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Exam 5: Gross Income and Exclusions

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Question 21

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Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($3,700) , her emotional distress ($6,000-she now fears peanut butter) , and punitive damages ($44,000) . What amount must Pam include in her gross income?

A) $44,000
B) $50,000
C) $47,700
D) $9,700
E) $0-none of these benefits are included in gross income.

F) B) and D)
G) None of the above

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Question 22

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Cyrus is a cash method taxpayer who reports on a calendar-year basis. Last year Cyrus received salary of $112,000 and at year-end his employer announced that Cyrus would receive an additional year-end bonus of $18,000 in cash and a new TV worth $4,200. Cyrus didn't receive his bonus check until January of this year and the TV didn't arrive until March of this year. Determine the amount Cyrus should include in his gross income for last year.

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Question 23

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

Interest income is taxed in the year in which it is received by the taxpayer or credited to the bank account.

In January of the current year, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. Several months later in the same year after the gift, a $500 dividend was declared on the stock and paid to Dora's granddaughter. What amount must Dora's granddaughter include in her gross income for the current year?

Juan works as a landscaper for local businesses on weekends, and he often provides services in exchange for property. This year Juan provided lawn-mowing services in exchange for $2,140 of car repair services, $5,400 of groceries, and a certificate of deposit (CD)for $4,200. The CD matures next year with interest. Finally, Juan received a gift card that can only be applied for $950 of clothing at a local mall. Juan has only applied the gift card to purchase $201 of clothing. Compute Juan's gross income, assuming that he uses the cash basis of accounting.

Fran purchased an annuity that provides $10,200 quarterly payments for the next 10 years. The annuity was purchased at a cost of $306,000. How much of the first quarterly payment will Fran include in her gross income?

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates, Attorneys at Law. The scholarship pays Simon's tuition ($7,000 per semester)and fees ($500 per semester)and provides a $4,500 per-semester stipend to pay for food and housing. In order to qualify for the stipend, Simon must work 10 hours per week at Gary Harris & Associates during the term. How much of the scholarship is Simon required to include in gross income?

Andres has received the following benefits this year. Besides these benefits Andres missed work for two months due to an illness. During his illness Andres received $7,810 in sick pay from a disability insurance policy. Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit. What amount, if any, must Andres include in gross income this year?

This year Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale.

Interest earned on a federal Treasury bond is excluded from gross income (for federal tax purposes).

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

The assignment of income doctrine requires that in order to shift income from the property producing the income to another person, the taxpayer must transfer only the income to the other person.

J.Z. (single taxpayer)is retired and received $10,000 of Social Security benefits this year. How much of the $10,000 Social Security benefits are taxable if his only other income was $28,000 of pension income?

To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years. The annuity was purchased at a cost of $300,000. How much of the first quarterly payment will Fran include in her gross income?

This year Ann has the following stock transactions. What amount is included in her gross income if Ann paid a $285 selling commission for each sale?

Lisa and Collin are married. Lisa works as an engineer and earns a salary of $193,000. Collin works at a beauty salon and reported wages of $78,000. Lisa received $800 of interest from corporate bonds and $325 of interest from a municipal bond. Lisa acquired these bonds prior to her marriage to Collin. Collin's father passed away on April 14. He inherited cash of $54,500 and his baseball card collection, valued at $2,150. As beneficiary of his father's life insurance policy, Collin also received $156,000. The couple spent a weekend in Atlantic City in November and came home with gambling winnings of $2,170. Collin was injured in an accident at the salon. He was unable to work for a month, but during this time he received $6,940 from disability insurance he purchased several years ago. Collin also received $2,230 in workers' compensation, and $1,640 from the salon for the emotional trauma he suffered from the accident. Calculate Lisa and Collin's gross income for this year, assuming they will file married filing jointly.