Question 1

Which of the following is a true statement about the first payment received from a purchased annuity?

Accepted Answer

A)   The payment is included in gross income.
B)   A portion of the payment is a return of capital.
C)   The payment can only be taxed in the year after the annuity was purchased.
D)   The payment is not taxed until the annuity payments cease altogether.
E)   All of theseF) A) and E)
G) A) and D)

Question 2

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Accepted Answer

A) True 
 B)False

Question 3

When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Accepted Answer

A) True 
 B)False

Question 4

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Accepted Answer

A)   Dave is taxed on $62,000 of plumbing income this year.
B)   Steve is taxed on $62,000 of plumbing income this year.
C)   Steve is taxed on $62,000 of income from gifts received this year.
D)   Dave may deduct the $62,000 received by Steve.
E)   All of these are trueF) B) and E)
G) B) and C)

Question 5

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karl include in his gross income?

Accepted Answer

A)   $46,600
B)   $47,000
C)   $49,000
D)   $43,400
E)   $45,500F) A) and E)
G) A) and C)

Question 6

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the race track, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Accepted Answer

A)   $1,450
B)   $1,200
C)   $750
D)   $250
E)   Zero - gambling winnings are not included in gross incomeF) A) and B)
G) C) and E)

Question 7

Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.

Accepted Answer

A) True 
 B)False

Question 8

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Accepted Answer

A)   $250,000
B)   $255,000
C)   $258,500
D)   $260,000
E)   ZeroF) B) and D)
G) A) and E)

Question 9

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

Accepted Answer

A)   Tax benefit rule
B)   Constructive receipt
C)   Return of capital principle
D)   Wherewithal to pay
E)   None of theseF) A) and B)
G) None of the above

Question 10

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

Accepted Answer

A) True 
 B)False

Question 11

Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (rounded to the nearest whole dollar) ?

Accepted Answer

A)   $18,000
B)   $12,000
C)   $7,000
D)   $1,100
E)   Zero - None of these disability pay is included in gross incomeF) A) and C)
G) B) and E)

Exam 5: Gross Income and Exclusions

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Correct Answer
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Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

Correct Answer
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Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.

Correct Answer
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Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Correct Answer
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Correct Answer
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Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karl include in his gross income?

Correct Answer
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Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Correct Answer
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Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the race track, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Correct Answer
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When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Correct Answer
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Which of the following is a true statement about the first payment received from a purchased annuity?

Correct Answer
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A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

Correct Answer
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Exam 5: Gross Income and Exclusions

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Correct AnswerverifiedShow Answer

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

Correct AnswerverifiedShow Answer

Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.

Correct AnswerverifiedShow Answer

Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son, Steve. This year Steve received checks in the amount of $62,000 for Dave's plumbing services. Which of the following is a true statement?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Karl works at Moe's grocery. This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost. This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000. What amount must Karl include in his gross income?

Correct AnswerverifiedShow Answer

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Correct AnswerverifiedShow Answer

Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the race track, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?

Correct AnswerverifiedShow Answer

When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale.

Correct AnswerverifiedShow Answer

Which of the following is a true statement about the first payment received from a purchased annuity?

Correct AnswerverifiedShow Answer

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

Correct AnswerverifiedShow Answer

Correct Answer
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