Chapter 3 answer - Chapter 3 Gross Income Inclusions Objective-1 Income Concepts 1After buying books at the beginning of the semester Dolly finds a $100

Chapter 3 answer - Chapter 3 Gross Income Inclusions...

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Chapter 3 Gross Income: InclusionsObjective-1. Income Concepts1After buying books at the beginning of the semester, Dolly finds a $100 bill outside the door of the bookstore. The $100 is considered gross income. Which of the following supports this treatment?a.All-inclusive Income Concept.b.Capital Recovery Concept.Ac.Constructive Receipt Doctrine.d.Administrative Convenience.2Porter was unemployed for part of the year. Porter received $35,000 of wages, $6,400 from a state unemployment compensation plan, and $2,000 from his former employer’s company-paid supplemental unemployment benefit plan. What is the amount of Porter’s gross income?a. $35,000b. $37,000c. $41,400d. $43,400Answer: dExplanation:Rule: Gross income includes all income unless it is specifically excluded in the tax code.Wages and all unemployment compensation are not excluded form being taxable; they are included in the taxpayer’s gross income for tax purposes.Wages received $35,000State unemployment compensation 6,400Employer’s unemployment compensation plan 2,000$43,400Objective-2. Assignment of Income3Sue owns land that she rents for $500 per month to a farmer. She received the monthly rental of $500 for each of the first ten months of the year. She assigned the income for the last two months to her mother, and instructed the farmer to send the last two month's rent to her mother. How much rental income should Sue report for the year?a.$5,000b.$6,000c.OtherBObjective-3. Accounting Methods4Norah, who gives music lessons, is a calendar year taxpayer using the cashbasis method of accounting. On October 1 of this year, she received $1,200 for a one-year contract beginning on that date to provide 10 lessons. She gave 6 lessons this year. How much should Norah include in income this year?A) $480B) $360C) $720D) $1,200Answer: DExplanation: D) As a cash basis taxpayer, she will recognize the income in the year received.
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5Mary received a regular salary of $10,000 per month on the last day of each month. On December 20, Year 1, Thomas, the CEO of Lifetime Corp. issued a $50,000 bonus check to Mary. Thomas asked Mary to hold the check until at least January 4, Year 2, when there will be enough deposits to cover the check. How does Mary, a cash basis taxpayer, report her compensation income for Year 1 and Year 2?a.$120,000 in Year 1, $50,000 in Year 2b.$170,000 in Year 1, $0 in Year 2Ac.$0 in Year 1, $170,000 in Year 2d.otherObjective-4. Specific Items of Income 4-1 Interest6Ms. Marple's books and records for this year reflect the following information:Salary earned this year$65,000Interest on savings account1,000Interest on county bonds earned and collected in this year2,000What is the amount Ms. Marple should include in her gross income in this year?
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