amount of premiums paid by the insured are taxable to the insured. In 2010, Bill, a single individual, earned a salary of $10,000 and received $2,000 in unemployment 17. bene fi ts. The unemployment bene fi ts received by Bill are included in Bill’s 2010 gross income. George, a cash-basis taxpayer, was ill for several days in 2010 and received sick pay from his company. 18. George will not be required to report this as income for 2010.
444 CCH Federal Taxation—Basic Principles Chapter 5 © 2010 CCH. All Rights Reserved. Ben is a waiter at a small restaurant. On working days, Ben is required to have lunch on the premises; 19. however, the meal is furnished free-of-charge by Ben’s employer. Additionally, Ben is permitted to have lunch free-of-charge on his day off. Under these circumstances, only the value of the lunches eaten by Ben on his day off is includible in Ben’s taxable income. Mindy, a hotel manager, is required to reside in the hotel she manages as a condition of her employment. 20. Mindy’s hotel residence is provided free-of-charge because Mindy is on call 24 hours a day to handle hotel emergencies. The value of the hotel residence provided to Mindy is not taxable income. LSS Corporation has a health club on its premises that it provides to its employees at no extra charge. 21. Similar health club memberships in the area cost $250. LSS Corporation must include $250 in the income of each employee that uses the health club facilities.
445 Testbank © 2010 CCH. All Rights Reserved. Chapter 5 MULTIPLE CHOICE QUESTIONS—CHAPTER 5 *Questions 22, 25–28, 33–39, and 41–43 have been adapted from the IRS Examinations. Questions 23, 24, 29–32, and 40 have been adapted from the AICPA Examinations. In September 2010, Bill and Linda, a married couple with $50,000 gross income, cashed quali fi ed Series 22. EE U.S. Savings Bonds which they had purchased in 2004. The proceeds were used to help pay for their son’s 2010 college tuition. They received gross proceeds of $3,500, representing principal of $3,000 and interest of $500. The quali fi ed higher education expenses they paid in 2010 totaled $2,100. Their modi fi ed adjusted gross income for the year was $20,000. How much of the $500 interest can Bill and Linda exclude from gross income in 2010? $0 a. $200 b. $300 c. $500 d. Don Driller, who is 56 years old, is provided with $120,000 of group-term life insurance by his employer. 23. Based on the IRS uniform premium cost table, the total annual cost of a policy of this type is $9.00 per $1,000 of coverage. Don’s required contribution to the cost of the policy is $2.00 per $1,000 of coverage per year. Don was covered for the full 12 months of 2010. How much of the cost must Don include in his income for 2010? $0 a. $390 b. $630 c. $840 d. Frank Clarke, an employee of Smithson Company, was covered under a noncontributory pension plan. 24. Frank died on April 15, 2010, at age 64 and pursuant to the plan, his widow received monthly pension payments of $500 beginning May 1, 2010. In addition, Mrs. Clarke received an employee death payment of $10,000 in May 2010. This nonforfeitable death bene fi t was part of a group plan. What is the total amount of the above receipts that the widow should exclude from her gross income for 2010?
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