Nathaniel was recently diagnosed with a brain tumor and it has been determined by his doctor that he is "terminally ill" and has less than 2 years to live. Nathanial owns a life insurance policy with a face value of $500,000. He sells his insurance policy for $440,000. How much income must Nathaniel report related to his sale?
Lissi is a student at Apple University and she received the following payments during the year to help support her education:
$2,000 scholarship from Apple University.
$3,000 scholarship from a scholarship fund at her mother's place of employment.
$2,500 from her parents.
The funds were used to pay $4,000 of tuition and fees and $800 for books for her courses. The remaining amounts were used for her living expenses.
How much gross income does Lissi have from these transactions?
Damon received a gift of stock from a friend as a graduation gift. At the date of gift the stock had a basis of $1,200 and fair market value of $800. Damon's friend had owned the stock for four years. Three months after receiving the gift Damon sells the stock for $1,000. What is Damon's recognized gain or loss from the sale?
$ 200 gain
$ 200 loss
No gain or loss.
Kristi and Van adopted a two-year old child this year. They incurred $9,500 of qualified adoption expenses related to the adoption. Van's employer, GH Industries, maintains an adoption assistance program and reimbursed Van $7,000 for these costs. Kristi and Van's adjusted gross income for the year is $52,000. How much income do Kristi and Van need to report on their federal income tax return?
Vet, Inc. provides an award to its employees who have achieved consecutive years of service of 5, 10, 15, 20, and 25 years through a qualified plan. All awards are given at the company picnic in July. Barney has worked as a receptionist for Vet for 15 years and received a new clock which has a fair market value of $2,100. How much income must Barney report for the receipt of the boots?
Which of the following is an example of a completely nontaxable fringe benefit for Lori, an employee of WORK, Inc.? WORK owns a division that operates an airline and another division that owns vacation resorts. Lori works for the airline division.
Group term life insurance of $200,000
Reimbursement of $225 for her subscription to Air Travel Business Journal.
Free lodging at a resort in Florida when the resort had an occupancy rate of 65%.
Free use of a company owned vehicle for three weeks while her car was being repaired.
Wang is a 43-year old computer programmer who earns an annual salary of $80,000. His employer provides group-term life insurance coverage at twice the annual salary for all employees. The annual amount of income for each $1,000 of taxable insurance coverage for an individual 43 years old is $1.20. How much gross income must Wang report for this benefit?
Valerie receives 100 incentive stock options from her employer in Year 1 when the underlying stock has a value of $20 per share. In Year 2 she exercises all the options at the option price of $25 when the value of the stock is $28. In Year 5, the current year, Valerie sells all 100 shares for $30. How much gross income must Valerie report in Year 2 and in Year 4 when computing regular taxable income?
Which of the following businesses must use the accrual method of accounting?
I. Chicken, Inc., a restaurant chain with annual gross receipts of $6,000,000.
II. Tours, a general partnership with annual gross receipts of $450,000, that provides tours of the Sedona mountains.
III. Appraisers, Inc., a real estate appraising company, that has had average gross receipts of $900,000 since its inception three years ago.
I and II only.
I and III only.
I, II, and III.
Betty owns a duplex that she has used for rental property for the last 12 years. During the current tax year the tenants broke their lease in April and moved out. Therefore, they lost the right to receive a refund of their $400 security deposit. New tenants moved in during November and paid $600 rent for November and $600 for December, $600 for the last month of their one-year lease (non-refundable), and a $500 refundable security deposit. How much gross income does Betty recognize from these transactions?
Which of the following statements is correct with regard to changes in accounting methods for federal income tax purposes?
A taxpayer can never change a method of accounting, unless the taxpayer is changing from an incorrect method to a correct method.
A taxpayer does not need the permission of the Internal Revenue Service to change accounting methods.
Any adjustment to income required due to a voluntary change in accounting method is spread over five years beginning with the year of change.
If the change is initiated by an Internal Revenue Service examination and the change increases income, 100% of the change must be included in income for the year of the change.
Which of the following statements is false with regard to inventory valuation for federal income tax purposes?
The lower of cost or market method can be used to value inventory in certain circumstances.
A taxpayer can use FIFO to value inventory for tax purposes only if FIFO is also used for financial reporting purposes.
A taxpayer can use LIFO to value inventory for tax purposes only if LIFO is also used for financial reporting purposes.
The weighted-average method is a permissible method to use to value inventory for federal tax purposes.
Which of the following statement is false with regard to methods of accounting for tax purposes?
Regular corporations do not have restrictions on the year-end that they can choose, but partnerships and S corporations do have restriction.
Under the cash method of accounting, the taxpayer has no basis in its accounts receivables.
In general, all C corporations have the opportunity to use the cash method of accounting if they choose to do so.
Prepaid interest is usually taxed when received, even by accrual basis taxpayers.
Samuel invested $10,000 a year into his retirement plan from his before tax earnings (that is, he received a deduction for these contributions and was not taxed on the income). His employer contributed $5,000 a year to Samuel's retirement fund. After 30 years of contributions, Samuel retires and receives a distribution of $900,000, the balance in his retirement fund. Samuel must include what amount in gross income?
Which of the following statements is correct with regard to traditional IRAs and Roth IRAs?
The maximum amount of contributions allowed for any given tax year is the same for traditional and Roth IRAs.
The taxation of distributions is the same for traditional and Roth IRAs.
The rules governing the deductibility of contributions to traditional and Roth IRAs are the same.
The deadline for making contributions to IRAs is different for traditional and Roth IRAs.
Melinda has been making contributions to her daughter's 529 plan for several years to help fund her college education expenses. She has contributed $100,000 to the plan since creating it. In the current tax year her daughter, age 19, begins her undergraduate college studies at UNA University and Melinda withdraws $18,000 from the plan to pay her tuition for the year. At the time of withdrawal the balance in the plan is $150,000. How much of the distribution must Melinda include in her gross income?
Withdrawals from retirement plans before the age specified by the tax law can result in a 10% penalty unless certain requirements are met. Which of the following is not a valid reason for the 10% penalty to be waived for such distributions?
Distributions made due to death of taxpayer.
Distributions made so taxpayer could make mortgage payments on principal residence.
Distributions made due to disability of taxpayer.
Distribution made so funds could be used for first-time homebuyer expenses.
In the current tax year Rocky was nominated to receive an award for service to the local school system. No action was required on his part, either to apply for the award or if he received the award. When it was announced at a school board meeting that Rocky has been selected to receive the $1,000 award, he declined to accept the award. Rather, he asked that the funds be given to the local United Way chapter, a qualified charitable organization. Which of the following statements is true?
Rocky reports no gross income for the award and does not take a charitable contribution deduction.
Rocky reports no gross income for the award and takes a $1,000 charitable contribution deduction.
Rocky reports $1,000 gross income for the award and does not take a charitable contribution deduction.
Rocky reports $1,000 gross income and takes a $1,000 charitable contribution deduction.
Which of the following statements is correct with respect to the taxation of Social Security benefits for federal income tax purposes?
Social Security benefits received by the taxpayer are never included in gross income.
Social Security benefits received by the taxpayer may be included in gross income, but the inclusion will never exceed 85% of the benefits received.
Social Security benefits received by the taxpayer may be included in gross income, but the inclusion will never exceed 50% of the benefits received.
100% of the Social Security benefits received are included in income for all taxpayers.
Which of the following benefits provided to the employees must be included in taxable income?
SKY Airlines allows employees to fly for free if seats have not been sold within 15 minutes of the flight's departure time.
FUN Hotels allows its hotel managers to live at no charge in a hotel room directly connected to the registration area. If the managers choose to not live at the hotel they do not receive any additional cash compensation instead.
SUN has a gift shop and employees of SUN can purchase merchandise at a 30 % discount. SUN's gross profit percentage on the merchandise is 35%.
CPA Services allows employees free access to coffee and/or soda during the workday.
Lina has had several unusual events happen to her during the current tax year. Which of the following will cause her gross income to increase for tax purposes?
Her husband died this year and she received $100,000 in life insurance proceeds from a policy owned by her husband.
After having her leg severely damaged in an automobile accident, she received $50,000 for these damages from the driver who hit her car.
As a result of an automobile accident, the driver who hit her car paid Lina $25,000 in punitive damages, as ordered by the court, because the driver had been texting while driving.
Lina received $20,000 of disability income during the year on a disability policy that she took out five years ago and for which she pays the premiums.