Reference no: EM132321172

Taxation Questions -

Question 1 - Louis files as a single taxpayer. In April of this year he received a $1,100 refund of state income taxes that he paid last year.

How much of the refund, if any, must Louis include in gross income under the following independent scenarios? Assume the standard deduction last year was $6,350. (Leave no answer blank. Enter zero if applicable.)

a. Last year Louis claimed itemized deductions of $6,416. Louis's itemized deductions included state income taxes paid of $1,950.

b. Last year Louis had itemized deductions of $4,560 and he chose to claim the standard deduction. Louis's itemized deductions included state income taxes paid of $1,950.

c. Last year Louis claimed itemized deductions of $7,750. Louis's itemized deductions included state income taxes paid of $3,385.

Question 2 - Required information - L. A. and Paula file as married taxpayers. In August of this year, they received a $6,040 refund of state income taxes that they paid last year.

How much of the refund, if any, must L. A. and Paula include in gross income under the following independent scenarios? Assume the standard deduction last year was $12,700. (Leave no answer blank. Enter zero if applicable.)

a. Last year L. A. and Paula had itemized deductions of $11,120, and they chose to claim the standard deduction.

b. Last year L. A. and Paula claimed itemized deductions of $26,750. Their itemized deductions included state income taxes paid of $7,620.

c. Last year L. A. and Paula claimed itemized deductions of $19,450. Their itemized deductions included state income taxes paid of $13,700.

Question 3 - Required information - Larry purchased an annuity from an insurance company that promises to pay him $10,000 per month for the rest of his life. Larry paid $1,051,200 for the annuity. Larry is in good health, and he is 72 years old. Larry received the first annuity payment of $10,000 this month. Use the expected number of payments in Exhibit 5-1 for this problem

Exhibit 5-1 - Table for Expected Return Multiple for Ordinary Single-Life Annuity

Age at Annuity	Expected Return Multiple
68	17.6
69	16.8
70	16.0
71	15.3
72	14.6

a. How much of the first payment should Larry include in gross income?

b. If Larry lives more than 15 years after purchasing the annuity, how much of each additional payment should he include in gross income?

c. What are the tax consequences if Larry dies just after he receives the 100th payment?

Question 4 - Required information - For each of the following independent situations, indicate the amount the taxpayer must include in gross income: (Leave no answer blank. Enter zero if applicable.)

a. Phil won $400 in the scratch-off state lottery. There is no state income tax.

b. Ted won a compact car worth $25,300 in a TV game show. Ted plans to sell the car next year.

c. Al Bore won the Nobel Peace Prize of $520,000 this year. Rather than take the prize, Al designated that the entire award should go to Weatherhead Charity, a tax-exempt organization.

d. Jerry was awarded $4,800 from his employer, Acme Toons, when he was selected most handsome employee for Valentine's Day this year.

e. Ellen won a $1,100 cash prize in a school essay contest. The school is a tax-exempt entity, and Ellen plans to use the funds to pay her college education.

f. Gene won $730 in the office March Madness pool.

Question 5 - Required information - George and Weezy received $27,700 of Social Security benefits this year ($10,300 for George; $17,400 for Weezy). They also received $4,450 of interest from jointly owned City of Ranburne Bonds and dividend income.

What amount of the Social Security benefits must George and Weezy include in their gross income under the following independent situations? (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. George and Weezy file married joint and receive $8,050 of dividend income from stocks owned by George.

b. George and Weezy file married separate and receive $8,050 of dividend income from stocks owned by George.

c. George and Weezy file married joint and receive $30,800 of dividend income from stocks owned by George.

d. George and Weezy file married joint and receive $15,400 of dividend income from stocks owned by George.

Question 6 - Required information - Nikki works for the Shine Company, a retailer of upscale jewelry. How much taxable income does Nikki recognize under the following scenarios? (Round your answers to 2 decimal places. Leave no answer blank. Enter zero if applicable.)

a. Nikki buys a diamond ring from Shine Company for $17,400 (normal sales price, $21,880; Shine Company's gross profit percentage is 40 percent).

b. Nikki receives a 25 percent discount on jewelry restoration services offered by Shine Company. This year, Nikki had Shine Company repair a set of antique earrings (normal repair cost $965; discounted price $723.75).

Question 7 - Required information - Jimmy has fallen on hard times recently. Last year he borrowed $313,000 and added an additional $77,500 of his own funds to purchase $390,500 of undeveloped real estate. This year the value of the real estate dropped dramatically, and Jimmy's lender agreed to reduce the loan amount to $284,400.

For each of the following independent situations, indicate the amount Jimmy must include in gross income: (Leave no answer blank. Enter zero if applicable.)

a. The real estate is worth $223,100 and Jimmy has no other assets or liabilities.

b. The real estate is worth $290,750 and Jimmy has no other assets or liabilities.

c. The real estate is worth $245,700 and Jimmy has $45,200 in other assets but no other liabilities.

Question 8 - Required information - For each of the following situations, indicate how much the taxpayer is required to include in gross income: (Leave no answer blank. Enter zero if applicable.)

a. Steve was awarded a $8,750 scholarship to attend State Law School. The scholarship pays Steve's tuition and fees.

b. Hal was awarded a $21,000 scholarship to attend State Hotel School. All scholarship students must work 30 hours per week at the School residency during the term.

Question 9 - Required information - Cecil cashed in a Series EE savings bond with a redemption value of $18,000 and an original cost of $12,600.

For each of the following independent scenarios, calculate the amount of interest Cecil will include in his gross income assuming he files as a single taxpayer: (Leave no answer blank. Enter zero if applicable.)

a. Cecil plans to spend all of the proceeds to pay his son's tuition at State University. Cecil's son is a full-time student, and Cecil claims his son as a dependent. Cecil estimates his modified adjusted gross income at $65,400.

b. Assume the same facts in part (a), except Cecil plans to spend $5,400 of the proceeds to pay his son's tuition at State University, and Cecil estimates his modified adjusted gross income at $61,200.

Question 10 - Required information - Terry was ill for three months and missed work during this period. During his illness, Terry received $5,950 in sick pay from a disability insurance policy.

What amounts are included in Terry's gross income under the following independent circumstances? (Leave no answer blank. Enter zero if applicable.)

a. Terry has disability insurance provided by his employer as a nontaxable fringe benefit. Terry's employer paid $3,880 in disability premiums for Terry this year.

b. Terry paid $3,880 in premiums for his disability insurance this year.

c. Terry's employer paid the $3,880 in premiums for Terry, but Terry elected to have his employer include the $3,880 as compensation on Terry's W-2.

d. Terry has disability insurance whose cost is shared with his employer. Terry's employer paid $2,700 in disability premiums for Terry this year as a nontaxable fringe benefit, and Terry paid the remaining $1,180 of premiums from his after-tax salary. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Question 11 - Required information - This year, Janelle received $370,000 in life insurance proceeds. Under the following scenarios, how much of the $370,000 is taxable? (Leave no answer blank. Enter zero if applicable.)

a. Janelle received the proceeds upon the death of her father, Julio.

b. Janelle received the $370,000 proceeds because she was diagnosed with colon cancer (life expectancy of 6 months), and she needed the proceeds for her care.

c. The proceeds related to a life insurance policy she purchased for $66,500 from a friend in need. After purchase, Janelle paid annual premiums that total $42,550.

Question 12 - Required information - This year, Leron and Sheena sold their home for $658,000 after all selling costs. Under the following scenarios, how much taxable gain does the home sale generate for Leron and Sheena? (Leave no answer blank. Enter zero if applicable.)

a. Leron and Sheena bought the home three years ago for $120,000 and lived in the home until it sold.

b. Leron and Sheena bought the home one year ago for $378,000 and lived in the home until it sold.

c. Leron and Sheena bought the home five years ago for $228,000. They lived in the home for three years until they decided to buy a smaller home. Their home has been vacant for the past two years.

Question 13 - Dontae's employer has offered him the following employment package.

Salary	$390,000
Health insurance	13,500
Dental insurance	950
Membership to Heflin Country Club	16,200
Season tickets to Atlanta Braves games	4,600
Tuition reimbursement for graduate courses	3,900
Housing allowance (for a McMansion in his neighborhood of choice)	35,000

What is Dontae's gross income from his employment?

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