Exam 1 Acct 330

Question 1

Abigail received $6,000 from her employer as reimbursement for her expenditures on tuition, fees, and books while attending State University. Abigail is working toward a graduate degree in business administration. Must Abigail recognize the $6,000 as income?

Answer 1

Most of this payment is non-taxable but part of it is taxable to her.

Question 2

In January 2013, Leon McLeod received a gift of a beach cottage valued at $250,000 from his great-uncle who owned a number of such buildings. The cottage was rented each year to college students who occupied it during the school year. The annual net rental income received is $20,000 per year. The 2013 tax return of McLeod would include what elements of this transaction?

Answer 2

…

Question 3

Beth, who is single, redeems her Series EE bonds. She receives $12,000, consisting of $8,000 principal and $4,000 interest. Beth’s qualified educational expenses total $16,500. Further, Beth’s adjusted gross income for the year is $40,000. Determine what, if any, interest income Beth must include in her gross income.

Answer 3

…

Question 4

All of the following fringe benefits can be excluded from the employee’s income except:

a. Transportation up to $245 per month for combined commuter highway vehicle transportation and transit passes. and $245 per month for qualified parking.
b. Holiday gifts, other than cash, with a low fair market value.
c. Qualified employee discounts given employees on certain property and services offered to customers in the ordinary course of the line of business in which the employees perform services.
d. Memberships to municipal athletic facilities for employees, their spouses, and their dependent children.

Answer 4

Choice D

Question 5

Mr. Hines received a $6,200 grant from a local university for the fall of 2013. Mr. Hines was a candidate for a degree, and was required to be a research assistant, for which services he received payment under the grant. The $6,200 grant provided:
-Tuition $3,600
-Books and Supplies $500
-Pay for services as research assistant $2,100
Mr. Hines spent the entire $6,200 on tuition, books, and supplies. What amount must Mr. Hines include in his income for 2013?

Answer 5

$2,100

Question 6

The following items were received as court awards and damages during 2013. All should be included in ordinary income for 2013 by the taxpayer who received them except:

a. Compensation for lost wages due to slander
b. Compensatory damages for physical injury
c. Damages for breach of contract
d. Interest on damages for breach of contract

Answer 6

Choice B

Question 7

Which of the following is not taxable income for federal income tax purposes?

a. Interest on obligations of the United States government
b. Interest on state and local bonds
c. Interest on damage award paid by City of St. Paul
d. Gain on the sale of a City of Duluth bond

Answer 7

b. Interest on state and local bonds

Question 8

Which of the following will create taxable income for an employee?

a. Free rides offered to employees of a city’s public transportation service.
b. A law firm offering its employees a 20% discount on legal services up to $5,000.
c. An auto dealer selling a new car to an employee for $20,000 where the dealer’s cost was $25,000

Answer 8

c. An auto dealer selling a new car to an employee for $20,000 where the dealer’s cost was $25,000

Question 9

Which of the following will result in taxable income?

a. Proceeds of $25,000 from a life insurance policy on one’s father
b. Inheritance of $20,000 from one’s grandmother
c. A $5,000 refund received by an employer in 2013 because of adjustments and credits to health care premiums paid on behalf of employees’ health care coverage during 2012.
d. The value of group term life insurance coverage in the amount of $40,000 received by an employee.

Answer 9

c. A $5,000 refund received by an employer in 2013 because of adjustments and credits to health care premiums paid on behalf of employees’ health care coverage during 2012.

Question 10

Norm and Pat, a married couple filing a joint return, have the following sources of income:
-Wages $35,000
-Interest Income $4,000
-Dividend Income $3,000
-Social Security benefits $9,000
Both Norm and Pat are over 65 years of age. Determine their taxable income.

Answer 10

…..

Question 11

Ron and Gayle, both over 65 years of age, have the following sources of income:
-Consulting income $36,000
-Interest income $4,000
-Tax-exempt interest $4,000
-Social Security benefits $12,000
Ron and Gayle have itemized deductions of $16,000. Compute their taxable income.

Answer 11

…..

Question 12

At age 65, Charlie buys an annuity that pays $600 per month for a 20 year period. He paid $108,000 for the annuity.
If at the age of 67, Charlie receives a full year of payments from the annuity, what is his taxable income from the annuity?

Answer 12

….

Question 13

John and Jane divorced in 2013. They have two children, ages 6 and 11. The divorce decree requires John to pay $800 a month on Jane and does not specify the use of the money. According to the decree, the payments will stop after the children reach 18 or graduate from high school, whichever comes first. May John deduct the payments as alimony?

Answer 13

No, these are non-deductible child support payments.

Question 14

All of the following would be excluded from income as a qualified scholarship by an individual who is a candidate for a degree at a qualified educational institution, except:

a. Tuition
b. Student fees
c. Course books
d. Room and board

Answer 14

d. Room and board

Question 15

Fred Miller, a teacher, had several additional sources of income during 2013. He received a $500 gift as a result of his helping a friend build a house, and he was assigned $300 of interest due his uncle on bonds his uncle owns. He also had the use of a van (value of $1,000) for the year from his parents who were traveling. Further, he received free, $600 of gasoline for the van because he tutored the son of the station owner free of charge. What of the additional income must be included in his income tax return?

Answer 15

$1,100

Question 16

Judd Harrison owns 200 shares of stock in the Widget Company for which he paid $1,600 in 1999. The board of directors of the company decided to pay a 10 percent stock dividend in April 2013, for which Judd received 20 shares of stock. Was this a taxable stock dividend. Explain.

Answer 16

This was not a taxable dividend because it was proportional.

Question 17

Judd Harrison owns 200 shares of stock in the Widget Company for which he paid $1,600 in 1999. The board of directors of the company decided to pay a 10 percent stock dividend in April 2013, for which Judd received 20 shares of stock.

What was Judd’s basis per share (basis is the tax word for book value representing his cost investment) after the tax dividend?

Answer 17

$7.27

Question 18

An individual performed special valuable services not called for by his employment, in consideration for which his employer agreed to pay him a bonus in an amount to be determined later. After due consideration, however, the firm prefers instead to cement the employee’s relation to it by selling him, without any restriction, a block of its stock worth $,000 for $1,000 cash. Has the employee thereby received any amount includible in his gross income for the year?

Answer 18

Yes, this is taxable income. He has received something of determinable value with no restrictions or further conditions.

Question 19

Robert Reed, a bachelor, maintains his parents in a nursing home. They have no income of their own and are completely dependent on their son. His parents are 75 and 72 years of age. Robert has the following sources of income:
-Salary $45,000
-Interest on Municipal Bonds $750
-Interest on Bank Accounts $800
-Dividends on Common Stock of U.S. Corporation $500
Robert has itemized deductions of $12,000. Robert owns several apartment buildings. His net rental income was $3,000 for the year. Then, on December 31 on of his best tenants brought a check for $500. This money covers the months of December and January. Robert is confused on how to account for this rental income. It is not included in the $3,000 listed above. Compute Robert’s taxable income.

Answer 19

$26,100

Question 20

If Mack Mudd becomes insolvent with assets of $35,000 and liabilities of $65,000 and one of his creditors cancels a debt of $10,000, what amount must Mack recognize as income?

Answer 20

He recognizes nothing. The forgiveness is excluded from taxable income because he is insolvent and the amount forgiven isn’t greater than his insolvency.

Question 21

Which of the following is not considered “constructive receipt” income in 2013?

a. Andrew Mason was informed that his check for services rendered was available on December 15, 2013, but he waited until January 16, 2014, to pick up the check.
b. A payment on a sale of real property placed in escrow on December 16, 2013, but not received by Benjamin Miles until January 12, 2014, when the transaction was closed.
c. Earned income of Candice Cord was received by her agent on December 30, 2013, but was not received by her until January 5, 2014.
d. Ellen Elks received stock on December 30, 2013, for services rendered, but was unable to find a buyer for the stock until January 20, 2014.

Answer 21

b. A payment on a sale of real property placed in escrow on December 16, 2013, but not received by Benjamin Miles until January 12, 2014, when the transaction was closed.

Question 22

Which of the following situations would require interest to be imputed to the lenders at federal rates under the below market interest loan rules?

a. A $20,000 no interest loan from a grandmother to her grandson to put a down payment on a townhouse. The grandson has no investment income
b. No interest loans of up to $5,000 made from a corporation to its employees
c. A no interest loan of $50,000 from a corporation to its two shareholders
d. All of the above below market loans must impute interest to the lender.

Answer 22

c. A no interest loan of $50,000 from a corporation to its two shareholders

Question 23

Which of the following situations would require recognition of taxable income under the tax benefit rule?

a. A state income tax refund received in 2013 by a single taxpayer who took the standard deduction on his 2012 federal 1040.
b. A refund received from a fashion retailer that overcharged interest payments from customers using its store credit card. The refunds were received in 2013. Consumer credit card interest is not deductible.
c. A refund received in 2013 by a sole proprietor from one of her suppliers. The refund was a “loyal customer” rebate given to customers who had purchased over a certain dollar amount of goods during 2012. The sole proprietor runs a restaurant and the supplier sells perishable food items.
d. None of the above would require recognition of income under the tax benefit rule.

Answer 23

c. A refund received in 2013 by a sole proprietor from one of her suppliers. The refund was a “loyal customer” rebate given to customers who had purchased over a certain dollar amount of goods during 2012. The sole proprietor runs a restaurant and the supplier sells perishable food items.

Question 24

Traxler Corporation offers a qualified incentive stock option plan for its junior executives. For the next five years, those executives can exercise options for up to 1,000 shares for $50 per share.
The junior executives will not recognize income until they sell the stock (and receive long-term capital gain rates) and Traxler will receive no compensation deduction for the value of these options if__________________________

a. The market price is at or below $50 per share on the date of the grant
b. The executives hold the stock for at least two years after the grant date
c. The executives hold the stock for more than one year after the exercise of the option
d. All of these conditions are required for the above described tax treatment to be true.

Answer 24

d. All of these conditions are required for the above described tax treatment to be true.

Question 25

Which of the following persons can claim an exemption under a multiple support agreement?

a. George who contributes 20% of his mother’s support as part of a group of siblings who contribute 60% of this support in total
b. Laura who contributes 30% of her mother’s support as part of a group of siblings who contribute 40% of this support in total
c. Linda who contributes 5% of her mother’s support as part of a group of siblings who contribute 60% of this support in total
d. All of the above individuals may qualify to claim the mother as part of a multiple support agreement.

Answer 25

a. George who contributes 20% of his mother’s support as part of a group of siblings who contribute 60% of this support in total

Question 26

Which of the following is not considered when determining the total support test for a child?

a. Fair rental value of lodging
b. Medical insurance premiums
c. Birthday presents
d. Scholarship
e. Recreation

Answer 26

d. Scholarship

Question 27

Which relative does not have to live in the same household of the taxpayer claiming head of household filing status?

a. Aunt
b. Son
c. Granddaughter
d. Father
e. Brother

Answer 27

d. Father

Question 28

To qualify for head of household rates, which of the following must be present?

a. You must be unmarried on the last day of you tax year
b. You must maintain a household and contribute over 50 percent of the cost of maintaining the household
c. The person for whom the household is maintained has to be a relative
d. A and B above
e. All of the above

Answer 28

e. All of the above

Question 29

Rebecca, single and with no dependents, earned $6,450 for the year. Is she required to file a tax return?

Answer 29

No

Question 30

Hugh and Jane are married and file a joint return. They have four children. Their gross income is $17,000 and they have itemized deductions of $8,000. Are they required to file a tax return?

Answer 30

No

Question 31

Peter has self-employment income of $450. He is a full-time college student and is claimed as a dependent on his parents’ return. Does he have to file a tax return?

Answer 31

Yes

Question 32

Jim is married and files a joint return. Jim and his wife have two dependent children. They have adjusted gross income of $30,000 and itemized deductions of $11,900. What is their taxable income?

Answer 32

$2,200

Question 33

Jim is single with no dependents. His adjusted gross income is $20,000 with itemized deductions of $3,800. What is his taxable income?

Answer 33

$10,000

Question 34

Jim is a full-time college student under 24 supported by his father. Jim earned $2,600 from a part-time job and had $500 of interest income. His itemized deductions were $600. What is his taxable income?

Answer 34

$150

Question 35

Allen has taxable income of $75,475 for 2013. Using the Tax Rate Schedules in the Appendix, compute Allen’s income tax liability before tax credits and prepayments for each of the following filing statuses.
What should the taxpayer’s return list as the computed income tax liability for the year if Married filing jointly?

Answer 35

$10,726

Question 36

Allen has taxable income of $75,475 for 2013. Using the Tax Rate Schedules in the Appendix, compute Allen’s income tax liability before tax credits and prepayments for each of the following filing statuses.
What should the taxpayer’s return list as the computed income tax liability for the year if filing single?

Answer 36

$14,798

Question 37

Allen has taxable income of $75,475 for 2013. Using the Tax Rate Schedules in the Appendix, compute Allen’s income tax liability before tax credits and prepayments for each of the following filing statuses.
What should the taxpayer’s return list as the computed income tax liability for the year if filing head of household?

Answer 37

$13,371

Question 38

Robbie is a 17 year old dependent. Robbie has $4,800 in income from a part-time job and $2,200 of interest income from bonds inherited from his grandmother.
What is the amount of Robbie’s Taxable Income?

Answer 38

$1,850

Question 39

Robbie is a 17 year old dependent. Robbie has $4,800 in income from a part-time job and $2,200 of interest income from bonds inherited from his grandmother. Robbie has no investment expenses.
What is the amount of Robbie’s Taxable Income Subject to the Kiddie Tax?

Answer 39

$200

Question 40

Caroline is an unmarried single mother of a 14 year old son in 2013. Caroline’s spouse and the son’s father, Frank, died during 2011. Caroline’s Adjusted Gross Income for 2013 is $44,000. Caroline’s itemized deductions are $10,000. What is Caroline’s computed Income Tax Liability for 2013 BEFORE CONSIDERING ANY TAX CREDITS?

Answer 40

$2,708

Question 41

Rachel and Joseph file a married joint return. Joseph is 82 years old and blind. Rachel is 78 years old. What is the amount of their applicable standard deduction FOR 2013?

Answer 41

$15,800