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Exam 5: Gross Income and Exclusions

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Question 61

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Wilma has a $25,000 certificate of deposit (CD) at the local bank. The interest on this certificate, $1,000, was credited to her account this year but she must pay an early withdrawal penalty if she cashes in the CD before next year. Which of the following is a True statement?

A) Wilma must include the $1,000 of interest in her income this year.
B) Wilma must include the $1,000 of interest in her income when she cashes the CD.
C) Wilma must include the $1,000 of interest in her income this year only if the bank waives the early withdrawal penalty.
D) Wilma must include the $1,000 of interest in her income next year if she does not pay the early withdrawal penalty.
E) All of the choices are correct.

F) A) and D)
G) B) and D)

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Question 62

Multiple Choice

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Kevin provided services to several clients this year who paid with different types of property. Which of the following payments is not included in Kevin's gross income?

A) Cash.
B) Shares of stock listed on the New York Stock Exchange.
C) A used car.
D) Gold coins.
E) All of these are included in gross income.

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

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Question 63

Multiple Choice

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Which of the following statements about alimony payments is True for divorce agreements executed before 2019?

Jim received a $500 refund of state income taxes this year. Jim will not need to include the $500 in his gross income this year if he did not deduct state income taxes last year.

Regardless of when a divorce agreement is executed, alimony is included in gross income of the recipient and deductible for AGI by the payor.

Bobby and Sissy got married 2.5 years ago. Since that time, they have lived in Bobby's home. Sissy sold her previous home three years ago and excluded her entire gain ($80,000) at that time. Bobby and Sissy decided to move to a bigger home this year. As a result, they sold Bobby's home for $500,000 (original cost $150,000). How much of the gain from the sale is taxable?

This year Ann has the following stock transactions. What amount is included in her gross income if Ann paid a $200 selling commission for each sale?

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

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

Jack and Jill are married. This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married-filing-separate from Jill?

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 as a condition of receiving the dormitory fees to counsel freshman on campus living. What amount must Shaun include in his gross income?

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

U.S. citizens generally are subject to tax on all income whether it is generated in the United States or in foreign countries.

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

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

This year Zach was injured in an auto accident. As a result, he received the following payments. Zach received $18,000 of disability pay. Zach has disability insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premiums for Zach this year. Zach's hospital bills totaled $4,500 and were paid by his health insurance. Zach has health insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $6,250 in health insurance premiums for Zach this year. What amount must Zach include in his gross income?

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?

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $80 payment will George include in his gross income?

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

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), fees ($500 per semester), and 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?