Chapter 5

Chapter 5 - Acct 3400 Taxation of Individuals Chapter 5...

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Acct 3400 Taxation of Individuals Chapter 5 Practice Questions Question 1: Lloyd is an electrician. He has had a relationship with Nelly, a general contractor, for many years. Nelly calls Lloyd to do the electrical work on all the houses he builds and Lloyd always performs admirably. Recently Nelly built his own house and asked Lloyd to do the electrical work on it. Lloyd performed the work, but because of his previous relationship with Nelly, refused to accept payment. Grateful for Lloyd’s generosity, Nelly bought Lloyd a new fishing pole. Is the fishing pole a gift? Explanation: Gifts are excludible from the recipient’s taxable income. However, while transfers are determined as gifts on a case by case basis, we can generally state that where the donee has rendered past services to the donor, it will be a rare case where a subsequent transfer of property is a gift. That general rule would apply here. We would look at the facts and circumstances of the gift and likely conclude that Nelly’s true intent in giving Lloyd the fishing pole was to compensate him for his services, not out of a feeling of love, generosity, affection etc. Therefore, the fishing pole would not be a gift. Question 2: Melanie received the following amounts in the form of a scholarship: Tuition $ 2,500 Fees $ 200 Books $ 500 $ 1,500 $ 5,700 What amount of gross income would Melanie have from the receipt of the
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This note was uploaded on 03/26/2011 for the course ACTG 3400 taught by Professor Durkee during the Spring '11 term at Weber.

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Chapter 5 - Acct 3400 Taxation of Individuals Chapter 5...

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