Question 1

Which of the following is not a requirement for an alimony deduction?

Accepted Answer

A)   The payments must be in cash.
B)   The payments must cease upon the death of the payee.
C)   The payments must extend over at least three years.
D)   The payor and payee must not live in the same household at the time of the payments.
E)   All of the above are requirements for an alimony deduction.F) A) and E)
G) A) and B)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Margaret owns land that appreciates at the rate of 10% each year. Ralph owns a zero coupon (i.e., all of the interest is paid at maturity but is taxed annually)  corporate bond with a yield to maturity of 10%. At the end of 10 years, the bond will mature and the land will be sold. At the end of the 10 years,

Accepted Answer

A)   Margaret and Ralph will have accumulated the same after-tax amounts.
B)   Ralph will have accumulated a greater after-tax amount because the interest on the bond is tax-exempt.
C)   Margaret will have accumulated the greater after-tax amount because the gain on the land is tax-exempt.
D)   Margaret will have accumulated the greater after-tax amount but only if her marginal tax rate never exceeds 27%.
E)   Margaret will accumulate the greater after-tax amount because she earns a return on the deferred taxes.F) A) and B)
G) B) and E)

Question 4

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Accepted Answer

A) True 
 B)False

Question 5

Terri purchased an annuity for $100,000. She was to receive $10,000 per year and her life expectancy was 20 years. She died after receiving 8 payments. Terri's final return should reflect a loss of $20,000 ($100,000 - $80,000).

Accepted Answer

A) True 
 B)False

Question 6

On January 5, 2014, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2014, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2014:

Accepted Answer

A)   Tim must include all of the interest in his gross income.
B)   Jane must report $1,800 gross income for 2014.
C)   Jane reports $1,350 of interest income in 2014, and Tim reports $450 of interest income in 2014.
D)   Jane reports $450 of interest income in 2014, and Tim reports $1,350 of interest income in 2014.
E)   None of the above is correct.F) A) and D)
G) B) and E)

Question 7

Teal Company is an accrual basis taxpayer. On December 1, 2014, a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2015. Teal delivered the item on January 4, 2015. Teal included the sale in its 2014 income for financial accounting purposes.

Accepted Answer

A)   Teal must recognize the income in 2014.
B)   Teal must recognize the income in the year title to the goods passed to the customer, as determined under the state laws in which the store is located.
C)   Teal can elect to recognize the income in either 2014 or 2015.
D)   Teal must recognize the income in 2015.
E)   None of the above.F) B) and E)
G) A) and E)

Question 8

At the beginning of 2014, Mary purchased a 3-year certificate of deposit (CD) for $8,760. The maturity value of the certificate was $10,000 and it was to yield 4.5%. She also purchased a Series EE bond for $6,400 with a maturity value in 10 years of $10,000. Mary must recognize $1,240 of income from the certificate of deposit in 2014, and $3,600 from the Series EE bonds in 2023.

Accepted Answer

A) True 
 B)False

Question 9

The annual increase in the cash surrender value of a life insurance policy:

Accepted Answer

A)   Is taxed according to the original issue discount rules.
B)   Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
C)   Reduces the deduction for life insurance expense.
D)   Is exempt because it is life insurance proceeds.
E)   None of the above.F) B) and E)
G) A) and E)

Question 10

On January 1, Father (Dave)  loaned Daughter (Debra)  $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.

Accepted Answer

A)   If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
B)   Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income.
C)   Debra must recognize $6,090 of imputed interest income.
D)   Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income.
E)   None of the above.F) C) and D)
G) B) and E)

Question 11

Norma's income for 2014 is $27,000 from part-time work and $9,000 of Social Security benefits. Norma is not married. A portion of her Social Security benefits must be included in her gross income.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)   The fair rental value of an owner-occupied home should be included in income.
B)   The increase in value of assets held for the entire year should be included in income for the year.
C)   Rent income for 2015 collected in 2014 is income for 2014.
D)   All of the above.
E)   None of the above.F) A) and E)
G) B) and D)

Question 13

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

Accepted Answer

A)   The treatment of prepaid income is the same for tax and financial accounting.
B)   A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
C)   An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
D)   An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.
E)   None of the above.F) D) and E)
G) B) and D)

Question 14

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?

Accepted Answer

The payments should be characterized as ...

Question 15

Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon's age) , the amount is $12 per year for $1,000 of protection. The cost of an individual policy would be $15 per year for $1,000 of protection. Since Gordon paid nothing towards the cost of the $250,000 protection, Gordon must include in his 2014 gross income which of the following amounts?

Accepted Answer

A)   $1,350.
B)   $2,400.
C)   $3,000.
D)   $3,750.
E)   None of the above.F) None of the above
G) A) and E)

Question 16

Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000. Fred later sells the stock for $100,000. Fred's recognized gain from the sale of the stock is $5,000.

Accepted Answer

A) True 
 B)False

Question 17

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)   The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)   A cash basis taxpayer can spread the income from a 24-month service contract over the contract period.
C)   If an accrual basis taxpayer sells a 36­month service contract on July 1, 2014 for $3,600, the taxpayer's 2014 gross income from the contract is $600.
D)   If an accrual basis taxpayer sells a 24-month service contract on July 1, 2014, one-half (12/24)  the income is recognized in 2015.
E)   None of the above.F) A) and B)
G) None of the above

Question 19

A sole proprietorship purchased an asset for $1,000 in 2014 and its value was $1,500 at the end of 2014. In 2015, the sole proprietorship sold the asset for $1,400. The sole proprietorship realized a taxable gain of $400 in 2015 but an economic loss of $100 in 2015.

Accepted Answer

A) True 
 B)False

Question 20

The alimony recapture rules are intended to:

Accepted Answer

A)   Assist former spouses in collecting alimony when the other spouse moves to another state.
B)   Prevent tax deductions for property divisions.
C)   Reduce the net cash outflow for the payor.
D)   Distinguish child support payments from alimony.
E)   None of the above.F) A) and B)
G) B) and D)

Exam 4: Gross Income: Concepts and Inclusions

The annual increase in the cash surrender value of a life insurance policy:

Correct Answer
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Correct Answer
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Correct Answer
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Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Correct Answer
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On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.

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

Correct Answer
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The alimony recapture rules are intended to:

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

Correct Answer
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On January 5, 2014, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2014, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2014:

Correct Answer
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Correct Answer
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Teal Company is an accrual basis taxpayer. On December 1, 2014, a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2015. Teal delivered the item on January 4, 2015. Teal included the sale in its 2014 income for financial accounting purposes.

Correct Answer
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Terri purchased an annuity for $100,000. She was to receive $10,000 per year and her life expectancy was 20 years. She died after receiving 8 payments. Terri's final return should reflect a loss of $20,000 ($100,000 - $80,000).

Correct Answer
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Norma's income for 2014 is $27,000 from part-time work and $9,000 of Social Security benefits. Norma is not married. A portion of her Social Security benefits must be included in her gross income.

Correct Answer
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A sole proprietorship purchased an asset for $1,000 in 2014 and its value was $1,500 at the end of 2014. In 2015, the sole proprietorship sold the asset for $1,400. The sole proprietorship realized a taxable gain of $400 in 2015 but an economic loss of $100 in 2015.

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

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

Correct Answer
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Which of the following is not a requirement for an alimony deduction?

Correct Answer
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The payments should be characterized as ...
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Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Correct Answer
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Exam 4: Gross Income: Concepts and Inclusions

The annual increase in the cash surrender value of a life insurance policy:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

Correct AnswerverifiedShow Answer

On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The alimony recapture rules are intended to:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

On January 5, 2014, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2014, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2014:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Teal Company is an accrual basis taxpayer. On December 1, 2014, a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2015. Teal delivered the item on January 4, 2015. Teal included the sale in its 2014 income for financial accounting purposes.

Correct AnswerverifiedShow Answer

Terri purchased an annuity for $100,000. She was to receive $10,000 per year and her life expectancy was 20 years. She died after receiving 8 payments. Terri's final return should reflect a loss of $20,000 ($100,000 - $80,000).

Correct AnswerverifiedShow Answer

Norma's income for 2014 is $27,000 from part-time work and $9,000 of Social Security benefits. Norma is not married. A portion of her Social Security benefits must be included in her gross income.

Correct AnswerverifiedShow Answer

A sole proprietorship purchased an asset for $1,000 in 2014 and its value was $1,500 at the end of 2014. In 2015, the sole proprietorship sold the asset for $1,400. The sole proprietorship realized a taxable gain of $400 in 2015 but an economic loss of $100 in 2015.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a requirement for an alimony deduction?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe payments should be characterized as ...View AnswerShow Answer

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

Correct AnswerverifiedShow Answer

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The payments should be characterized as ...
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