FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 4: Gross Income

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

On January 1, 2017, 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 2018.

A) True
B) False

Correct Answer

verified

True

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

A) Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B) Sue is not required to recognize gross income from the receipt of the funds, but she must reduce her cost basis in the land by $2,000.
C) Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D) Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000.
E) None of these.

F) A) and D)
G) A) and C)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

An advance payment received in June 2017 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

The Green Company, an accrual basis taxpayer, provides business-consulting services.Clients generally pay a retainer at the beginning of a 12-month period.This entitles the client to no more than 40 hours of services.Once the client has received 40 hours of services, Green charges $500 per hour.Green Company allocates the retainer to income based on the number of hours worked on the contract.At the end of the tax year, the company had $50,000 of unearned revenues from these contracts.The company also had $10,000 in unearned rent income received from excess office space leased to other companies.Based on the above, Green must include in gross income for the current year:

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.

Katherine is 60 years old and is bargaining with her employer over deferred compensation.In exchange for reducing her current year's salary by $50,000, she can receive a lump-sum amount in 5 years, when she will retire.If she receives the $50,000 in the current year, she will invest in certificates of deposit that yield 5%.Katherine is in the 28% marginal tax bracket in all relevant years.What is the minimum amount Katherine should accept as a deferred pay option? [Hint: the compound interest factor is 1.1934.]

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

The tax concept and economic concept of income are in agreement on which of the following:

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?

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

Mel was the beneficiary of a $45,000 group term life insurance policy on his wife.His wife's employer paid all of the premiums on the policy.Mel used the life insurance proceeds to purchase a United States Government bond, which paid him $2,500 interest during the current year.Mel's Federal gross income from the above is $2,500.

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

Mike contracted with Kram Company, Mike's controlled corporation.Mike was a medical doctor and the contract provided that he would work exclusively for the corporation.No other doctor worked for the corporation.The corporation contracted to perform an operation for Rosa for $8,000.The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

Zork Corporation was very profitable and had accumulated excess cash.The company decided to repurchase some of its bonds that had been issued for $1,000,000.Because of an increase in market interest rates, Zork was able to retire the bonds for $900,000.The company is not required to recognize $100,000 of income from the discharge of its indebtedness but must reduce the basis in its assets.

Maroon Corporation expects the employees' income tax rates to increase next year.The employees use the cash method.The company presently pays on the last day of each month.The company is considering changing its policy so that the December salaries will be paid on the first day of the following year.What would be the effect on an employee of the proposed change in company policy for paying its salaries beginning December 2017?

Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00, when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.

The alimony rules:

Daniel purchased a bond on July 1, 2017, at par of $10,000 plus accrued interest of $300.On December 31, 2017, Daniel collected the $600 interest for the year.On January 1, 2018, Daniel sold the bond for $10,200.

Travis and Andrea were divorced.Their only marital property consisted of a personal residence (fair market value of $400,000, cost of $200,000) , and publicly-traded stocks (fair market value of $800,000, cost basis of $500,000) .Under the terms of the divorce agreement, Andrea received the personal residence and Travis received the stocks.In addition, Andrea was to receive $50,000 for eight years. I) If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years) , the payments will qualify as alimony. II) Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash. III) If Travis sells the stocks for $900,000, he must recognize a $400,000 gain.