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Exam 5: Gross Income and Exclusions

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Question 1

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Barney and Betty got divorced in 2018.In the divorce decree Betty agreed to pay Barney $24,000 per year for five years (or until Barney's death or remarriage) and $10,000 per year until their daughter,Pebbles,turns 19 years old.What amount (if any) is included in Barney's gross income in 2019?

A) $10,000
B) $24,000
C) $34,000
D) $39,000
E) None of the payments are included in gross income

F) D) and E)
G) B) and D)

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Question 2

Multiple Choice

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Which of the following is not a necessary condition for income to be included in gross income?

A) income must be realized
B) income must be paid in cash
C) income cannot be excluded by law
D) income must be made available to a taxpayer on the cash basis
E) all of these choices are correct.

F) B) and C)
G) B) and E)

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Question 3

True/False

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Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

Alex is 63 years old and retired.This year Alex won $212,200 in the state lottery.Alex also received $20,000 from an annuity he purchased eight years ago.He purchased the annuity,to be paid annually for 15 years,for $157,500.Alex received $10,000 in Social Security benefits for the year.Calculate Alex's gross income.

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 percent below Moe's cost.This year Karl spent $3,600 to purchase groceries,costing Moe $4,000.The groceries were worth $6,000.What amount must Karl include in his gross income?

Loretta received $6,200 from a disability insurance policy that she purchased directly this year.Loretta must include all $6,200 in her gross income.

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

Trevor received a gift of $25,000 in cash from his rich uncle.Trevor must include $15,000 of this gift in his gross income this year.

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

To calculate a gain or loss on the sale of an asset,the proceeds from the sale are reduced by which of the following?

An employee may exclude up to a 40 percent employer-provided discount on services received by the employee.

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?

Deb has found it very difficult to repay her loans.Because of these difficulties,the bank decided to forgive one of her most recent loans,an amount of $45,000.After the loan was discharged,Deb had total assets of $232,000 and her remaining loans totaled $217,000.What amount must Deb include in her gross income?

Kathryn is employed by Acme and they have been very pleased with her performance this year.In December Kathryn was granted an extra week off with pay (pay for the week totaled $2,000).In addition,Kathryn was given tickets to a football bowl game worth $800.(Kathryn didn't use the tickets-she hates football.)Right before year-end Kathryn was allowed to order new office furniture and Acme told her to take the old office furniture home.The office furniture was originally purchased for $7,000,but it was fully depreciated and only worth about $1,000.Determine the amount Kathryn should include in her gross income.

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

In January of the current year,Dora made a gift of stock to her granddaughter.At the time of the gift,the stock was worth $15,000.Several months later in the same year after the gift,a $500 dividend was declared on the stock and paid to Dora's granddaughter.What amount must Dora's granddaughter include in her gross income for the current year?

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Constructive receipt represents the principle that cash-basis taxpayers will be taxed on income when it is made available to them without substantial restrictions.

Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates,Attorneys at Law.The scholarship pays Simon's tuition ($7,000 per semester)and fees ($500 per semester)and provides a $4,500 per-semester stipend to pay for food and housing.In order to qualify for the stipend,Simon must work 10 hours per week at Gary Harris & Associates during the term.How much of the scholarship is Simon required to include in gross income?

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) ?