Question 1

Excluded income will never be subject to the federal income tax.

Accepted Answer

A) True 
 B)False

Question 2

Ben's employer offers employees the following benefits.What amount must Ben include in his gross income?

Accepted Answer

A)  $9,400
B)  $11,070
C)  $10,600
D)  $7,000
E)  Zero - none of these benefits is included in gross incomeF) C) and E)
G) All of the above

Question 3

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Accepted Answer

A) True 
 B)False

Question 4

This year,Fred and Wilma sold their home (sales price $750,000;cost $200,000)  .All closing costs were paid by the buyer.Fred and Wilma owned and lived in their home for 20 years.How much of the gain is included in gross income?

Accepted Answer

A)  $550,000
B)  $300,000
C)  $250,000
D)  $50,000
E)  NoneF) A) and B)
G) B) and D)

Question 5

Sally is a cash basis taxpayer and a member of the Valley Barter club.This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets.Which of the following is a true statement?

Accepted Answer

A)  Sally need not recognize any gross income unless she sells the football tickets.
B)  Sally's exchange does not result in taxable income.
C)  Sally is taxed on the value of the football tickets even if she cannot attend the game.
D)  Sally is taxed on the value of her sewing services only if she is a professional seamstress.
E)  All of these are truE.Gross income includes the value of property received in exchange for services.F) D) and E)
G) None of the above

Question 6

Brad was disabled for part of the year and he received $11,500 of benefits from a disability plan purchased by Brad's employer.Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Accepted Answer

A) True 
 B)False

Question 7

Karl works at Moe's grocery.This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost.This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000.What amount must Karl include in his gross income?

Accepted Answer

A)  $46,600
B)  $47,000
C)  $49,000
D)  $43,400
E)  $45,500F) A) and B)
G) A) and C)

Question 8

Recognized income may be in the form of cash or property received (but not services received) .

Accepted Answer

A) True 
 B)False

Question 9

The tax law includes a complex set of restrictions called the anti-frontloading rules to make it difficult for taxpayers to disguise property payments as alimony payments.

Accepted Answer

A) True 
 B)False

Question 10

Rental income generated by a partnership is reported by partners as dividend income.

Accepted Answer

A) True 
 B)False

Question 11

NeNe is an accountant who works for a multinational firm this year and spent the entire year working overseas.NeNe's employer paid $40,000 of her overseas housing expenses this year.What amount of the $40,000 housing payments may NeNe exclude?

Accepted Answer

A)  NeNe can exclude all of the housing payment because she worked more than 330 days overseas
B)  15,616
C)  24,384
D)  13,664
E)  None of her salary can be excluded from gross income because NeNe must reside overseas for two consecutive years to receive an exclusion.F) A) and D)
G) A) and C)

Question 12

Barter clubs are an effective means of avoiding realization for tax purposes.

Accepted Answer

A) True 
 B)False

Question 13

Rhett made his annual gambling trip to Uwin Casino.On this trip Rhett won $250 at the slots and $1,200 at poker.Also this year,Rhett made several trips to the race track,but he lost $700 on his various wagers.What amount must Rhett include in his gross income?

Accepted Answer

A)  $1,450
B)  $1,200
C)  $750
D)  $250
E)  Zero - gambling winnings are not included in gross incomeF) All of the above
G) A) and B)

Question 14

A portion of each payment from a purchased annuity represents income.

Accepted Answer

A) True 
 B)False

Question 15

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant.Ethan indicated that he would transfer the prize to the local hospital.How much of the prize should Hal include in his gross income?

Accepted Answer

A)  $25,000
B)  $25,000 because all prizes are taxable
C)  Zero because prizes transferred to charities are excludible
D)  Zero because all prizes are excludible
E)  Zero because prizes from charities are excludibleF) D) and E)
G) A) and E)

Question 16

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Accepted Answer

A)  The expected return is divided by the number of payments.
B)  The original investment is divided by the prevailing interest rate.
C)  The original investment is divided by the number of payments.
D)  The expected return is divided by the prevailing interest rate.
E)  None of theseF) A) and B)
G) B) and E)

Question 17

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Accepted Answer

A) True 
 B)False

Question 18

Gross income includes

Accepted Answer

A)  all income from whatever source derived unless excluded by law
B)  excluded income
C)  deferred income
D)  all realized income
E)  All of theseF) A) and D)
G) None of the above

Question 19

When a carpenter provides $100 of services in exchange for $100 of groceries,the carpenter has realized $100 of income.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a true statement about the first payment received from a purchased annuity?

Accepted Answer

A)  The payment is included in gross income.
B)  A portion of the payment is a return of capital.
C)  The payment can only be taxed in the year after the annuity was purchased.
D)  The payment is not taxed until the annuity payments cease altogether.
E)  All of theseF) B) and D)
G) D) and E)

Exam 5: Gross Income and Exclusions

When a carpenter provides $100 of services in exchange for $100 of groceries,the carpenter has realized $100 of income.

Correct AnswerverifiedShow Answer

Gross income includes

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Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Correct AnswerverifiedShow Answer

Karl works at Moe's grocery.This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost.This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000.What amount must Karl include in his gross income?

Correct AnswerverifiedShow Answer

Excluded income will never be subject to the federal income tax.

Correct AnswerverifiedShow Answer

NeNe is an accountant who works for a multinational firm this year and spent the entire year working overseas.NeNe's employer paid $40,000 of her overseas housing expenses this year.What amount of the $40,000 housing payments may NeNe exclude?

Correct AnswerverifiedShow Answer

Rental income generated by a partnership is reported by partners as dividend income.

Correct AnswerverifiedShow Answer

Barter clubs are an effective means of avoiding realization for tax purposes.

Correct AnswerverifiedShow Answer

Which of the following is a true statement about the first payment received from a purchased annuity?

Correct AnswerverifiedShow Answer

Recognized income may be in the form of cash or property received (but not services received) .

Correct AnswerverifiedShow Answer

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Correct AnswerverifiedShow Answer

The tax law includes a complex set of restrictions called the anti-frontloading rules to make it difficult for taxpayers to disguise property payments as alimony payments.

Correct AnswerverifiedShow Answer

This year,Fred and Wilma sold their home (sales price $750,000;cost $200,000) .All closing costs were paid by the buyer.Fred and Wilma owned and lived in their home for 20 years.How much of the gain is included in gross income?

Correct AnswerverifiedShow Answer

Rhett made his annual gambling trip to Uwin Casino.On this trip Rhett won $250 at the slots and $1,200 at poker.Also this year,Rhett made several trips to the race track,but he lost $700 on his various wagers.What amount must Rhett include in his gross income?

Correct AnswerverifiedShow Answer

Brad was disabled for part of the year and he received $11,500 of benefits from a disability plan purchased by Brad's employer.Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Correct AnswerverifiedShow Answer

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Correct AnswerverifiedShow Answer

Ben's employer offers employees the following benefits.What amount must Ben include in his gross income?

Correct AnswerverifiedShow Answer

Sally is a cash basis taxpayer and a member of the Valley Barter club.This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets.Which of the following is a true statement?

Correct AnswerverifiedShow Answer

A portion of each payment from a purchased annuity represents income.

Correct AnswerverifiedShow Answer

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant.Ethan indicated that he would transfer the prize to the local hospital.How much of the prize should Hal include in his gross income?

Correct AnswerverifiedShow Answer

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