Module 7 Income - Assessment(s) Questions

Robin Byrd is a self-employed accountant with Schedule C profit of $320,000 in 2021. Her business does not pay any W-2 wages. Robin is married filing a joint return and has taxable income of $275,000, prior to the qualified business income deduction. What is the amount of Robin's qualified business income deduction, if any?

$55,000

Joan accepted and received a $10,000 award for outstanding civic achievement. Joan was selected without any action on her part, and no future services are expected of her as a condition of receiving the award. What amount should Joan include in her adjusted gross income in connection with this award?

$10,000

On July 1, Year 3, Lila Perl paid $90,000 for 450 shares of Janis Corp. common stock. Lila received a nontaxable stock dividend of 50 new common shares in August, Year 9. On December 20, Year 9, Lila sold the 50 new shares for $11,000. How much should Lila report in her Year 9 return as long-term capital gain?

$2,000

During the current year, Gail Judd received the following dividends from Benefit Life Insurance Co., on Gail's life insurance policy (Total dividends received have not yet exceeded accumulated premiums paid)$100Safe National Bank, on bank's common stock300Roe Mfg. Corp., a Delaware corporation, on preferred stock500 What amount of dividend income should Gail report in her current-year income tax return?

$800

Which one of the following characteristics/requirements differs across traditional IRAs and Roth IRAs?

Deductibility of contributions

Which expense listed below would be subject to the Uniform Capitalization Rules of Code Section 263A?

Quality control.

An individual received $50,000 in 2021 pursuant to a 2019 divorce decree. A check for $25,000 was identified as annual alimony, checks totaling $10,000 as annual child support, and a check for $15,000 as a property settlement. What amount should be included in the individual's gross income?

$0

In a 2018 divorce settlement, the ex-husband was required by court order to pay his ex-wife $36,000 in alimony in 2021. She received $25,000 in cash, a painting valued at $10,000, and the use of his beach house, valued at $3,000. What amount of gross income should she report as alimony?

$25,000

Which of the following would be included in a taxpayer's gross income?

The dividend income on shares of stock that the taxpayer received for services rendered.

What is the maximum amount of adjusted gross income that a taxpayer may have and still qualify to roll over the balance from a traditional individual retirement account (IRA) into a Roth IRA?

There is no maximum AGI limitation.

John Budd is the sole stockholder of Ral Corp., an accrual basis taxpayer engaged in wholesaling operations. Ral's retained earnings at January 1, Year 3, amounted to $1,000,000. For the year ended December 31, Year 3, Ral's book income, before federal income tax, was $300,000. On December 1, Year 3, Ral received advance rental of $27,000 from a tenant for a three-year lease commencing January 1, Year 4, to cover rents for the years 4, 5, and 6. In conformity with GAAP, Ral did not include any part of this rental in its income statement for the year ended December 31, Year 3.What amount should Ral include in its Year 3 taxable income for rent revenue?

$27,000

During Year 7, Karen purchased 100 shares of preferred stock of Boling Corp. for $5,500. During Year 9, Karen received a stock dividend of ten additional shares of Boling Corp. preferred stock. On the date the preferred stock was distributed, it had a fair market value of $60 per share. What is Karen's basis in the ten shares of preferred stock that she received as a dividend?

$600

Ace Rentals Inc., an accrual-basis taxpayer, reported rent receivable of $35,000 and $25,000 in its Year 6 and Year 5 balance sheets, respectively. During Year 6, Ace received $50,000 in rent payments and $5,000 in nonrefundable rent deposits. In Ace's Year 6 corporate income tax return, what amount should Ace include as rent revenue?

$65,000

Jack and Joan Mitchell, married taxpayers and residents of a separate property state, elect to file a joint return for Year 4 during which they received the following dividends: Received byJackJoanAlert Corporation (a qualified, domestic corporation)$400$50Canadian Mines, Inc. (a Canadian company)300Eternal Life Mutual Insurance Company (dividends on life insurance policy)200 Total dividends received to date on the life insurance policy do not exceed cumulative premiums paid. For Year 4, what amount should the Mitchells report on their joint return as dividend income?

$750

John and Mary were divorced in 2017. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child's 18th birthday. During 2021, their child turned 18 and John paid $7,000 directly to Mary and $3,000 to Spring College for Mary's tuition. What amount of these payments should be reported as income in Mary's 2021 income tax return?

$8,000

Amy Finch had the following cash receipts during Year 4: Dividend from a mutual insurance company on a life insurance policy$500Dividend on listed corporation stock; payment date by corporation was December 30, Year 3, but Amy received the dividend in the mail on January 2, Year 4875 Total dividends received to date on the life insurance policy do not exceed the aggregated premiums paid by Amy. How much should Amy report for dividend income for Year 4?

$875

Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is mandatory for a sole proprietor when there are

Accounts receivable for services rendered: NO Year-end merchandise inventories: NO

An applicable financial statement is a statement that conforms to GAAP and is: - Reported in a 10 K. - Filed with a federal agency (but not for tax purposes). - Conforms to International Financial Reporting Standards (IFRS). - All of the above.

All of the above.

Hall, a divorced person and custodian of her 12-year-old child, filed her 2021 federal income tax return as head of a household. She submitted the following information to the CPA who prepared her 2021 return: Hall earned a salary of $25,000 in 2021. Hall was not covered by any type of retirement plan but contributed $2,000 to an IRA in 2021. Hall's $2,000 contribution to an IRA should be treated as

An adjustment to income in arriving at adjusted gross income.

In calculating the tax of a corporation for a short period, which of the following processes is correct?

Annualize income and calculate the tax on annualized income, then multiply the computed tax by the number of months in the short period divided by 12.

A calendar-year individual is eligible to contribute to a deductible IRA. The taxpayer obtained a six-month extension to file until October 15 but did not file the return until November 1. What is the latest date that an IRA contribution can be made in order to qualify as a deduction on the prior year's return?

April 15

Sanderson has made deductible contributions to his traditional IRA for many years. Sanderson recently retired at age 60 and received a distribution of $150,000. In which way, if any, will the distribution be taxed?

As ordinary income.

In year 2, Carson was hired as an employee of Barton Co. As part of his employment contract, Barton provided a company car for Carson's spouse, Mary, who is not employed. The value for the use of the automobile in year 2 was $8,000. Carson does not use the automobile. Carson and Mary file separate individual income tax returns. What amounts, if any, should be reported as a taxable fringe value on Carson and Mary's year 2 income tax returns for personal use of the automobile?

Carson $8,000; Mary $0

In January, Year 2, Joan Hill bought one share of Orban Corp. stock for $300. On March 1, Year 2, Orban distributed one share of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1, Year 2, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. After the distribution of the preferred stock, Joan's basis for her Orban stocks are

Common: $225 Preferred: $75

Under a "cafeteria plan" maintained by an employer,

Participants may select their own menu of benefits.

Hall, a divorced person and custodian of her 12-year-old child, filed her 2021 federal income tax return as head of a household. She submitted the following information to the CPA who prepared her 2021 return: The divorce agreement, executed in 2017, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child reaches 18, the monthly payments are to be reduced to $2,400 and are to be continued until remarriage or death. However, for the year 2021, Hall received a total of only $5,000 from her former husband. Hall paid an attorney $2,000 in 2021 in a suit to collect the alimony owed. In June 2019, Hall's mother gifted her 100 shares of a listed stock. The donor's basis for this stock, which she bought in 2002, was $4,000, and market value on the date of the gift was $3,000. Hall sold her stock in July 2021 for $3,500. The donor paid no gift tax. During 2021, Hall spent a total of $1,000 for state lottery tickets. Her lottery winnings in 2021 totaled $200. Hall earned a salary of $25,000 in 2021. Hall was not covered by any type of retirement plan, but contributed $2,000 to an IRA in 2021. In 2021, Hall sold an antique that she bought in 1996 to display in her home. Hall paid $800 for the antique and sold it for $1,400, using the proceeds to pay a court-ordered judgment. Hall paid the following expenses in 2021 pertaining to the home that she owns: realty taxes, $3,400; mortgage interest, $7,000; casualty insurance, $490; assessment by city for construction of a sewer system, $910; interest of $1,000 on a personal, unsecured bank loan, the proceeds of which were used for home improvements. Hall does not rent out any portion of the home. What amount should be reported in Hall's 2021 return as alimony income?

$0

Robert Hall served in the U.S Army and received a full medical discharge and was declared 100% disabled. Robert had accrued $35,000 in student loans prior to his service in the military. During the current year, the student loan was completely forgiven. The loan has an applicable federal interest rate of 5.9%. How much of the loan and interest must Robert include in gross income?

$0

The following year-1 annual report was received by Clark from the qualified-defined contribution plan provided by Clark's employer: Beginning balance$12,700Employer contribution600Plan earnings 250Ending balance$13,550 What income must be included in Clark's gross income for year 1?

$0

A single individual age 67 had adjusted gross income of $60,000 exclusive of social security benefits. He received social security benefits of $8,400 and interest of $1,000 on tax-exempt obligations. What amount of social security benefits is excludable from his taxable income?

$1,260 PI = AGI + tax-exempt interest + 50% (SSB) PI = $60,000 + $1,000 + 50% (8,400) = $65,200. Since PI ($65,200) exceeds Base Amount 2 ($34,000), then the taxable amount of SSB is the lesser of: .85 × SSB ($8,400) = $7,140, or .85 × [PI - BA2; $65,200 − $34,000) = $26,520, plus the lesser ofamount included based on the 50% formula (50% × $8,400) = $4,200, or$4,500 (unless married filing joint, then $6,000), which provides $26,520 + $4,200 = $30,720 for part b of the formula. Thus, the amount included in income is the lower of $7,140 or $30,720, so the amount excluded is $1,260 ($8,400 − $7,140).

Jensen reported the following items during the current year: Fair rent value of a condominium owned by Jensen's employer $1,400 Cash found in a desk purchased for $30 at a flea market $400 Inheritance $11,000 The employer allowed Jensen to use the condominium for free in recognition of outstanding achievement. Based on this information, what is Jensen's gross income for the year?

$1,800

In Year 10, Clark filed Form 1040 for the Year 9 taxable year. Clark did not itemize his deductions. In Year 10, Clark received a state income tax refund of $900 plus interest of $10 for overpayment of Year 9 state income tax. What amount of the state tax refund and interest is taxable in Clark's Year 10 federal income tax return?

$10

Donald and Daisy created a 529 Educational Savings Plan when their first child, Duke, was born. Duke attends Mallard Private School and is in the second grade. To help with the tuition costs, how much may Donald and Daisy withdraw from the 529 plan in the current year?

$10,000

Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term-life insurance at twice Johnson's salary. The annual IRS-established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income?

$100,414

A 33-year-old taxpayer withdrew $30,000 (pretax) from a traditional IRA. The taxpayer has a 33% effective tax rate and a 35% marginal tax rate. What is the total tax liability associated with the withdrawal?

$13,500

Fuller was the owner and beneficiary of a $200,000 life insurance policy on a parent. Fuller sold the policy to Decker, for $25,000. Decker paid a total of $40,000 in premiums. Upon the death of the parent, what amount must Decker include in gross income?

$135,000

Lake Corp., an accrual-basis calendar-year corporation, had the following Year 1 receipts: Year 2 advanced rental payments where the lease ends in Year 2$125,000Lease cancellation payment from a 5-year lease tenant50,000 Lake had no restrictions on the use of the advanced rental payments and renders no services. What amount of income should Lake report on its Year 1 tax return?

$175,000

A retiree invested $100,000 in an annuity that pays $12,000 annually for 10 years. What portion of the first payment should be included in the retiree's gross income?

$2,000

Ola Associates is a limited partnership engaged in real estate development. Hoff, a civil engineer, billed Ola $40,000 in Year 9 for consulting services rendered.In full settlement of this invoice, Hoff accepted a $15,000 cash payment plus the following: Fair market value Carrying amount on Ola's books 3% limited partnership interest in Ola$10,000N/ASurveying equipment7,000$3,000 What amount should Hoff, a cash-basis taxpayer, report in his Year 9 return as income for the services rendered to Ola?

$32,000

Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year: Wages$22,000 Unemployment compensation6,000 Pension distribution (100% taxable) 4,000 A state tax refund from the previous year 425 What is Randolph's gross income?

$32,000

In the current year, Essex sold land with a basis of $80,000 to Yarrow for $100,000. Yarrow paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Essex include in gross income for the year of sale?

$5,000

Klein, a master's degree candidate at Briar University, was awarded a $12,000 scholarship from Briar. The scholarship was used to pay Klein's university tuition and fees. Klein also received $5,000 for teaching two courses at a nearby college. What amount is includible in Klein's gross income?

$5,000

John invested $2,000 a year into his retirement plan from his before tax earnings (that is, he received a deduction for these contributions and was not taxed on the income). His employer contributed $3,000 a year to John's retirement fund. After 30 years of contributions, John retires and receives a distribution, which is not tax-free, of $350,000, the balance in his retirement fund. John must include what amount in gross income?

$350,000

Kay received interest income as follows: On U.S. Treasury certificates $4,000 On refund of the prior year's federal income tax $500 The total amount of interest subject to tax in Kay's tax return is

$4,500

Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 30 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amounts should be reported in Mel's gross income for the year?

$4,800

Porter was unemployed for part of the year in Year 9. Porter received $35,000 in wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer's company-paid supplemental unemployment benefit plan. What is the amount of Porter's gross income in Year 9?

$41,000

Micro Corp., a calendar year, accrual basis corporation, purchased a 5-year, 8%, $100,000 taxable corporate bond for $108,530, on July 1, Year 8, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro's Year 8 tax return, the bond premium amortization for Year 8 should be I. Computed under the constant yield to maturity method. II. Treated as an offset to the interest income on the bond.

Both I and II.

Which payment(s) is(are) included in a recipient's gross income? I. Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree. II. A grant to a Ph.D. candidate for his participation in a university-sponsored research project for the benefit of the university.

Both I and II.

Which of the following is correct concerning the LIFO method (as compared to the FIFO method) in a period when prices are rising?

Current tax liability is lower and cost of goods sold is higher.

Dale received $1,000 in Year 8 for jury duty.In exchange for regular compensation from her employer during the period of jury service, Dale was required to remit the entire $1,000 to her employer in Year 8. In Dale's Year 8 income tax return, the $1,000 jury duty fee should be

Deducted from gross income in arriving at adjusted gross income.

Davis, a sole proprietor with no employees, has a Keogh profit-sharing plan to which he may contribute 25% of his annual earned income. For this purpose, "earned income" is defined as net self-employment earnings reduced by the

Deductible Keogh contribution and one-half of the self-employment tax.

Lyle Corp. is a distributor of pharmaceuticals and sells only to retail drug stores. Lyle received unsolicited samples of nonprescription drugs from a manufacturer. Lyle donated these drugs to a qualified exempt organization and deducted their fair market value as a charitable contribution. What should be included as gross income in Lyle's return for receipt of these samples?

Fair market value

In Year 6, Farb, a cash-basis individual taxpayer, received an $8,000 invoice for personal property taxes. Believing the amount to be overstated by $5,000, Farb paid the invoiced amount under protest and immediately started legal action to recover the overstatement.In November Year 7, the matter was resolved in Farb's favor, and he received a $5,000 refund. Farb itemizes his deductions on his tax returns. Which of the following statements is correct regarding the deductibility of the property taxes?

Farb should deduct $8,000 in his Year 6 income tax return and should report the $5,000 refund as income in his Year 7 income tax return.

In January, Year 6, Joan Hill bought one share of Orban Corp. stock for $300. On March 1, Year 6, Orban distributed one share of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1, Year 6, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. The holding period for the preferred stock starts in

January, Year 6.

The 20% of Qualified Business income deduction typically applies to which of the following types of business?

Manufacturing.

Under the uniform capitalization rules applicable to property acquired for resale, which of the following costs should be capitalized with respect to inventory if no exceptions are met?

Marketing costs: NO Off-site storage costs: YES

Marc Clay was unemployed for the entire year 3. In January, Year 4, Clay obtained full-time employment 60 miles away from the city where he had resided during the 10 years preceding Year 4. Clay kept his new job for the entire year 4. In January, Year 4, Clay paid direct moving expenses of $1,300 in relocating to his new city of residence, but he received no reimbursement for these expenses. In his Year 4 income tax return, Clay's direct moving expenses are

Not deductible.

Clark bought series EE U.S. Savings Bonds in the current year. Redemption proceeds will be used for payment of college tuition for Clark's dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the

Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse).

Benjamin is currently employed at Seaside Fish Company, a privately owned company. Benjamin owns less than 1% of Seaside, and he received a Qualified Equity Grant as compensation for services in Year 9. Assuming he makes the appropriate election, what is the latest date that Benjamin may be able to report income from the grant?

year 14

In Year 2, Stewart Corp. properly accrued $5,000 for an income item on the basis of a reasonable estimate. In Year 3, after filing its Year 2 federal income tax return, Stewart determined that the exact amount was $6,000. Which of the following statements is correct?

The $1,000 difference is includible in Stewart's income tax return.

In Year 7, Brun Corp. properly accrued $10,000 for an income item on the basis of a reasonable estimate. In Year 8, Brun determined that the exact amount was $12,000. Which of the following statements is correct?

The $2,000 difference is includible in Brun's Year 8 income tax return.

Which of the following statements is correct with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?

The bond's basis is reduced by the amortization.

Howard O'Brien, an employee of Ogden Corporation, died on June 30, Year 5. During July, Ogden made employee death payments (which do not represent the proceeds of life insurance) of $10,000 to his widow and $10,000 to his 15-year-old son. What amounts should be included in gross income by the widow and son in their respective tax returns for Year 5?

Widow: $10,000 Son: $10,000