Chapter 5 & 9 - Gross Income

Question 1

What is economic income

Answer 1

any change in net worth

Question 2

why is economic income problematic

Answer 2

impractical, liquidity problems and prone to disputes

Question 3

What is accounting income?

Answer 3

based on the realization principle, and is conservative and objective

1. Income is realized when a taxpayer engages in a transaction with another party and (2) the transaction results in measurable change in property rights

*exchange has to happen

Question 4

What is included in Gross income

Answer 4

any income from whatever source derived unless tax provisions say otherwise

-could be money, property, or services

Question 5

Why does accounting income not work for tax purposes?

Answer 5

accounting objectives may lead to understatement of income, and tax goals are to preserve revenue

Question 6

what is accounting incomes goal

Answer 6

to share useful information with outsiders

Question 7

what is the tax goal

Answer 7

the equitable collection of revenue

Question 8

Asia owns stock that is listed on the New York Stock Exchange, and this year the stock increased in value by $20,000.

what is the economic income and gross income

Answer 8

economic: 20,000 because there was an increase in net worth

gross: 0 because there was no sale or transaction

Question 9

when do tax payers recognize income?

Answer 9

whenever money, property, or services are received in a transaction

Question 10

when property is exchanged how is the income recognized

Answer 10

realize at market value however they can reduce the proceeds by their unrecovered investments