LSU ACCT 3221 Chapter 3 | Questions with 100% Correct Answers

LSU ACCT 3221 Chapter 3 | Questions with 100% Correct Answers True/False: For tax purposes, income is recognized if the transaction meets three conditions: economic benefit, occurrence and completion, and not exempt from tax. True True/False: Marie performed bookkeeping services for Donald charging him $350. Donald agreed that he would pay Marie's credit card bill for the same amount. Marie has received an economic benefit and must report $350 in income on her tax return. True True/False: John owns 200 shares of Coca Cola common stock that have increased in value by $5 each. He must report the increase in income because a transaction has occurred. False True/False: If the process of a transaction begins and ends with an economic benefit for the taxpayer, he or she must report it in income even though the income is specifically exempt from tax. False True/False: Almost all individuals use the cash receipts and disbursements method of accounting. True True/False: Constructive receipt means the income is available to or in the control of the taxpayer regardless of whether the taxpayer chooses to utilize the income. True True/False: Income can only be realized in money or services. False True/False: If Marc, an accountant, agrees to provide tax services to a neighbor in exchange for the neighbor agreeing to fix his pool, Marc but not his neighbor will have to report income on this transaction at fair market value. False True/False: There are some instances where a cash-basis taxpayer can report income as though he or she is an accrual basis taxpayer. True True/False: For most individuals, interest income comes from interest-earning deposits at banks, savings and loans, or credit unions. True True/False: If an individual owns Series EE bonds, this person must report interest income, i.e., the increase in bond value on an annual basis. False True/False: A taxpayer can exclude from gross income any interest earned on bonds issued by any state, any possession of the United States, any political subdivision of either of the foregoing, or of the District of Columbia as long as these bonds are not issued for private activities. True True/False: Interest on state bonds is tax- exempt if the bonds were issued for private activities, such as convention centers, industrial parks, or stadiums. False True/False: A taxpayer must file a Schedule B (Forms 1040A or 1040) if he or she has received taxable interest of $1,550. True True/False: Dividends are generally taxed at capital gains rates if they are made from the corporation's current earnings and profits or accumulated earnings and profits. True True/False: A stock dividend in which a shareholder has the option to receive cash is not taxable. False True/False: Robert received a tax refund in 2009 from his state, which he deducted on his prior year's return as an itemized deduction. He must report the refund in income in 2009, subject to certain computations to determine the amount that is taxable. True True/False: All federal and state unemployment compensation benefits are not subject to income tax. False True/False: The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer. True True/False: Jury duty pay is taxable income but it can be deducted from gross income if the amount must be given to the employer. True True/False: Discounts provided to employees for food by a restaurant owner are not taxable if the discounts do not exceed the gross profit percentage of the business. True True/False: The cost of holiday turkeys distributed to employees is included in the employees' income. False True/False: Employer-paid premiums on group-term life insurance in excess of $50,000 coverage are taxable to the employees based on the cost of the excess. True True/False: Payments received under workers' compensation acts are taxable to the recipient. False True/False: The initial original issue discount (OID) on a bond is equal to the difference between the acquisition price and the maturity value. True For tax purposes, one of the requirements to recognize income is: A. The income can be tax-exempt. B. The transaction must occur but it's not necessary to complete it. C. There must be an economic benefit. D. All of the above. If an attorney performs some estate tax work for a client and the client agrees to pay $1,000 to him and $2,000 to a local financial institution for a debt the attorney owes, the attorney has income of: A. $3,000. B. $2,000. C. $1,000. D. None of the above. Pedro agreed to repair a house for a client and started to work on December 30, 2007. On January 2, 2009, he completed the job and received payment from the client. Pedro must record the income in: A. 2007. B. 2008. C. 2009. D. Both 2008 and 2009. If Tom, an accountant, agrees to provide accounting services to Carl, a friend, in exchange for Carl fixing Tom's office floor, then: A. Tom must report income on his tax return. B. Carl must report income on his tax return. C. Neither Tom nor Carl must report income on their tax returns. D. Both of them must report income on their tax returns. Income may be realized in the form of: A. Property. B. Cash. C. Services. D. All of the above. When filing their tax returns, almost all individuals use: A. The cash receipts and disbursements method. B. The accrual method. C. The recognition method. D. The accounting method. Under the cash receipts and disbursements method, the taxpayer reports income in the year: A. Income is negotiated. B. Income is received. C. Income is earned. D. Income is accrued. Constructive receipt means the taxpayer has: A. Earned the income. B. Accrued the income. C. Control of the income for his or her use. D. a and b. A taxpayer can exclude from income interest received from: A. A savings account established at a local bank. B. Municipal bonds issued by the state. C. A seller-financed mortgage transaction. D. A credit union. When an individual's marginal ordinary income tax rate is 25% or more, the tax rate on qualified dividends is: A. 0%. B. 5%. C. 10%. D. 15%.