What is Charles’s adjusted gross income for 2012?.
Paul Bunyon, Inc.., an accrual basis taxpayer, leased a wood shredding machine to a new customer on December 27, 2012. The machine was to rent for $400 per month for a period of 12 months beginning January 1, 2013. The customer was required to pay the first and last month’s rent at the time the lease was signed. The customer also was required to pay a $400 damage deposit. Paul Bunyon must recognize as income from the lease in 2012:
a. $0.
b. $400.
c. $800.
d. $1,200.
e. None of the above.
9. As a general rule:
a. Income from investment property is always taxed to the person who receives the income.
b. Income from a CD is taxed to the person who collects the income.
c. The recipient of income from services must pay the tax on the income.
d. Income from services is taxed to the person who provides the services.
e. None of the above.
10. Alicia operates a gym. She sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $300 ($300/12 = $25 per month); a two-year membership costs $360($360/24 = $15 per month). Cash payment is required at the beginning of the membership. On July 1, 2012, Alicia sold a one-year membership and a two-year membership.
a. If Alicia is an accrual basis taxpayer, her gross income from the contracts for 2012 is $660 ($360 + $300).
b. If Alicia is an accrual basis taxpayer, her gross income from the contracts for 2012 is $510 ($150 + $360).
c. If Alicia is an accrual basis taxpayer, her gross income from the contracts for 2012 is $240 ($150 + $90).
d. If Alicia is an accrual basis taxpayer, her gross income from the contracts for 2012 is $390 ($300 + $90).
e. None of the above.
11. Under the terms of a divorce agreement, Manny is to pay his wife Bailey $2,000 per month. The payments are to be reduced to $800 per month when their 12 year-old child reaches age 18. During the current year, Manny paid $24,000 under the agreement. Assuming all of the other conditions for alimony are satisfied, Manny can deduct from gross income (and Bailey must include in gross income) as alimony:
a. $-0-.
b. $9,600.
c. $14,400.
d. $24,000.
e. None of the above.
12. Kenneth. After the company had paid $200,000 in premiums, Kenneth died and the company collected the $5 million face amount of the policy. The company also purchased group-term life insurance on all its employees. Kenneth’s widow, Christy, received the $250,000 proceeds from the group-term life insurance policy.
a. Walnut Company must include $4,800,000 ($5,000,000 – $200,000) in gross income and Christy must include $250,000 in gross income.
b. Walnut Company can exclude $4,800,000 ($5,000,000 – $200,000) from gross income, but Christy must include $250,000 in gross income.
c. Christy can exclude the life insurance proceeds of $250,000, but Walnut Company must include $4,800,000 ($5,000,000 – $200,000) in gross income.
d. Walnut Company and Christy can exclude the life insurance proceeds of $5,000,000 and $250,000 respectively from gross income.
e. None of the above.
13. In December 2012, Carl died. His wife was the beneficiary of his $500,000 life insurance policy. Carl had paid $25,000 in premiums. His wife elected to collect the proceeds in ten equal installments of $55,000 ($50,000 on the face amount of the policy and $5,000 interest). Of the $55,000 she collected in 2012, the nontaxable amount is:
a. $0.
b. $5,000.
c. $50,000.
d. $55,000.
e. None of the above.
14. Antonio was injured in an automobile accident and received $250,000 for his physical injury, $40,000 for his loss of income, and $200,000 punitive damages. As a result of the award, the amount Antonio must include in gross income is:
a. $40,000.
b. $200,000.
c. $240,000.
d. $490,000.
e. None of the above.
15. Charles, age 19, is a full-time student at Sierra University and a candidate for a bachelor’s degree. During 2012, he received the following payments:
Wages $9,000
State scholarship for ten months – tuition and books 8,000
– room and board 6,000
Loan from college financial aid office 2,750
Gift from parents 3,500
Cash dividends 2,500
Cash prize awarded in a contest 1,250
$33,000
What is Charles’s adjusted gross income for 2012?
a. $9,500.
b. $10,750.
c. $17,500.
d. $18,750.
e. None of the above.
16. Which of the following is a deduction from AGI?
a. Trade or business expenses.
b. Losses on the sale of property.
c. Reimbursed employee business expenses.
d. Investment-related expenses attributable to the production of investment income.
e. None of the above.
17. George, a calendar year cash basis taxpayer, has the following transactions:
Salary from job $60,000
IRA contribution 5,000
Student loan interest 1,500
Moving expenses 3,500
Based on this information, George has:
a. AGI of $50,000.
b. AGI of $56,500.
c. AGI of $58,500.
d. AGI of $60,000.
e. None of the above.
What is Charles’s adjusted gross income for 2012?
