Question 1

Martin purchased an annuity contract at the beginning of 2002 for $84,000. The contract specifies that he will receive $2,000 per month for life. Martin receives his first payments on July 1, 2014, when he was 67 years old. Martin dies on August 15, 2019 (the August payment was received prior to his death) . What amount, if any, should be deducted on Martin's 2019 tax return as a result of failing to receive his expected return on the annuity contract?

Accepted Answer

A)  $54,400 can be claimed as a deduction on his final return.
B)  $59,200 can be claimed as a deduction on his final return.
C)  $1,600 can be claimed as a deduction on his final return.
D)  No deduction is reported because a decedent is not required to file a final return.E) B) and C)
F) A) and D)

Question 2

Victoria is an employee of The Bellamy Corporation. During a recent business trip, one of Victoria's connecting flights was overbooked. Because Victoria did not have a business meeting until the next day, she volunteered to take the next available flight. The airline gave Victoria a $20 meal ticket and a coupon worth $100 off any future flight on the airline for giving up her seat on the overbooked flight. Has Victoria realized income from the receipt of the meal ticket and the coupon? Explain in terms of the income tax concepts.

Accepted Answer

Under the All-Inclusive Income Concept, ...

Question 3

An installment sale
I.occurs whenever property is sold and at least one payment is received in a tax year subsequent to the year of sale.
II.may be disregarded by a taxpayer who elects to recognize the entire gain in the year of sale.
III.triggers a method of income recognition based upon the wherewithal-to-pay concept.
IV.allows businesses that sell inventory on credit to defer recognition of income until payment is received.
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Accepted Answer

A)  Only statement I is correct.
B)  Only statements I, and II are correct.
C)  Only statements I, II, and III are correct.
D)  Only statements I and IV are correct.
E)  Only statements II, III, and IV are correct.F) All of the above
G) D) and E)

Question 4

Imputed interest rules and policies include which of the following?
I.Gift loans have no income tax effect to the lender.
II.Any loan of $10,000 or less is exempted from imputed interest rules.
III.On gift loans of $100,000 or less, the imputed interest on the loan cannot exceed the borrower's net investment income for the year.
IV.With a loan to a shareholder, a corporation can deduct the imputed payment.
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Accepted Answer

A)  Only statement I is correct.
B)  Only statements I and IV are correct.
C)  Only statement II is correct.
D)  Only statements II, and III are correct.
E)  Only statements II, III, and IV are correct.F) C) and D)
G) C) and E)

Question 5

Under the imputed interest rules, gift loans between a daughter (lender)  and her mother (borrower)  may result in
I.No imputed interest income recognized by the mother.
II.No imputed interest deduction by the daughter.
III.Imputed interest income recognized by the daughter.
IV.Deduction allowed for imputed interest expense by the mother.
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Accepted Answer

A)  Only statements I, II, and III are correct.
B)  Only statements I and IV are correct.
C)  Only statements I and II are correct.
D)  Only statement III is correct.
E)  Only statements III and IV are correct.F) None of the above
G) D) and E)

Question 6

Match each statement with the correct term below.
-Earned income

Accepted Answer

A)  The category of income that includes interest, dividends, and rents.
B)  Income from wages, salaries, and trade or businesses.
C)  Interest income resulting from making an interest-free gift loan of $200,000.
D)  A taxable amount received from a state plan to provide a substitute for an employee's earned income.
E)  A series of equal payments received over equal time periods.F) A receipt of cash from a former spouse that is included in gross income.G) A payment received from a former spouse that is not included in gross income.H) A division of marital assets that does not result in any income recognition.I) A sale of property in which at least one payment is received in a tax year after the year of saleJ) A method of accounting that must be used to recognize income from long-term construction contracts.K) A debt instrument that has the interest paid at maturity rather than throughout the life of the debt.L) A) and H)
M) C) and H)

Exam 3: Income Sources

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Under the All-Inclusive Income Concept, ...
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Match each statement with the correct term below. -Earned income

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Exam 3: Income Sources

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Correct AnswerverifiedUnder the All-Inclusive Income Concept, ...View AnswerShow Answer

Match each statement with the correct term below. -Earned income

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Under the All-Inclusive Income Concept, ...
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