Exam_1_Practice_Fal - Tax 4001 Fall 2010 Practice Questions...

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Tax 4001 Fall 2010 Practice Questions for Exam 1 1. The constructive receipt doctrine: a. Does not apply to accrual basis taxpayers. b. Does not apply to cash basis taxpayers. c. Is used to distinguish unearned income from earned income. d. Means that a taxpayer cannot plan transactions to defer the recognition of income e. Provides an opportunity for a cash method taxpayer to delay the reporting of cash received. 2. Home Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the month ($25 each month), by the year ($280 per year), or two years in advance ($540). In December Year 1, the company collected the following amounts applicable to future services: January Year 2-December Year 3 services (two-year contracts) $ 270,000 January Year 2 – December Year 2 services (one-year contracts) 1,120,000 January Year 2 services (monthly contracts) 350,000 December Year 1 services (monthly contracts) 100,000 How much of the above income must be reported as gross income in Year 1, and Year 2 respectively? 3. Answer #2 again, assuming Home Cable TV Company uses the cash-method of accounting? 4. Assume your marginal tax rate is 40% (combined Federal and state rates). Which would you prefer? a. $1.40 taxable income rather than $1.00 tax-exempt income. b. $.60 tax-exempt income rather than $1.00 taxable income. c. $1.50 taxable income rather than $1.00 tax-exempt income. d. $1.70 taxable income rather than $1.00 tax exempt income. e. Two of the above. Which two? ______________________. 5. Carol, a widow, elected to receive the proceeds of a $100,000 life insurance policy on the life of her deceased husband in 10 installments of $15,000 each. Her husband had paid premiums of $40,000 on the policy. How much income must Carol include in gross income over the life of the contract?
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6. Nell is in the 15% income tax bracket.
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