This preview shows page 1. Sign up to view the full content.
Unformatted text preview: 0 [($7,000/$10,000) x $5,000]. However, the amount that could have been
excluded is reduced because Patty’s MAGI is in the phaseout range. Patty’s exclusion is
reduced by the following amount:
$3,500 x [($80,600 - $73,100)/($80,600 - $65,600)] = $1,750
Therefore, Patty’s exclusion is only $1,750 and she must include $3,250 ($5,000 - $1,750)
in her gross income. MULTIPLE CHOICE P ROBLEMS 29 12. Which of the following can be excluded from Ellen’s gross income?
4. The value of a diamond ring that Ellen received as a gift from David.
The value of a mansion that Ellen inherited from her parents.
The value of concert tickets that Ellen won in a radio contest.
The value of a scholarship for room and board that Ellen received to her state
a. 1 only.
b. 1 and 2.
c. 1, 2, and 3.
d. 2, 3, and 4.
The correct answer is b.
The concert tickets that Ellen won in a radio contest are a prize/award and therefore are
included in her gross income. The value of the scholarship is also included in Ellen’s gross
income because the scholarship was for room and board, which is not considered to be
qualified tuition and related expenses.
13. Which of the following payments would not qualify as a qualified disaster relief payment?
a. Payments for unlimited funeral expenses incurred as a result of a qualified
b. Payments for reasonable and necessary expenses to repair a personal residence as
a result of a qualified disaster.
c. Payments to promote the general welfare in connection with a qualified disaster
and paid by the federal government.
d. Payments made by a person engaged in the furnishing or sale of transportation
as a common carrier by reason of personal physical injuries incurred as a result
of a qualified disaster.
The correct answer is a.
Only payments for reasonable and necessary funeral expenses incurred as a result of a qualified disaster would qualify as a qualified disaster relief payment and therefore be excluded
from gross income. 30 CHAPTER 4: G ROSS INCOME FROM PERSONAL AND INVESTMENT ACTIVITIES 14. Sean owns stock in the McNamara Corporation. Sean has a basis in his stock of $100.
Which of the following would not be included in Sean’s income?
a. Qualified dividends received from McNamara Corporation.
b. A distributions by McNamara Corporation to its shareholders in excess of
earnings and profits, of which Sean’s share of the distribution is $50.
c. Dividends paid by the McNamara Corporation of less than $10.
d. Dividends paid by the McNamara Corporation, assuming that it is not a U.S.
The correct answer is b.
Distributions in excess of earnings and profits are treated as a nontaxable return of invested
dollars until the shareholder’s entire tax basis in the stock has been recovered. Sean’s basis in
his stock is $100 and the distribution is only $50. Therefore, the distribution is not
included in Sean’s income.
15. Twenty-five years ago, Derek paid $11,000 for an annuity that paid $625 a year for life. At
the time he purchased the annuity, Derek’s life expectancy was 22 years. How much taxable
income will Derek have from the annuity this year?
a. Derek will have no taxable income from the annuity.
b. Derek will have $125 of taxable income from the annuity this year.
c. Derek will have $500 of taxable income from the annuity this year.
d. Derek will have $625 of taxable income from the annuity this year.
The correct answer is d.
Because Derek has exceeded his life expectancy of 22 years, the entire annuity payment
received this year must be included in his gross income. MULTIPLE CHOICE P ROBLEMS 31 32 CHAPTER 4: G ROSS INCOME FROM PERSONAL AND INVESTMENT ACTIVITIES...
View Full Document
This note was uploaded on 08/20/2013 for the course ACCT 330 taught by Professor Staff during the Spring '12 term at Western Kentucky University.
- Spring '12