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| 1 | |
Gross income includes all realized income that is recognized during the year. |
| | A) | True |
| | B) | False |
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| 2 | |
A taxpayer who receives money when taking out a bank loan will include the amount borrowed in their gross income under the all-inclusive definition of income. |
| | A) | True |
| | B) | False |
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| 3 | |
The cash method of accounting requires taxpayers to recognize income when they receive it in the form of cash, property, or services. |
| | A) | True |
| | B) | False |
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| 4 | |
Generally, a portion of each payment from a purchased annuity represents a return of capital. |
| | A) | True |
| | B) | False |
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| 5 | |
The exclusion amount for a purchased fixed-term annuity can be calculated by dividing the cost of the annuity by the total number of payments. |
| | A) | True |
| | B) | False |
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| 6 | |
Gambling winnings are excluded from gross income. |
| | A) | True |
| | B) | False |
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| 7 | |
Larry received $4,250 from disability insurance that he purchased earlier this year from an insurance provider. Larry is allowed to exclude a portion of the $4,250 from his gross income. |
| | A) | True |
| | B) | False |
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| 8 | |
Worker's compensation benefits received from a state-sponsored workers' compensation plan are taxable. |
| | A) | True |
| | B) | False |
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| 9 | |
This year Bill purchased 1,000 shares of Cain common stock for $12 per share. At year-end the Cain shares were worth $32 per share. What amount must Bill include in income this year? |
| | A) | $12,000 |
| | B) | $20,000 |
| | C) | $32,000 |
| | D) | Bill can deduct $12,000 because his cost is a return of capital. |
| | E) | None of the above - Bill has not realized any gain. |
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| 10 | |
Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year: |
| | A) | Tax benefit rule |
| | B) | Constructive receipt |
| | C) | Return of capital principle |
| | D) | Claim of right rule |
| | E) | None of the above |
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| 11 | |
Identify the rule that determine whether a married taxpayer must recognize income earned by their spouse: |
| | A) | Residence of the married couple in a community property law state |
| | B) | Tax benefit rule |
| | C) | Claim of right |
| | D) | Both A and B above |
| | E) | None of the above |
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| 12 | |
Geoff purchased a life annuity for $4,800 that will provide him $100 monthly payments for as long as he lives. Based on IRS tables, Geoff's life expectancy is 240 months. How much of the first $100 payment will George include in his gross income? |
| | A) | $ 100 |
| | B) | $ 80 |
| | C) | $ 48 |
| | D) | $ 20 |
| | E) | None of the above |
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| 13 | |
To calculate the amount realized on the sale of an asset, the proceeds is reduced by which of the following? |
| | A) | Tax basis of the property |
| | B) | Selling expenses |
| | C) | Gain realized |
| | D) | A and B above |
| | E) | All of the above |
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| 14 | |
Bonnie and Howard are getting divorced. Under the terms of the decree Bonnie will pay Howard $100,000 in cash in each of the next ten years (or until Howard's death or remarriage). In addition, Bonnie will transfer a residence worth $2,000,000 to Howard and pay $30,000 per year to support their daughter, Kristina, until she turns 19 years old. What amount (if any) is included in Howard's gross income this year? |
| | A) | $2,130,000 |
| | B) | $100,000 |
| | C) | $500,000 |
| | D) | $130,000 |
| | E) | None of the payments are included in Howard's gross income |
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| 15 | |
Shelly is a student who has received an athletic scholarship to the University. The scholarship paid $4,000 for tuition, $500 for fees, and $400 for books. What amount must Shelly include in her gross income? |
| | A) | $ 4,900 |
| | B) | $ 4,000 |
| | C) | $ 4,500 |
| | D) | $ 4,400 |
| | E) | Zero - none of the above benefits is included in gross income |
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