ACC250 Chapter 5

Question 1

Nontaxable early receipt of life insurance benefits if taxpayer is terminally ill.

Answer 1

ACCELERATED DEATH BENEFITS

Question 2

A method of accounting that generally recognizes income in the period earned and recognizes deductions in the period that liabilities are incurred.

Answer 2

ACCRUAL METHOD

Question 3

A support payment of cash made to a former spouse. The payment must be made under a written separation agreement or divorce decree that does not designate the payment as something other than alimony, the payment must be made when the spouses do not live together, and the payments must cease no later than when the recipient dies.

Answer 3

ALIMONY

Question 4

gross income means all income from whatever source derived.

Answer 4

ALL-INCLUSIVE DEFINITION OF INCOME

Question 5

A stream of equal payments over time.

Answer 5

ANNUITY

Question 6

Doctrine holding that earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues.

Answer 6

ASSIGNMENT OF INCOME DOCTRINE

Question 7

Organizations that facilitate the exchange of rights to goods and services between members.

Answer 7

BARTER CLUBS

Question 8

Method of accounting that recognizes income in the period in which cash, property, or services are received and recognizes deductions in the period paid.

Answer 8

CASH METHOD

Question 9

Doctrine stating that income has been realized if a taxpayer receives income and there are no restrictions on the taxpayer’s use of the income.

Answer 9

CLAIM OF RIGHT DOCTRINE

Question 10

Systems in which state laws dictate how the income and property is legally shared between a husband and a wife.

Answer 10

COMMUNITY PROPERTY SYSTEMS

Question 11

Doctrine providing that a taxpayer must recognize income when it is actually or constructively received. Deemed to have occurred if income has been credited to the taxpayer’s account or if the income is unconditionally available to the taxpayer, the taxpayer is aware of its availability, and there are no restrictions on taxpayer’s control over the income.

Answer 11

CONSTRUCTIVE RECEIPT DOCTRINE

Question 12

Sometimes called sick pay or wage replacement insurance. It pays the insured for wages lost due to injury or disability.

Answer 12

DISABILITY INSURANCE

Question 13

Debt forgiveness

Answer 13

DISCHARGE OF INDEBTEDNESS

Question 14

Compensation and other forms of income received for providing goods or services in the ordinary course of business.

Answer 14

EARNED INCOME

Question 15

Legal entities like partnerships, limited liability companies, and S corporations that do not pay income tax. Income and losses from flow-through entities are allocated to their owners.

Answer 15

FLOW-THROUGH ENTITY

Question 16

Noncash benefit provided to an employee as a form of compensation. Taxable, as a rule though certain of these are excluded from gross income.

Answer 16

FRINGE BENEFITS

Question 17

A transfer of property where no, or inadequate, consideration is paid for the property.

Answer 17

GIFT

Question 18

Realized income reduced for any excluded or deferred income.

Answer 18

GROSS INCOME

Question 19

Income from an economic benefit the taxpayer receives indirectly rather than directly. The amount of the income is based on comparable alternatives.

Answer 19

IMPUTED INCOME

Question 20

A transfer of property when the owner is deceased (the transfer is made by the decedent’s estate).

Answer 20

INHERITANCE

Question 21

A sale for which the taxpayer receives payment in more than one period.

Answer 21

INSTALLMENT SALE

Question 22

The common name for state and local government debt.

Answer 22

MUNICIPAL BOND

Question 23

Tax laws that allow taxpayers to permanently exclude income from taxation or to defer recognizing realized income until a subsequent period.

Answer 23

NONRECOGNITION PROVISIONS

Question 24

Plans meeting certain requirements that allow compensation placed in the account to be tax deferred until the taxpayer withdraws money from the account.

Answer 24

QUALIFIED RETIREMENT ACCOUNTS

Question 25

The proposition that income only exists when there is a transaction with another party resulting in a measurable change in property rights.

Answer 25

REALIZATION PRINCIPLE

Question 26

The portion of proceeds from a sale (or distribution) representing a return of the original cost of the underlying property.

Answer 26

RETURN OF CAPITAL

Question 27

The amount of a taxpayer’s unrecovered cost of or investment in an asset.

Answer 27

TAX BASIS

Question 28

Holds that a refund of an amount deducted in a previous period is only included in income to the extent that the deduction reduced taxable income.

Answer 28

TAX BENEFIT RULE

Question 29

Income from property that accrues as time passes without effort on the part of the owner of the property.

Answer 29

UNEARNED INCOME

Question 30

The ability of resources to pay taxes due from a particular transaction.

Answer 30

WHEREWITHAL TO PAY