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Chapter 4 Class Questions 2011

Chapter 4 Class Questions 2011 - Bob Ryan DePaul University...

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Bob Ryan DePaul University Class Questions Accounting 380 Tax Treatment of Individuals and Property Transactions Chapter 4 – Gross Income Concept and Inclusion 2011 True/ False 3. Judy is a cash basis attorney. In 2010, she performed services in connection with the formation of a corporation and received stock with a value of $3,000 for her services. By the end of the year, the value of the stock had decreased to $1,000. She continued to hold the stock. Judy must recognize $3,000 of gross income from the stock for 2010. 6. If the taxpayer’s method of measuring income is consistent with GAAP, it will be acceptable for tax purposes. 8. A cash basis taxpayer purchased a certificate of deposit for $900 on July 1, 2010 that will pay $1,000 upon its maturity on June 30, 2012. The taxpayer must recognize a portion of the income in 2010. 11. In 2003, Terry purchased land for $150,000. In 2010, Terry received $5,000 from a local cable television company in exchange for Terry allowing the company to run an underground cable across Terry’s property. Terry is not required to recognize income from receiving the $5,000 because it was a return of his capital invested in the land. 15. An accrual basis taxpayer can defer all advance payments for services until the services are performed if the method of accounting for the services is the same for tax and financial reporting purposes. 18. The constructive receipt doctrine requires that income must be recognized when it is made available to the cash basis taxpayer, although it has not been actually received. The constructive receipt doctrine does not apply to accrual basis taxpayers. 19. Mabel is age 65 and lives on her Social Security benefits and gifts from her son, Fred. Fred is a full-time teacher. He has written a book and receives royalties from it. This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support. Mabel must include the amount of the royalty check in her gross income. 22. Tom purchased a bond on March 31 for $10,000, plus $150 accrued interest. In December, Tom collected $600 interest from the bond. Tom’s interest income from the bond for the year is $450. 25. Jake is the sole shareholder of an S corporation that earned $50,000 in 2010. The corporation was short on cash and therefore distributed only $15,000 to Jake in 2010. Jake is required to recognize $50,000 of income from the S corporation in 2010. 1
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29. Rhonda has a 30% interest in the capital and profits of the ABC Partnership. Her share of the profits for 2010 was $60,000. She withdrew $40,000 from the partnership in 2010. In January 2011, after her share of the profits for 2010 had been computed, she withdrew her remaining $20,000 share of 2010 profits. As a result, Rhonda must recognize $40,000 of gross income in 2010 and $20,000 in 2011. 32. Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000. On the date of the gift, September 30, 2010, the accrued interest on the bond was $150. On December 31, 2010, Brent collected $300 interest on the bond.
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Chapter 4 Class Questions 2011 - Bob Ryan DePaul University...

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