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Exam 5: Gross Income and Exclusions

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Question 71

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Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4 percent,which of the following is correct?

A) Janine recognizes $200 of taxable interest income.
B) Janine's employer recognizes $200 of deductible interest expense.
C) Janine recognizes $200 of imputed compensation income.
D) Janine recognizes $200 of imputed dividend income.
E) None of the choices are correct.

F) B) and E)
G) A) and D)

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Question 72

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Which of the following statements about alimony payments is true for divorce agreements executed before 2019?

A) To qualify as alimony,payments must be made in cash.
B) Alimony payments are includible in the gross income of the recipient.
C) To qualify as alimony,payments cannot continue after the death of the recipient.
D) To qualify as alimony,payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support.
E) All of the choices are correct.

F) A) and B)
G) All of the above

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Question 73

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Bernie is a former executive who is retired.This year Bernie received $250,000 in pension payments and $10,000 of Social Security payments.What amount must Bernie include in his gross income?

Shaun is a student who has received an academic scholarship to State University.The scholarship paid $14,000 for tuition,$2,500 for fees,and $1,000 for books.In addition,Shaun's dormitory fees of $8,500 were paid by the university when he agreed to counsel freshman on campus living.What amount must Shaun include in his gross income?

Interest income is taxed in the year in which it is received by the taxpayer or credited to the bank account.

Workers' compensation benefits are excluded from gross income.

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).

For tax purposes,unearned income is income that has not yet been realized.

Wendell is an executive with CFO Tires.At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of 1 percent.Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing federal interest rate.Wendell used the funds as a down payment on a vacation home,and during the year he paid $500 of interest to CFO.On December 31,CFO forgave the loan and remaining interest.What amount of gross income does Wendell recognize from the loan this year?

This fall Angelina,age 35,plans to attend college.To fund her tuition she cashed in Series EE savings bonds with a redemption value of $24,000 and an original cost of $16,800.Angelina plans on spending $7,200 of the proceeds to pay tuition.The redemption proceeds are Angelina's only source of income.What amount of interest must Angelina include in gross income this year?