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5. Question :
(TCO C) Which of the following items is not subject to federal income tax?
Interest on municipal bonds
$5,000 birthday gift from a family member
Discharge of debt through bankruptcy
Life insurance proceeds
All of the above
Chapter 5; IRC Secs. 101, 102, 103, & 108; All are excluded from gross income.
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6. Question :
(TCO B) Sam owes Bob $8,000. Bob cancels (forgives) the debt. The
cancellation is not a gift, and Sam is bankrupt. Which of the following
statements is correct concerning the impact of this transaction?
Both Bob and Sam recognize $8,000 of taxable income.
Bob recognizes $8,000 of taxable income.
Sam recognizes $8,000 of taxable income.
Neither Bob nor Sam has any taxable income from this transaction.
Chapter 4; IRC Sec. 108; When a taxpayer's debt is forgiven, he recognizes income
equal to the amount forgiven, unless bankrupt or insolvent at time of forgiveness.
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7. Question :
(TCO I) David, a cash basis taxpayer, owns two rental properties. Based
on the following information, compute the amount that he must include in
his 2011 gross rental income.
Property #1, security deposit on one-year lease received 2/1/11
All of deposit returned at lease end: $1,000
Property #1, payment received 2/1/11 for last month of lease(1/12): $900
Property #1, rental income received in 2011 2/11-12/11: $8,000
Property #2, rental income received in 2011 1/11-12/11: $9,600
Property #2, security deposit received 1/1/11 to be used for last month's
Property #2, rent 1/12 received 12/28/11: $800