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Exam 5: Gross Income and Exclusions

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Question 71

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Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services. Which of the following is a true statement?

A) Hillary is taxed on the $5,000 of service income in the year she cashes the check.
B) Hillary is taxed on the $5,000 of service income in the year the check was mailed.
C) Hillary is taxed on the $5,000 of service income in the year she receives the check.
D) Hillary is taxed on the $5,000 of service income in the year she provides the services.
E) None of these is true.

F) A) and E)
G) A) and B)

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Question 72

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Shaun is a student who has received an academic scholarship to State University. The scholarship paid $14,000 for tuition, $2,500 for fees, and $1,000 for books. In addition, Shaun's dormitory fees of $8,500 were paid by the University when he agreed to counsel freshman on campus living. What amount must Shaun include in his gross income?

A) $9,500
B) $11,000
C) $2,500
D) $8,500
E) Zero - None of these benefits is included in gross income

F) A) and B)
G) B) and E)

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Question 73

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This year Ed celebrated his 25th year as an employee of Designer Jeans Company. In recognition of his long and loyal service, the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus. What amount must Ed include in his gross income?

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income? $\begin{array} { l r } \underline{\text { Benefits Received } }& \underline{\text { Amount }} \\\text { Salary } & \$ 54,450 \\\text { Health insurance } & 2,900 \\\text { Group term life insurance } ( \$ 50,000 ) & 1,800\end{array}$

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?

Trevor received a gift of $25,000 in cash from his rich uncle. Trevor must include $15,000 of this gift in his gross income this year.

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

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

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

Blake is a limited partner in Kling-On Partners. This year Kling-On reported that Blake's share of dividend income was $3,700 and his share of municipal interest was $2,750. Early this year Blake found a bundle of $100 bills in the alley outside his apartment. When no one claimed the money, the cash (a total of $2,400) was returned to Blake. Finally, Blake earned salary of $42,000 but almost $6,500 was withheld for income taxes and FICA tax. Compute Blake's realized income and 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?