Question 1

1.

Tonya is a cash basis taxpayer. In 2011, she paid state income taxes of $6,000. In early 2012, she filed her 2011 state income tax return and received a $600 refund.
Answer

If Tonya itemized her deductions in 2011 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $600, she must include the $600 in her 2012 gross income. If Tonya itemized her deductions in 2011, she must amend her 2011 Federal income tax return and use the standard deduction. Tonya must recognize $600 as income from discharge of indebtedness. None of the above.
1 points

Question 2
1.

Turquoise Company purchased a life insurance policy on the companys chief executive officer, Joe. After the company had paid $400,000 in premiums, Joe died and the company collected the $1.5 million face amount of the policy. The company also purchased group term life insurance on all its employees. Joe had included $16,000 in gross income for the group term life insurance premiums. Joes widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy.
Answer

Turquoise Company and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000, respectively, from gross income. Turquoise Company can exclude $1,100,000 ($1,500,000 $400,000) from gross income, but Rebecca must include $84,000 in gross income. Turquoise Company must include $1,100,000 ($1,500,000 $400,000) in gross income and Rebecca must include $100,000 in gross income. None of the above.
1 points 1.

Question 3

The plant union is negotiating with the Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees hospitalization insurance in exchange for a wage reduction. The employees each currently pay premiums of $4,000 a year for their insurance.
Answer

. If an employees wages are reduced by $4,000 and the employee is in the 15% marginal tax bracket, the employee would benefit from the offer. If an employees wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer. a., b., and c. None of the above.
1 points

Question 4
1.

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel. All employees are allowed to obtain food from the restaurant at no charge during working hours. In the case of the employees who operate the gambling facilities, bar, and restaurant, 60% of all of Casinos employees, the meals are provided for the convenience of the Casino. However, the hotel workers, demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work. Which of the following is correct?
Answer

Only the restaurant employees may exclude the value of their meals from gross income. Only the employees who work in gambling, the bar, and the restaurant may exclude the meals from gross income. All of the employees may exclude the value of the meals from gross income. None of the above.
1 points 1.

Question 5

The Royal Motor Company manufactures automobiles. Employees of the company can buy a new automobile for Royals cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally, employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealers cost. Officers of Local Dealer are allowed to use a company vehicle (for personal use) at no cost.
Answer

None of the employees who take advantage of the fringe benefits described above are required to recognize income. Employees of Royal are required to recognize as gross income 18% (20% 2%) of the cost of the automobile purchased. Employees of Local Dealer are required to recognize as gross income the gross profit Local Dealer loses as a result of the sale to the employees. Local Dealer officers must recognize gross income from the personal use of the company vehicles. None of the above.
1 points

Question 6
1.

Stuart owns 300 shares of Turquoise Corporation stock and 2,000 shares of Blue Corporation stock. During the year, Stuart received 150 shares of Turquoise as a result of a 1 for 2 stock split. The value of the shares received was $4,800. Stuart also received 100 shares of Blue Corporation stock as a result of a 5% stock dividend. Stuart did not have the option of receiving cash from Blue. The additional shares he received had a value of $7,200. Stuarts gross income from the receipt of the additional Turquoise and Blue shares is:
Answer

$0. $4,800. $7,200. $12,000. None of the above.

1 points 1.

Question 7

Ron, age 19, is a full-time graduate student at City University. During 2011, he received the following payments:
State scholarship for ten months (tuition and books) Loan from college financial aid office Cash support from parents Cash award for being the outstanding resident adviser $ 6,000 3,000 2,500 1,500 $13,000

Ron served as a resident advisor in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Rons adjusted gross income for 2011?
Answer

$1,500. $4,000. $7,500. $15,500. None of the above.

1 points 1.

Question 8

In the case of interest income from state and Federal bonds:

I. II. III.
Answer

Interest on United States government bonds received by a state resident cannot be subject to that states income tax. Interest on United States government bonds are not subject to Federal income tax. Interest received on bonds issued by State A received by a resident of State B cannot be subject to income tax in State B.

I is true, II and III are false. I and II are true, and III is false. II and III are true, and I is false. I, II, and III are true. None of the above.

1 points

Question 9
1.

In 2011, Khalid was in an automobile accident and suffered physical injuries. The accident was caused by Rashads negligence. Khalid threatened to file a lawsuit against Amber Trucking Company, Rashads employer, claiming $50,000 for pain and suffering, $25,000 for loss of income, and $100,000 in punitive damages. Ambers insurance company will not pay punitive damages; therefore, Amber has offered to settle the case for $120,000 for pain and suffering, $25,000 for loss of income, and nothing for punitive damages. Khalid is in the 35% marginal tax bracket. What is the after-tax difference to Khalid between Khalids original claim and Ambers offer?
Answer

Ambers offer is $10,500 less. [($30,000 .35) = $10,500]. Ambers offer is $19,500 less. [$30,000(1 .35) = $19,500]. Ambers offer is $5,000 more. [$70,000 (1 .35) ($100,000) = $65,000]. None of the above.
1 points 1.

Question 10

Louise works in a foreign branch of her employers business. She earned $5,000 per month throughout the relevant period.
Answer

If Louise worked in the foreign branch from May 1, 2011 until October 31, 2012, she may exclude $40,000 from gross income in 2011 and exclude $50,000 in 2012.

If Louise began work in the foreign country on May 1, 2011, she must work through November 30, 2012 in order to exclude $55,000 from gross income in 2012 but none in 2011. Louise will not be allowed to exclude any foreign earned income because she made less than $92,900. None of the above.