Her investment in the annuity is $70,000 and her return of capital for each annuity payment is $70,000/192 = $364.58. The return of capital portion of each annuity payment is not taxable (not included in gross income). Mary must include the excess received ($500.00 - 364.58) of $135.42 in her gross income.

Betty purchased an annuity for $24,000 in 2018. Under the contract, Betty will receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment. a. Betty has no gross income until she has collected $24,000. b. If Betty collects $3,000 in 2018, her gross income is $630 (.03 × $21,000). c. If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income. d. If Betty lives to collect only 60 payments before her death, she will report a $6,000 loss from the annuity [$24,000 - (60 × $300) = $6,000] on her final return. e. None of these choices are correct.

c. If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income.

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. a. Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income. b. Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income. c. If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income. d. Debra must recognize $6,090 of imputed interest income. e. None of these choices are correct.

c. If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income. The calculated imputed interest is $6,090 [($100,000 × 6% × .5) + ($103,000 × 6% × .5)]. Under the $100,000 exemption for below-market loans, Dave must recognize $6,090 of imputed interest income because Debra has investment income in excess of the calculated imputed interest income.

Travis and Andrea were divorced in 2016. Their only marital property consisted of a personal residence (fair market value of $400,000, cost of $200,000), and publicly-traded stocks (fair market value of $800,000, cost basis of $500,000). Under the terms of the divorce agreement, Andrea received the personal residence and Travis received the stocks. In addition, Andrea was to receive $50,000 for eight years. I. If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years), the payments will qualify as alimony. II. Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash. III. If Travis sells the stocks for $900,000, he must recognize a $400,000 gain. a. I, II, and III are true. b. Only I and II are true. c. Only III is true. d. Only I and III are true. e. None of these choices are true.

c. Only III is true.

Complete the following statements regarding the tax year. Generally, an entity must use the ___ year to report its income. However, a ___ year can be elected if the taxpayer maintains adequate books and records. The ___ year option generally is not available to partnerships, S corporations, and personal service corporations.

calendar, fiscal, fiscal

What is the purpose of the constructive receipt doctrine? The constructive receipt doctrine prevents the ___ basis taxpayers from ___ recognition of income by intentionally ___ the receipt of the income in the current tax year.

cash, deferring, avoiding

The taxpayer performs services with payment due from the customer within 30 days. All customers pay within the time limit. What would be the benefit to the taxpayer using the cash method of accounting rather than the accrual method? The taxpayer can ___ by using the cash method of accounting when the customers or clients pay subsequent to the taxpayer delivering the goods or performing the services.

defer income

A Series EE U.S. government savings bond accrues 3.5% interest each year. The bond matures in three years, at which time the principal and interest will be paid. The bank will pay the taxpayer at a 3.5% interest rate each year if he agrees to leave money on deposit for three years. What tax advantage does the Series EE bond offer that is not available with the bank deposit? Complete the statements below by selecting from the dropdown lists the correct response. The income from the Series EE bond is ___and __ exempt from the OID rules. The interest on the bank account is ___ under the OID rules. Therefore, with the ___, the taxpayer is earning interest on his deferred taxes.

deferred until maturity, is, taxed each year, Series EE bonds

Complete following statements regarding the comparison of the accounting and tax concepts of income. The primary goal of ___ is to provide useful information to management, shareholders, creditors, and others properly interested. The primary goal of ___ is the equitable collection of revenue.

financial accounting, the income tax system

For a person who receives Social Security benefits, what effect, if any, can an increase in other income have on that person's taxable income? Other income is ___in the computation of modified adjusted gross income (used to determine taxable Social Security benefits). Therefore any increase in other income ___ the Social Security benefits to be taxable, thus ___ taxable income.

included, may cause more of, increasing

On December 1, 2018, Bigham Corporation pays a dividend of $4.00 on each share of its common stock. Vanessa and Gena, two unrelated shareholders, each own 5,000 shares of the stock. Vanessa has owned her stock for two years while Gena purchased her stock on November 3, 2018. How does each shareholder treat the $20,000 dividend from Bigham? The $20,000 that Vanessa receives is ___ and the $20,000 that Gena receives is ___.

subject to preferential 0%/15%/20% treatment, taxed at ordinary income rates.

On January 1, 2018, Kunto, a cash basis taxpayer, pays $46,228 for a 24-month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto receives $50,000. In your computations, round any amounts to the nearest dollar. Kunto has $___ income for 2018 and $___for 2019.

$1,849, $1,923

Rex became a partner with a 30% interest in the partnership profits when he invested $200,000. In 2018, the partnership generated $400,000 of taxable income, and Rex withdrew $100,000. In 2019, the partnership had $600,000 of taxable income, and Rex withdrew $200,000. What is Rex's gross income from the partnership in 2018 and 2019? 2018: 2019:

$120,000, $180,000

Faye, Gary, and Heidi each have a one-third interest in the capital and profits of the FGH Partnership. Each partner had a capital account of $77,500 at the beginning of the tax year. The partnership profits for the tax year were $1,458,600. Changes in their capital accounts during the tax year were as follows: Faye Gary Heidi Total Beginning $77,500 $77,500 $77,500 $232,500 Withdrawals (20,000) (35,000) (10,000) (65,000) Add. contrib. -0- -0- 5,000 5,000 Profit allocate 486,200 486,200 486,200 1,458,600 End balance 543,700 528,700 558,700 1,631,100 In arriving at the $1,458,600 of partnership profits, the partnership deducted $3,300 ($1,100 for each partner) in premiums paid for group term life insurance on the partners. Faye and Gary are 39 years old, and Heidi is 35 years old. Other employees are also eligible for group term life insurance equal to their annual salary. These premiums of $10,500 have been deducted in calculating the partnership profits of $1,458,600. Compute each partner's gross income from the partnership for the tax year. Each partner's gross income from the partnership for the tax year is $___

$487,300 [($1,458,600 + $3,300)/3]

An employer provides all of his employees with life insurance protection equal to twice the employee's annual salary. Melba, age 42, has an annual salary of $70,000. Is Melba required to recognize income even though she is still alive at the end of the year and thus nothing has been collected on the life insurance policy? If the coverage exceeds $___, the employee must include in gross income the premiums paid on ___. Therefore, Melba includes ___.

$50,000, the protection above this amount, $108

On December 29, 2018, an employee received a $5,000 check from her employer's client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30, 2018. The employer deposited the check on December 31, 2018, but the bank did not credit the employer's bank account until January 2, 2019. Complete the statement below regarding when this company is required to include the $5,000 in gross income. In ___ because a check received __ considered a cash equivalent and a cash basis taxpayer must recognize the income when the check is ___.

2018, is, received

A taxpayer, age 64, purchases an annuity from an insurance company for $60,000. She is to receive $500 per month for life. Her life expectancy 20.8 years from the annuity starting date. Assuming that she receives $6,000 this year, what is the exclusion percentage and how much is included in her gross income? Round the exclusion percentage to two decimal places. Round the final answer for the income to the nearest dollar. Exclusion percentage: Included in income:

48.08%, $3,115

An advance payment received in June 2018 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.

False

In 2018 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct?

For each $2,500 payment received in the first year, Todd must include $1,000 in gross income. Each payment is in part a recovery of capital and in part income. The recovery of capital portion is $1,500 [($150,000 cost/$250,000 expected return) × $2,500 payment]. The balance of the amount received of $1,000 ($2,500 - $1,500) is income.

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.

True

The constructive receipt doctrine requires that income be recognized when it is made available to the cash basis taxpayer, although it has not been actually received. The constructive receipt doctrine does not apply to accrual basis taxpayers.

True

Indicate whether the following statements are "True" or "False" regarding various sources of income. a. The taxpayer can avoid including prizes and awards in gross income by refusing to accept the prize or award. b. Certain employee achievement awards in the form of tangible personal property that are made in recognition of length of service or safety achievement are excludable. c. The fair market value of prizes and awards (other than scholarships exempted under § 117) must be included in gross income. d. The premiums on the first $100,000 of group term life insurance protection are excludable from the employee's gross income. e. After experiencing dissatisfaction with the IRS's treatment of unemployment compensation, Congress amended the Code to make the benefits taxable. f. If the group term life insurance plan discriminates in favor of certain key employees (e.g., officers), the key employees are not eligible for the exclusion.

a. True b. True c. True d. False e. True f. True

Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon's age), the amount is $12 per year for $1,000 of protection. The cost of an individual policy would be $15 per year for $1,000 of protection. Since Gordon paid nothing towards the cost of the $250,000 protection, Gordon must include in his 2018 gross income which of the following amounts? a. $1,350. b. $2,400. c. $3,000. d. $3,750. e. None of these choices are correct.

b. $2,400. Gordon must include in gross income the Uniform Premium Table amount for $200,000 ($250,000 coverage less the $50,000 exclusion): 200 × $12 = $2,400.

The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are: a. The employee has no income unless the funds are invested and produce investment income for the year. b. The corporation has imputed interest income and the employee is deemed to have received a gift. c. The corporation has imputed interest income and dividends paid. d. The employee has imputed compensation income and the corporation has imputed interest income. e. None of these choices are correct.

d. The employee has imputed compensation income and the corporation has imputed interest income.

The taxable portion of Social Security benefits may be affected by: a. The taxpayer's itemized deductions. b. The number of quarters the individual worked. c. The individual's standard deduction. d. The individual's tax-exempt interest income. e. None of these choices are correct.

d. The individual's tax-exempt interest income.

Casper and Cecile are divorced in 2018. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of the transfer. Cecile sold the stock a month after receiving it for $40,000. In addition Casper is required to pay Cecile $1,500 a month in alimony. He made five payment to her during the year. What are the tax consequences for Casper and Cecile regarding these transactions? If an amount is zero, enter "$0". Casper recognizes ___ on the transfer of the stock. He receives ___ for the $7,500 alimony paid. Cecile recognizes ___ on the transfer of the stock. She has ___ from the $7,500 alimony received. When she sells the stock Cecile reports a ___ of $___.

no gain or loss, a deduction, no gaain or loss, taxable income, gain, $15,000