Acct 330 - Income Tax Chapter 2 - T/F Multiple Choice

Tim receives $500 of qualified dividends from Exxon in 2013. He is in the 10 percent ordinary tax bracket. Tim's tax on the dividends will be:

$0

Jerry and Sally were divorced under an agreement executed July 1, 2013. The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000. What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally's tax basis in the property after the transfer, respectively?

$0 and $80,000

Seymore named his wife, Penelope, the beneficiary of a $100,000 insurance policy on his life. The policy provided that, upon his death, the proceeds would be paid at a rate of $4,000 per year plus interest over a 25-year period. Seymore died June 25, 2012, and in 2013 Penelope received a payment of $5,200 from the insurance company. What amount should she include in her gross income for 2013?

$1,200

Sam died on January 15, 2003 and left his wife, Terry, an insurance policy with a face value of $100,000. Terry elected to receive the proceeds over a 10-year period ($10,000 plus interest each year). This year Terry receives $11,500 ($10,000 proceeds plus $1,500 interest) from the insurance company. How much income must Terry report from this payment?

$1,500

In 2013, Uriah received the following interest payments:Interest of $400 on an overpayment of 2012 Federal income taxes Interest of $300 from his bank certificate of deposit. Interest of $1,500 on municipal bonds Interest of $1,000 on United States savings bonds (Series HH) What amount, if any, should Uriah report as taxable interest income on his 2013 individual income tax return?

$1,700 ($400 + $300 + $1,000)

. Richard, who retired on April 30, 2013, receives a monthly employee annuity benefit of $1,400 payable for life, beginning May 1, 2013. During his years of employment, Richard contributed $29,400 to the company's plan. Richard's life expectancy from the IRS tables is 10 years. Using the general rule, how much of the annuity payment amounts received during 2013 ($11,200) may Richard exclude from gross income?

$1,960

Richard and Alice are divorced and under the terms of their written divorce agreement signed on December 30, 2006, Richard was required to pay Alice $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2013. Additionally, Richard voluntarily paid Alice $1,200 per month for 12 months of 2013, no portion of which was designated as child support. Assuming that Alice has no other income, her tax return for 2013 should show gross income of:

$10,800 [12 x ($1,500 - $600)]

Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2013: Ordinary dividends (nonqualifying) $250 Capital gain distributions $170 Nontaxable distributions $ 80 Elsie, Elmer's wife, did not own any of the Virginiana Mutual Fund shares, but she did receive $1,600 in interest on a savings account at the Moss National Bank. Elmer and Elsie filed a joint income tax return for 2013. What portion of the distributions from Virginiana Mutual Fund is taxable as ordinary income on their 2013 individual income tax return?

$250

To pay for college, Henry received the following: $1,000 scholarship from the Thespian Club to pay for books $5,000 scholarship from the Elks Lodge for tuition $4,000 worth of room and board as a dorm supervisor through a work-study program How much must Henry claim on his tax return?

$4,000

Marie had a good year. She received the following prizes and awards: - an iPad from The Oprah Show with a fair market value of $500 - lottery winnings of $1,000 received in cash - a plaque worth $25 plus $100 of Godiva chocolate in recognition for 100 days on the job without an accident - a $10,000 cash prize from American Idol How much of her prizes and awards should Marie report on her tax return?

$11,500; the award from her job is excluded ($500 + $1,000 + $10,000)

Elmer received the following distributions from Virginiana Mutual Fund for the calendar year 2013: Ordinary dividends $250 Capital gain distributions $170 Nontaxable distributions $ 80 Elsie, Elmer's wife, did not own any of the Virginiana Mutual Fund shares, but she did receive $175 in interest on a savings account at the Moss National Bank and $1,475 in interest on California Municipal Bonds. Elmer and Elsie filed a joint income tax return for 2013. What amount is reportable as taxable interest income?

$175

Terry receives $3,000 annually from an annuity contract which she purchased in 2003 for $15,000. Her total expected return under the contract is $45,000 and payments under the contract began in 2004. For the years 2004 through 2013, Terry received $3,000 per year. Of the $3,000 received during 2013, what amount must Terry include in her gross income for 2013 under the general rule?

$2,000 [$3,000 - ($15,000 / $45,000 x $3,000)]

Roger is required under a 2003 divorce decree to pay $500 of alimony and $200 of child support per month for 12 years. In addition, Roger makes a voluntary payment of $100 per month. How much of the total monthly payment is deductible by Roger?

$500

Laura and Leon were granted a divorce in 2004. In accordance with the decree, Leon made the following payments to Laura in 2013: Child support payments contingent on the age of the child $4,000 Annual cash payments, other than child support, specified as alimony in the divorce agreement $6,000 How much should Laura include in her 2013 taxable income as alimony?

$6,000

Laura and Leon were granted a divorce in 2004. In accordance with the decree, Leon made the following payments to Laura in 2013: Child support payments contingent on the age of the child $4,000 Indefinite periodic payments terminating on Laura's death $6,000 How much of the payments can he deduct as alimony in 2013?

$6,000

Mary received the following items during 2013: Christmas bonus from her employer $500 Christmas gift from her father $ 35 Prize won in a radio show contest $100 What is the total amount of the above items that must be included in Mary's 2013 gross income?

$600

As a Christmas thank you for being a good employee, Ed's TV Repair gave 62-year-old Edwina three shares of its stock worth $20 per share. Edwina then received dividends of $1 per share related to the stock. How much should be included in Edwina's gross income?

$63

Nicole is a student at USB Law; she receives a $52,000 scholarship for 2013. Of the $52,000, $40,000 is used for tuition, $5,000 is used for books, and $7,000 is used for room and board. How much of the scholarship is taxable income for Nicole in 2013?

$7,000

Arthur, age 19, is a full-time student at Gordon College and is a candidate for a bachelor's degree. During 2013, he received the following amounts: Tuition scholarship $2,400 Loan from college financial aid office $1,000 Cash support from parents $2,000 Ordinary cash dividend $ 500 Cash prize awarded in contest $ 300 What is his adjusted gross income for 2013?

$800

Sam, a calendar year taxpayer, purchased an annuity contract for $3,600 that would pay him $120 a month beginning on January 1, 2013. His expected return under the contract based on his life expectancy is $10,800. Assuming Sam received a total of $1,440 in payments during 2013, how much of this annuity income is included in Sam's gross income for 2013, using the general rule?

$960 [$1,440 - ($3,600 / $10,800 x $1,440)]

For 2013, the maximum percentage of Social Security benefits which must be included in a taxpayer's gross income is?

85%

Which of the following fringe benefits is taxable to the employee receiving the benefit?

A 15 percent discount on investment real estate granted to the employee of a real estate developer

In which of the following cases may the employee exclude the meals and/or lodging: a. A taxpayer lives rent-free at the property she manages even though the owner does not require the manager to live on site.

A headmaster at a boarding school is required to be on campus all night.

Which of the following would result in life insurance proceeds that are taxable to the recipient?

A life insurance policy transferred to a creditor in payment of a debt

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?

A ski boat won by the taxpayer on the Price is Right

Which taxpayer would benefit the most from a tax-free municipal bond compared to a taxable bond?

A taxpayer who won a mega-million-dollar lottery

All of the following amounts must be included in gross income, except:

Accident insurance proceeds

In the tax law, the definition of gross income is:

All income from whatever source derived

Which of the following may be excluded from income?

All of the above are excluded from gross income

Susie received unemployment benefits in the current year.

All of the unemployment benefits are taxable.

Employer-provided spending accounts:

Allow qualifying expenses to be treated as tax-free reductions in the employees' salaries

Which of the following is generally excluded from gross income?

Disability benefits

. For divorces after 1984, which of the following statements about alimony payments is not correct?

Divorced or legally separated parties can be members of the same household at the time the payments are made

Which of the following is correct?

Employee discounts are not tax-free if they exceed the employer's gross markup for merchandise.

All of the following amounts are taxable income to the recipient except:

Gifts

Which of the following is nontaxable income to the recipient for tax purposes?

Inheritances

Indicate which of the following statements is true.

Medical flexible spending accounts can be used to cover dentist fees.

Steve and Laura were divorced in 2007. Laura pays Steve alimony of $1,200 a month. The payment amount was agreed upon in the decree of divorce. To save money, Steve and Laura still live together. Are the alimony payments that Steve receives in 2013 includable in his income? Can Laura take a deduction for alimony paid?

No, since Steve and Laura still live together, the payments are not considered alimony.

Robert works for American Motors. American Motors pays a $1,200 premium on Robert's health insurance in 2013. Robert has an operation on his big toe in 2013 that cost $7,200. The insurance company paid for $6,800 of it. Which one of the following is true?

None of these events are taxable on his 2013 return.

Which of the following amounts must be included in the gross income of the recipient?

Royalties

Which of the following is excluded from gross income?

Scholarships for tuition

Steve worked as a tech supervisor for a computer company. In September of 2013, he was laid off. He was paid unemployment compensation for the rest of the year totaling $7,000. Which of the following is true?

Steve will have to report all $7,000 of the unemployment compensation as income.

In regards to Social Security benefits:

Tax-free interest income must be included in the formula used to determine if Social Security is included in taxable income.

An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9 percent per year and a municipal bond which pays an interest rate of 7.9 percent per year. The investor is in the 15 percent tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason?

The municipal bond because it pays an equivalent after-tax rate of 9.3 percent, while the ABC bond pays out a 9 percent interest rate.

All of the following amounts are excluded from gross income, except:

Tips and gratuities

Which of the following is not taxable income?

Welfare benefits

Which of the following is classified as nontaxable income?

Welfare payments

Anthony is a marine biologist who spends months living on a boat in the ocean studying the impact of runoff water a hundred miles off the coast as a part of his job. Which of the following sentences is the most accurate?

b & c are correct, not a.