Chapter 1 part 6 Individual Income Taxation PDF

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Quiz for Chapter 1 An Introduction to Taxation and Understanding the Federal Tax Law for class Accounting 4301 Individual Income Taxation....

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138.

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($600 per year) or two years in advance ($960). In Septem ber 2020, the company collected the following amounts applicable to future services:

October 2020-September 2022 services (200 two-year contracts) $192,000 October 2020-September 2021 services (200 one-year contracts) Total

120,000 $312,000

As a result of this, Orange Cable should report as gross income for 2021, the year following receipt: $258,000

143.

Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $500 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of 2020, the company reported as a liability in its financial statements $50,000 of unearned revenues from these contracts. The company also reported $10,000 in unearned rent income received in 2020 from excess office space leased to other companies. Considering only this information, how much gross income must Green report in 2021 for tax purposes? $50,000 143. Under the terms of a divorce agreement entered into in 2017, Lanny was to pay his wife Joyce $2,000 per month in alimony and $500 per month in child support. For a 12-month period, Lanny can deduct from gross income (and Joyce must include in gross income): $24,000 143. Office Palace, Inc., leased an all-in-one print er to a new customer, Ashley, on December 27, 2020. The printer was to rent for $600 per month for a period of 36 months beginning January 1, 2021. Ashley was required to pay the first and last month’s rent at the time the lease was signed. Ashley was also required to pay a $1,500 damage deposit. Office Palace must recognize as income for the lease: $1,200 in 2020 143. As a general rule: I.

Income from property is taxed to the person who owns the property.

II.

Income from services is taxed to the person who earns the income.

III.

The assignee of income from property must pay tax on the income.

IV.

The person who receives the benefit of the income must pay the tax on the income.

Only I and II are true.

147.

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2020. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, 2020 payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2020. The daughter

must recognize the income because she owned the stock when the dividend was declared and she received the $2,000. 147. Jim and Nora, residents of a community property state, were married in early 2019. Late in 2019 they separated, and in 2020 they divorced. Each earned a salary, and they received income from community-owned investments in all relevant years. They filed separate returns in 2019 and 2020. Which of the following is true? In 2020, Nora must report only her salary and one-half of the income from community property on her separate return. 147. The annual increase in the cash surrender value of a life insurance policy: Is not included in gross income because the policy must be surrendered to receive the cash surrender value 147. Mark, a calendar year taxpayer, purchased an annuity for $50,000 in 2019. The annuity was to pay him $3,000 on the first day of each year, beginning in 2019, for the remainder of his life. Mark’s life expectancy at the time he purchased the annuity was 20 years. In 2021 Mark developed a deadly disease, and doctors estimated that he would live for no more than 24 months. If Mark dies in 2022, a loss can be claimed on his final return for his unrecovered cost of the annuity. 147. Which of the following is the lowest authority in the Federal tax law system? Proposed Regulation 147. Teal company is an accrual basis taxpayer. On December 1, 2020 , a customer paid for an item that was on hand, but the customer wanted the item delivered in early January 2021. Teal delivered the item on January 4, 2021. Teal properly included the sale in its 2020 income for financial accounting purposes. Teal must recognize the sale in its gross income in 2020. 147. Tim and Janet divorced in 2017. Their only marital property was a personal residence with a value of $120,000 and cost of $50,000. Under the terms of the divorce agreement, Janet would receive the house and would pay Tim $15,000 each year for five years, or until Tim’s death, whichever should occur first. Tim and Janet lived apart when the payments were made to Tim. The divorce agreement did not contain the word “alimony.” Janet is allowed to deduct $15,000 each year for alimony paid 147. Maroon Corporation expects its employees’ income tax rates to increase next year. The employees use the cash method. The company presently pays on the last day of each month. The company is considering changing its policy so that the December salaries will be paid on the first day of the following yea r. What would be the effect on an employee of the proposed change in company policy beginning December 2020? The employee will not be required to recognize the income until it is received in 2021 147. Freddy purchased a certificate of deposit for $20,000 on July 1, 2020. The certificate’s maturity value in two years (June 30, 2022) is $21,218, yielding 3% beforetax interest. Freddy must recognize $300 (0.03 x $20,000 x 0.5) gross income in 2020 147. In 2019 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct? For each $2,500 payment received in the first year, Todd must include $1,000 in gross income 147. On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year. If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income...