CHAPTER 3 T-F MULTI CHOICE PRACTICE QUIZZES

CHAPTER 3 T-F MULTI CHOICE PRACTICE QUIZZES -...

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1. Income may be realized from the Your Answer: Receipt of cash, property and services, as well as cancellation of indebtedness, can all  result in income realization.   2. Which of the following situations  would  NOT  be considered  constructive receipt  of income by a  cash basis taxpayer? Your Answer: The income is not available to the taxpayer without significant restrictions (e.g.  surrendering the policy) so the  doctrine of constructive receipt  does not apply to the cash  surrender value of a life insurance policy.   3. Taxes on income are normally paid  by the party earning the income. In  which of the following cases will tax  on income earned by an entity  instead be paid by the owner or  beneficiary, rather than by the entity  earning the income? Your Answer: Income earned by partnerships, S corporations and many trusts is taxed to the owner or  beneficiary.  
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4. Social Security benefits do  NOT  include Your Answer: 5. Insurance proceeds are  NOT  included in income if Your Answer: Compensatory damages received on account of personal physical injury or sicknesses  are specifically excluded by the Internal Revenue Code. Note that punitive damages  would be taxable.   6. Which of the following items is  NOT  subject to federal income tax? Your Answer: Except for interest on municipal bonds (bonds issued by state and local governments)  and except for a limited exclusion for Series EE bonds used for college education, all  interest is subject to tax.   7. Bob Fox, a cash basis taxpayer,  earned a $140,000 salary as  president of Jasper Corp. in 2010. In  addition, on December 2 he was  granted a $50,000 bonus by the  board for his excellent performance  in 2010. Bob asked the payroll  manager to "hold" the bonus check 
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until 2011. What is Bob's gross  income for 2010? Your Answer: All $190,000 (the $140,000 salary and the $50,000 bonus) was  available  to Bob so the  bonus must be recognized in 2010 under the doctrine of constructive receipt. When the  bonus is physically received in 2011, the $50,000 will have already been taxed and will  therefore not be subject to tax again in 2011.   8. Which of the following items should  NOT  be included in Mr. Watt's gross  income? Your Answer: Life insurance proceeds received by the beneficiary are normally excludible.   9. How much of the following receipts  should Mr. Blitz include in income on  his federal income tax return?  Your Answer: Both punitive damages and gambling winnings represent income and are not excluded  under tax law. Neither receipt of borrowed funds nor  unrealized  appreciation of an asset's  value constitutes income.  
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10. Angela recognized $2,200 of 
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This note was uploaded on 03/24/2012 for the course ACC 314 taught by Professor Dee during the Spring '12 term at Gardner-Webb.

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CHAPTER 3 T-F MULTI CHOICE PRACTICE QUIZZES -...

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