02 Jan 2) Jane must report

Question 1

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

1) True

2) False

Question 2

The tax concept and economic concept of income are in agreement on which of the following:

1) The fair rental value of an owner-occupied home should be included in income.

2) The increase in value of assets held for the entire year should be included in income for the year.

3) Rent income for 2017 collected in 2016 is income for 2016.

4) All of these.

5) None of these.

Question 3

On December 1, 2016, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2016 and $12,000 for January 2017. Daniel must include the $24,000 in 2016 gross income.

1) True

2) False

Question 4

Sarah’s employer pays the hospitalization insurance premiums for a policy that covers all employees and retired former employees. After Sarah retires, the hospital insurance premiums paid for her by her employer can be excluded from her gross income.

1) True

2) False

Question 5

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School. She may not exclude the $5,000 because the exclusion applies only to scholarships to attend college.

1) True

2) False

Question 6

All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee). None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employee’s hospitalization insurance premiums. If the change is made, the employee’s after-tax and insurance pay will:

1) Decrease by the same amount for all employees.

2) Increase more for the lower paid employees (10% and 15% marginal tax bracket).

3) Increase more for the higher income (35% marginal tax bracket) employees.

4) Increase by the same amount for all employees.

5) None of these.

Question 7

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.

1) True

2) False

Question 8

Teal company is an accrual basis taxpayer. On December 1, 2016, a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2017. Teal delivered the item on January 4, 2017. Teal included the sale in its 2016 income for financial accounting purposes.

1) Teal must recognize the income in 2016.

2) Teal must recognize the income in the year title to the goods passed to the customer, as determined under the state laws in which the store is located.

3) Teal can elect to recognize the income in either 2016 or 2017.

4) Teal must recognize the income in 2017.

5) None of these.

Question 9

Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity value in 10 years of $1,000 and yields 3% interest. This is the first Series EE bond that Jerry has ever owned.

1) Jerry can defer the interest income until the bond matures in 10 years.

2) Jerry must report ($1,000 – $744)/10 = $25.60 interest income each year he owns the bond.

3) The interest on the bonds is exempt from Federal income tax.

4) Jerry can report all of the $256 as a capital gain in the year it matures.

5) None of these.

Question 10

A cash basis taxpayer took an itemized deduction of $5,500 for state income tax paid in 2016. His total itemized deductions in 2016 were $18,000. In 2017, he received a $900 refund of his 2016 state income tax. The taxpayer must include the $900 refund in his 2017 Federal gross income in accordance with the tax benefit rule.

1) True

2) False

Question 11

Ted earned $150,000 during the current year. He paid Alice, his former wife, $75,000 in alimony. Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.

1) True

2) False

Question 12

Fresh Bakery often has unsold donuts at the end of the day. The bakery allows employees to take the leftovers home. The employees are not required to recognize gross income because the bakery does not incur any additional cost.

1) True

2) False

Question 13

The alimony rules:

1) Are based on the principle that the person who earns the income should pay the tax.

2) Permit tax deductions for property divisions.

3) Look to state law to determine the definition of alimony.

4) Distinguish child support payments from alimony.

5) None of these.

Question 14

If a scholarship does not satisfy the requirements for a gift, the scholarship must be included in gross income.

1) True

2) False

Question 15

On January 5, 2016, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2016, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2016:

1) Tim must include all of the interest in his gross income.

2) Jane must report $1,800 gross income for 2016.

3) Jane reports $1,350 of interest income in 2016, and Tim reports $450 of interest income in 2016.

4) Jane reports $450 of interest income in 2016, and Tim reports $1,350 of interest income in 2016.

5) None of these is correct.