HW Chapter 3 Tax.docx - Discussion Question 3-2(LO 1...

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Discussion Question 3-2 (LO. 1)Indicate whether the following items are "Included in" or "Excluded from" gross income.a. During the year, that the taxpayer purchased stock as an investment which doubled in value.Excluded from b.Amount an off-duty motorcycle police officer received for escorting a funeral procession.Included in c. While his mother was in the hospital, the taxpayer sold some of her jewelry to help pay for thehospital bills.Included in d.Child support payments received.Excluded from e. A damage deposit the taxpayer recovered when he vacated the apartment he had rented.Excluded from f. Interest received by the taxpayer on an investment in general purpose bonds issued by IBM.Included in g.Amounts received by the taxpayer, a baseball "Hall of Famer," for autographing sports equipment (e.g., balls and gloves).Included in h.Tips received by a bartender from patrons. (Taxpayer is paid a regular salary by the cocktail lounge that employs him.)Included in i. Taxpayer sells his Super Bowl tickets for three times what he paid for them.Included in j. Taxpayer receives a new BMW from his grandmother when he passes the CPA exam.Excluded from FeedbackThe Internal Revenue Code defines gross income broadly as "except as otherwise provided …, all income from whatever source derived." Congress has chosen to exclude certain types of income from the income tax base.Answers: Excluded from; Included in; Included in; Excluded from; Excluded from; Included in; Included in; Included in; Included in; Excluded from.In the tax formula, "income'' is essentially equivalent to gross receipts but it does not include a return of capital, unrealized gains or the receipt of borrowed funds. Therefore, if an item is not specifically excluded, it is considered part of gross income for tax purposes.a. During the year, that the taxpayer purchasedstock as an investment which doubled in value.Excluded from.The accounting concept of income is founded on the realization principle. The Supreme Court expressed an inclination toward the accounting concept of income when it adopted the realization requirement in Eisner v. Macomber. Income represents an increase in wealth recognized for tax purposes only upon realization. The appreciation in the market value of an asset owned is not realized and thus is not included in gross income until the asset is sold.b.Amount an off-duty motorcycle police officer received for escorting a funeral procession.Included in.An amount received in consideration for services rendered is considered a taxable payment and must be included in gross income.c. While his mother was in the hospital, the taxpayer sold some of her jewelry to help payfor the hospital bills.Included in.The Internal Revenue Code defines gross income broadly as "except as otherwise provided …, all income from whatever source derived."d.Child support payments received.Excluded from.A taxpayer does not realize income from thereceipt of child support payments made by his or her former

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