ACCT 307 Test 1 Part 2 (Ch. 5)
Tim exchanges plumbing services for a new roof. The roof is properly valued at $2,500,
but Tim would have only billed $2,200 for the plumbing services. a) What amount of
income should Tim recognize on the exchange of his services for a roof? b) Would your
answer have changed if Tim would have normally billed $3,000 for his services? -
Answer a) $2,500 b) No; always look at fair market value of what you *receive* when
looking at the exchange of services.
Jerry has a certificate of deposit at the local bank. The interest on this certificate was
credited to his account on December 31 of last year, but he didn't withdraw the interest
until January of this year. When is the interest income taxed? - Answer In December
Tomiko is a 50 percent owner (partner) in the Tanaka partnership. During the year, the
partnership reported $1,000 of interest income and $2,000 of dividends. How much of
this income must Tomiko include in her gross income? - Answer
1,000+2,000=3,000x50%=1,500
Devon owns 1,000 shares of stock worth $10,000. This year he received 200 additional
shares of this stock from a stock dividend. His 1,200 shares are now worth $12,500.
Must Devon include the dividend paid in stock in income? - Answer He should not
include it as income unless he received cash.
L.A. and Paula file as married taxpayers. In August of this year, they received a $5,200
refund of state income taxes that they paid last year. How much of the refund, if any,
must L.A. and Paula include in gross income under the following independent
scenarios? The standard deduction last year was $24,000. a) They chose to claim the
standard deduction. b) They claimed itemized deductions of $30,300, including state
income taxes paid of $7,500. c) They claimed itemized deductions of $26,500, including
state income taxes paid of $10,500 which were limited to $10,000 due to the cap on
state and local tax deductions. - Answer a) They do not include any of the refund in
gross income because no tax benefit is received (state income tax is only included in
itemized deductions). b) 30,300-24,000=6,300 > 5,200; therefore, all of the $5,200
refund is taxable. c) 26,500-24,000=2,500 < 5,200; therefore, only the $2,500 tax
benefit is taxable.
Ralph is attempting to lease a building and is evaluating three different lease
arrangements. Under lease 1, the building rents for $500 per month payable on the first
of the next month with a $500 security deposit. Under lease 2, the building rents for
$5,500 per year payable at the time the lease is signed with no security deposit. Under
lease 3, the building rents for $500 per month payable at the beginning of each month
with a $1,000 security deposit that goes toward rent for the last two months of the lease.
What is Ralph's gross income under a) lease 1 signed on 12/1, b) lease 2 signed on
12/31, and c) lease 3 signed on 11/30? - Answer a) His 2019 income is $500 for the
lease payment (the deposit is not income). b) His 2018 income is $5,500. c) His 2018
income is $500 for the lease payment and $1,000 for the deposit since it goes toward
rent.
, ACCT 307 Test 1 Part 2 (Ch. 5)
Anne purchased an annuity from an insurance company that promised to pay her
$20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in
exchange she will receive $200,000 over the term-6term of the annuity. a) How much of
the first $20,000 payment should Anne include in gross income? b) How much income
will Anne recognize over the term of the annuity? - Answer a) 145k/200k=72.5%
(excluded amount); 20,000x72.5%=14,500 (excluded); 20,000-14,500=5,500 (included
in gross income) b) 5,500x10=55,000
Larry purchased an annuity that promised to pay $1,500 per MONTH for the rest of his
life. He paid $170,820 for the annuity, and he is 72 years old with an age multiple of
14.6. a) How much of the first payment should Larry include in gross income? b) If Larry
lives more than 15 years after purchasing the annuity, how much of each additional
payment should he include in gross income? c) What are the tax consequences if Larry
dies just after he receives the 100th payment? - Answer a) 14.6x12x1,500=262,800;
170820/262,800=65% (excluded amount); 1,500x65%=975 (excluded); 1,500-975=525
(included in gross income) b) 1,500 c) 975x100=97,500; 170,820-97,500=73,320
Lanny and Shirley divorced in 2018 and do not live together. Shirley has custody of their
child, Art, and Lanny pays Shirley $22,000 per year. All property was divided equally.
How much should Shirley include in income if a) Lanny's payments are made in cash
but will cease if Shirley dies or remarries, b) $12,000 of Lanny's payments is designated
as 'nonalimony' in the divorce decree, c) Lanny's payments drop to $15,000 once Art
reaches the age of 18? - Answer a) All $22,000 is taxable because it is alimony. b)
$10,000 is alimony (taxable) and $12,000 is child support (not taxable). c) $15,000 is
alimony (taxable) and $7,000 is child support (not taxable).
What is the amount included in gross income for a) winning $500 in scratch-off state
lottery, b) winning a car worth $17,000 in a gameshow, c) winning the Nobel Peace
Prize of $500,000 but giving it to charity, d) winning $2,500 from employer for being the
most handsome employee, e) winning $1,000 in a school essay contest, and f) winning
$400 in the office March Madness pool? - Answer a) All $500 is taxable. b) All $17,000
is taxable. c) The award is tax exempt. d) All $2,500 is taxable. e) All $1,000 is taxable.
f) All $400 is taxable.
Grady received $8,200 of social security benefits this year. He also reported salary and
interest income. What amount of the benefits must Grady include in his gross income
when he a) files single with a salary of $12,100 and interest income of $250, b) files
single with a salary of $22,000 and interest income of $600, c) files married joint with a
salary of $75,000 and interest income of $500, d) files married joint with a salary of
$44,000 and interest income of $700, and e) files married separate with a salary of
$22,000 and interest income of $600? - Answer ASK COLLUM
Jimmy borrowed $250,000. His lender agreed to reduce the loan amount to $230,000.
What will his gross income be if he has a) real estate worth $175,000, b) real estate
worth $235,000, and c) real estate worth $200,000 and $45,000 in other assets? -
Answer a) 175,000-250,000=-75,000 (insolvent); 250,000-230,000=20,000-75,000=-
Tim exchanges plumbing services for a new roof. The roof is properly valued at $2,500,
but Tim would have only billed $2,200 for the plumbing services. a) What amount of
income should Tim recognize on the exchange of his services for a roof? b) Would your
answer have changed if Tim would have normally billed $3,000 for his services? -
Answer a) $2,500 b) No; always look at fair market value of what you *receive* when
looking at the exchange of services.
Jerry has a certificate of deposit at the local bank. The interest on this certificate was
credited to his account on December 31 of last year, but he didn't withdraw the interest
until January of this year. When is the interest income taxed? - Answer In December
Tomiko is a 50 percent owner (partner) in the Tanaka partnership. During the year, the
partnership reported $1,000 of interest income and $2,000 of dividends. How much of
this income must Tomiko include in her gross income? - Answer
1,000+2,000=3,000x50%=1,500
Devon owns 1,000 shares of stock worth $10,000. This year he received 200 additional
shares of this stock from a stock dividend. His 1,200 shares are now worth $12,500.
Must Devon include the dividend paid in stock in income? - Answer He should not
include it as income unless he received cash.
L.A. and Paula file as married taxpayers. In August of this year, they received a $5,200
refund of state income taxes that they paid last year. How much of the refund, if any,
must L.A. and Paula include in gross income under the following independent
scenarios? The standard deduction last year was $24,000. a) They chose to claim the
standard deduction. b) They claimed itemized deductions of $30,300, including state
income taxes paid of $7,500. c) They claimed itemized deductions of $26,500, including
state income taxes paid of $10,500 which were limited to $10,000 due to the cap on
state and local tax deductions. - Answer a) They do not include any of the refund in
gross income because no tax benefit is received (state income tax is only included in
itemized deductions). b) 30,300-24,000=6,300 > 5,200; therefore, all of the $5,200
refund is taxable. c) 26,500-24,000=2,500 < 5,200; therefore, only the $2,500 tax
benefit is taxable.
Ralph is attempting to lease a building and is evaluating three different lease
arrangements. Under lease 1, the building rents for $500 per month payable on the first
of the next month with a $500 security deposit. Under lease 2, the building rents for
$5,500 per year payable at the time the lease is signed with no security deposit. Under
lease 3, the building rents for $500 per month payable at the beginning of each month
with a $1,000 security deposit that goes toward rent for the last two months of the lease.
What is Ralph's gross income under a) lease 1 signed on 12/1, b) lease 2 signed on
12/31, and c) lease 3 signed on 11/30? - Answer a) His 2019 income is $500 for the
lease payment (the deposit is not income). b) His 2018 income is $5,500. c) His 2018
income is $500 for the lease payment and $1,000 for the deposit since it goes toward
rent.
, ACCT 307 Test 1 Part 2 (Ch. 5)
Anne purchased an annuity from an insurance company that promised to pay her
$20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in
exchange she will receive $200,000 over the term-6term of the annuity. a) How much of
the first $20,000 payment should Anne include in gross income? b) How much income
will Anne recognize over the term of the annuity? - Answer a) 145k/200k=72.5%
(excluded amount); 20,000x72.5%=14,500 (excluded); 20,000-14,500=5,500 (included
in gross income) b) 5,500x10=55,000
Larry purchased an annuity that promised to pay $1,500 per MONTH for the rest of his
life. He paid $170,820 for the annuity, and he is 72 years old with an age multiple of
14.6. a) How much of the first payment should Larry include in gross income? b) If Larry
lives more than 15 years after purchasing the annuity, how much of each additional
payment should he include in gross income? c) What are the tax consequences if Larry
dies just after he receives the 100th payment? - Answer a) 14.6x12x1,500=262,800;
170820/262,800=65% (excluded amount); 1,500x65%=975 (excluded); 1,500-975=525
(included in gross income) b) 1,500 c) 975x100=97,500; 170,820-97,500=73,320
Lanny and Shirley divorced in 2018 and do not live together. Shirley has custody of their
child, Art, and Lanny pays Shirley $22,000 per year. All property was divided equally.
How much should Shirley include in income if a) Lanny's payments are made in cash
but will cease if Shirley dies or remarries, b) $12,000 of Lanny's payments is designated
as 'nonalimony' in the divorce decree, c) Lanny's payments drop to $15,000 once Art
reaches the age of 18? - Answer a) All $22,000 is taxable because it is alimony. b)
$10,000 is alimony (taxable) and $12,000 is child support (not taxable). c) $15,000 is
alimony (taxable) and $7,000 is child support (not taxable).
What is the amount included in gross income for a) winning $500 in scratch-off state
lottery, b) winning a car worth $17,000 in a gameshow, c) winning the Nobel Peace
Prize of $500,000 but giving it to charity, d) winning $2,500 from employer for being the
most handsome employee, e) winning $1,000 in a school essay contest, and f) winning
$400 in the office March Madness pool? - Answer a) All $500 is taxable. b) All $17,000
is taxable. c) The award is tax exempt. d) All $2,500 is taxable. e) All $1,000 is taxable.
f) All $400 is taxable.
Grady received $8,200 of social security benefits this year. He also reported salary and
interest income. What amount of the benefits must Grady include in his gross income
when he a) files single with a salary of $12,100 and interest income of $250, b) files
single with a salary of $22,000 and interest income of $600, c) files married joint with a
salary of $75,000 and interest income of $500, d) files married joint with a salary of
$44,000 and interest income of $700, and e) files married separate with a salary of
$22,000 and interest income of $600? - Answer ASK COLLUM
Jimmy borrowed $250,000. His lender agreed to reduce the loan amount to $230,000.
What will his gross income be if he has a) real estate worth $175,000, b) real estate
worth $235,000, and c) real estate worth $200,000 and $45,000 in other assets? -
Answer a) 175,000-250,000=-75,000 (insolvent); 250,000-230,000=20,000-75,000=-
