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

This preview shows page 1 - 3 out of 6 pages.

Chapter 3 Gross Income: Inclusions Objective-1. Income Concepts 1 After 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. A c. Constructive Receipt Doctrine. d. Administrative Convenience. 2 Porter 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. $35,000 b. $37,000 c. $41,400 d. $43,400 Answer: d Explanation: 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 $35,000 State unemployment compensation 6,400 Employer’s unemployment compensation plan 2,000 $43,400 Objective-2. Assignment of Income 3 Sue 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. $5,000 b. $6,000 c. Other B Objective-3. Accounting Methods 4 Norah, who gives music lessons, is a calendar year taxpayer using the cash basis 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) $480 B) $360 C) $720 D) $1,200 Answer: D Explanation: D) As a cash basis taxpayer, she will recognize the income in the year received.
Image of page 1

Subscribe to view the full document.

5 Mary 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 2 b. $170,000 in Year 1, $0 in Year 2 A c. $0 in Year 1, $170,000 in Year 2 d. other Objective-4. Specific Items of Income 4-1 Interest 6 Ms. Marple's books and records for this year reflect the following information: Salary earned this year $65,000 Interest on savings account 1,000 Interest on county bonds earned and collected in this year 2,000 What is the amount Ms. Marple should include in her gross income in this year?
Image of page 2
Image of page 3

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern