Reference no: EM132723968

Pam and Ray Smith need to exclude the appropriate amounts from gross income for each item listed below. Unless specifically stated otherwise, each item was received or paid during 2019.

Question 1: For each item, enter the appropriate amounts to be excluded from taxable income in the associated cells. If the amount is zero, enter a zero (0). Round all amounts to the nearest whole dollar.

Example:

Ray received $500 under a workers' compensation plan for physical injuries sustained in the course of his employment. Ray should exclude $500 under a workers compensation because physical injuries are exclude in the tax code.

1 Under a jury award for damages to Ray's personal reputation for libel, 12 payments of $420 each were received. The total award was $12,000 for his personal reputation and $12,000 as punitive damages, payable in 60 equal monthly installments. Each monthly payment of $420 reflects an interest component.

2 Pam borrowed $5,000 from Local Bank to purchase a piano. She paid $300 of interest on the loan. Principal of $3,750 was still outstanding at year-end.

3 Pam received a pro rata stock dividend of 100 shares of the stock of Grubbs Corp. She requested a dividend of $5,000 cash instead (the fair market value of the stock dividend) but was told that Grubbs Corp. does not give that option to shareholders.

4 Ray, as beneficiary of the life insurance policy of his aunt who died 2 years ago, received the third $8,000 installment on a $100,000 life insurance policy, payable in annual installments of $8,000 over a 15-year period.

5 Ray was notified on December 27, 2019, that the principal amount of $1,000 due on a note secured by a computer he purchased in 2016 had been reduced to $700. The creditor had reduced the amount as to all accounts secured by computers more than a certain number of years old to discourage "walking away" from debt greater in amount than the cost of new updated equipment.

6 Seth, a tenant of Ray and Pam, having paid 2019 rent of $8,600 in December 2018, moved out in December 2019, leaving $3,300 of improvements to the leasehold premises.