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Exam 4: Gross Income Concepts and Inclusions

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Question 61

Multiple Choice

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Turner,Inc. ,provides group term life insurance to the officers of the corporation only.Janet,a vice-president,received $450,000 of coverage for the year at a cost to Turner,Inc.of $5,600.The Uniform Premiums (based on Janet's age) are $15 a year for $1,000 protection.How much of this must Janet include in gross income this year?

A) $0.
B) $2,700.
C) $5,600.
D) $6,000.
E) None of these.

F) A) and B)
G) A) and C)

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Question 62

True/False

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ABC Corporation declared a dividend for taxpayers of record as of December 24,2015.The dividend checks were mailed on December 31,2015.Ed,a cash basis shareholder,received the dividend check on January 2,2016.Ed cannot delay reporting the income from the dividend until 2016.

A) True
B) False

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Question 63

Multiple Choice

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With respect to income from services,which of the following is true?

When stock is sold after the date of declaration but before the record date,the buyer must recognize as income the dividend declared.

Ted and Alice were in the process of negotiating a divorce agreement.They own bonds with a basis of $800,000 and a fair market value of $800,000.They also own common stock with a basis of $600,000 and a fair market value of $800,000.Alice is trying to decide whether to bargain to receive the bonds or the stock.She has no plans for selling the bonds or stock,whichever she receives. a.Which would you advise Alice to receive? b.From Ted's perspective,are the assets of equal value?

On January 1,2016,an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months.The amount received for the contract was $2,400.The taxpayer should report $1,600 of income in 2017.

In all community property states,the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

Betty purchased an annuity for $24,000 in 2016.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.

On November 1,2016,Bob,a cash basis taxpayer,gave Dave common stock.On October 30,2016,the corporation had declared the dividend payable to shareholders of record as of November 22,2016.The dividend was paid on December 15,2016.The corporation has paid the $1,200 dividend once each year for the past ten years,during which Bob owned the stock.When Dave collected the dividend on December 15,2016:

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 1,2016,the company sold a one-year membership and a two-year membership.The company should report as gross income from the two contracts:

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.

Lois,who is single,received $9,000 of Social Security benefits.She also received $25,000 from dividends,interest,and her employer's pension plan.If Lois sells a capital asset that produces a $1,000 recognized loss,Lois's taxable income will decrease by more than $1,000.

Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill.Detroit had created its goodwill through providing high-quality services to its customers.Thus,no basis for the goodwill appeared on Detroit's balance sheet.The suit was settled and Detroit received $1,500,000 for the damages to its goodwill.

Wayne owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership) .For tax year 2016,the partnership earned revenue of $900,000 and had operating expenses of $660,000.During the year,Wayne withdrew from the partnership a total of $90,000.He also invested an additional $30,000 in the partnership.For 2016,Wayne's gross income from the partnership is:

Under the alimony rules:

In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

Mark a calendar year taxpayer,purchased an annuity for $50,000 in 2014.The annuity was to pay him $3,000 on the first day of each year,beginning in 2014,for the remainder of his life.Mark's life expectancy at the time he purchased the annuity was 20 years.In 2016 Mark developed a deadly disease,and doctors estimated that he would live for no more than 24 months.

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?

Tim and Janet were divorced.Their only marital property was a personal residence with a value of $120,000 and cost of $50,000.Under the terms of the divorce agreement,Janet would receive the house and Janet would pay Tim $15,000 each year for 5 years,or until Tim's death,whichever should occur first.Tim and Janet lived apart when the payments were made to Tim.The divorce agreement did not contain the word "alimony."

Under the terms of a divorce agreement,Ron is to pay his former wife Jill $10,000 per month.The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18.During the current year,Ron paid $120,000 under the agreement.Assuming all of the other conditions for alimony are satisfied,Ron can deduct from gross income (and Jill must include in gross income) as alimony: