HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
Frank and Gina are trying to calculate
their gross income. Which of the follow-
ing items should they exclude from their
gross income?
a. I and II
I. $75,000 in cash inherited by Gina from
her mother Explanation: Inheritance is not income.
II. $30,000 borrowed by Frank and Gina Inherited cash or property is excluded
from First City Bank from gross income, so Option I is correct.
III. A $10,000 gain from the sale of Frank Borrowed money is also excluded from
and Gina's boat gross income, so Option II is also correct.
IV. $600 of interest earned on a loan Gain on the sale of assets (Option III)
made by Frank to his cousin Michael and interest income (Option IV) are both
included in gross income.
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
Bryan and Diane are trying to calculate
their gross income. Which of the follow-
ing items should they exclude from their
gross income?
I. A $25,000 gift from Diane's mother for
c. I, II, and III
the down payment of their new house
II. $30,000 borrowed by Bryan and Diane
Explanation: Gifts are not income. A gift
from First City Bank
of cash or property is excluded from
III. A $10,000 increase in the value of
gross income. Borrowed money is also
Delta Airlines stock, which they own in
excluded from gross income. Gain on as-
their brokerage account
sets is not taxable until the assets are
IV. $55,000-worth of home repair work
sold. However, barter transactions are
that was exchanged for tax work by
taxable.
Bryan
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
, HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
a. $49,900
Arnold and Phoebe have been married
for 20 years and always file a joint return,
Explanation: Arnold and Phoebe's tax-
but they never itemize their deductions.
able income is equal to their gross in-
They have a gross income of $80,000
come less deductions for adjusted gross
and deductions for adjusted gross in-
income, less the greater of the standard
come (AGI) in the amount of $5,000, but
deduction or itemized deductions. There-
they do not have any children. Neither
fore, their taxable income can be calcu-
Arnold nor Phoebe are over the age of
lated as follows:
65, and neither is blind. What is Arnold
and Phoebe's taxable income for the cur-
For the Current Tax Year
rent year? Assume their standard deduc-
- Gross Income= $80,000
tion is $25,1000 for the current tax year.
- Less Deductions for AGI = (- $5,000)
- Adjusted Gross Income = $75,000
a. $49,900
- Less Standard Deduction (given) =
b. $54,900
$25,100
c. $62,450
- Less Personal Exemption = ($0)
d. $75,000
- Taxable Income = $49,900
c. Head of household because Ralph's
Ralph is not married and does not have
mother is his dependent
any children. However, Ralph is a very
good son and provides more than half
Explanation: Ralph provides more than
of the cost of maintaining a very nice
half of his mother's support and her in-
apartment for his mother and more than
come is below the exemption reference
half of her support since her only income
limit (which does not count Social Secu-
is a small amount from Social Securi-
rity income), so he can claim his mother
ty. Which of the following filing statuses
as a dependent and is eligible to use the
should Ralph use, and why?
head-of-household filing status. Option
(D) is incorrect because Ralph's moth-
a. Single because Ralph is not married
er is a qualifying relative, not a quali-
b. Single because Ralph does not have
fying child. Options (A) and (B) are in-
any qualifying children
correct; since Ralph is eligible to use
c. Head of household because Ralph's
the head-of-household filing status, he
mother is his dependent
should use that filing status rather than
d. Head of household because Ralph's
the less advantageous single filing sta-
mother is a qualifying child
tus.
Colin, aged 15, has $11,650 of earned
income from a newspaper route and
$1,800 of unearned income. How much
is taxable to Colin at Colin's tax rate?
a. $400
, HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
b. $1,400
Explanation: Since Colin's unearned in-
come is below $2,300 (2022), all of his
income in excess of the standard deduc-
tion is taxed at his rate.
His standard deduction is $11,650 +
$400 (2022) = $12,050.
His total income is $13,450 $12,050
standard deduction = $1,400.
Kelly, aged 14 and a dependent, has
$2,600 in interest and dividends and
$12,750 in earned income from a
part-time job. What is Kelly's standard c. $12,950
deduction in 2022?
Explanation: The standard deduction for
a. $2,300 a single person is limited to $12,950.
b. $12,550
c. $12,950
d. $13,350
Henry, single and aged 42, was divorced
after 12/31/2018. He had the following
items of income and expense for the cur-
rent tax year:
d. $61,000
Wages: $60,000
Explanation: His income includes the
Interest: $1,000
wages and interest. The alimony paid
Inheritance: $50,000
is not deductible for AGI if the divorce
Alimony paid: $10,000
decree is post 12/31/2018. Therefore,
Child support paid: $8,000
his AGI is $61,000.$60,000 + $1,000 =
Federal taxes paid: $5,000
$61,000
State income taxes paid: $2,000
Medical expenses: $7,500
What is Henry's adjusted gross income
, HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
(AGI)?
a. $49,000
b. $51,000
c. $59,000
d. $61,000
Clark invested $100,000 in an annu-
ity contract many years ago. This year, b. $3,333.31
Clark annuitized the contract. The in-
surance company agreed to pay Clark Explanation: Clark's expected return is
$520.83 per month for 20 years. Assum- $125,000, that is, 20 years × 12 months ×
ing that Clark receives eight payments $520.83. Therefore, his exclusion ratio is
this year, how much can Clark exclude 80%, or $100,000 ÷ $125,000. Clark will
from his gross income this year? receive $4,166.64 in annuity payments
this year (8 payments × $520.83), of
a. $833.33 which $3,333.31 can be excluded. There-
b. $3,333.31 fore, Clark must include $833.33, or 20%
c. $4,164.64 × $520.83 × 8, in his income this year.
d. $6,249.96
b. $330
Eleanor loans $30,000 to her son James
and does not charge any interest. James
Explanation: James has net investment
has investment income of $1,500 and
income of $1,000. Therefore, the amount
investment expenses of $500. Assume
of imputed interest is the lesser of net
that the applicable federal rate (AFR) is
investment income and the AFR-calcu-
1.1%. How much interest must be imput-
lated interest minus the interest based on
ed on the loan?
the stated rate of the loan. Since the stat-
ed rate of interest on the loan is 0%, the
a. $1,500
amount of imputed interest is the lesser
b. $330
of $1,000 and $330 (that is, $30,000 ×
c. $2,000
0.011). Therefore, $330 of interest must
d. $1,000
be imputed on the loan.
Doug and Katie are trying to calculate
their gross income for the current year.
Which of the following items should they
include in their gross income?
A+/NEWEST UPDATE
Frank and Gina are trying to calculate
their gross income. Which of the follow-
ing items should they exclude from their
gross income?
a. I and II
I. $75,000 in cash inherited by Gina from
her mother Explanation: Inheritance is not income.
II. $30,000 borrowed by Frank and Gina Inherited cash or property is excluded
from First City Bank from gross income, so Option I is correct.
III. A $10,000 gain from the sale of Frank Borrowed money is also excluded from
and Gina's boat gross income, so Option II is also correct.
IV. $600 of interest earned on a loan Gain on the sale of assets (Option III)
made by Frank to his cousin Michael and interest income (Option IV) are both
included in gross income.
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
Bryan and Diane are trying to calculate
their gross income. Which of the follow-
ing items should they exclude from their
gross income?
I. A $25,000 gift from Diane's mother for
c. I, II, and III
the down payment of their new house
II. $30,000 borrowed by Bryan and Diane
Explanation: Gifts are not income. A gift
from First City Bank
of cash or property is excluded from
III. A $10,000 increase in the value of
gross income. Borrowed money is also
Delta Airlines stock, which they own in
excluded from gross income. Gain on as-
their brokerage account
sets is not taxable until the assets are
IV. $55,000-worth of home repair work
sold. However, barter transactions are
that was exchanged for tax work by
taxable.
Bryan
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
, HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
a. $49,900
Arnold and Phoebe have been married
for 20 years and always file a joint return,
Explanation: Arnold and Phoebe's tax-
but they never itemize their deductions.
able income is equal to their gross in-
They have a gross income of $80,000
come less deductions for adjusted gross
and deductions for adjusted gross in-
income, less the greater of the standard
come (AGI) in the amount of $5,000, but
deduction or itemized deductions. There-
they do not have any children. Neither
fore, their taxable income can be calcu-
Arnold nor Phoebe are over the age of
lated as follows:
65, and neither is blind. What is Arnold
and Phoebe's taxable income for the cur-
For the Current Tax Year
rent year? Assume their standard deduc-
- Gross Income= $80,000
tion is $25,1000 for the current tax year.
- Less Deductions for AGI = (- $5,000)
- Adjusted Gross Income = $75,000
a. $49,900
- Less Standard Deduction (given) =
b. $54,900
$25,100
c. $62,450
- Less Personal Exemption = ($0)
d. $75,000
- Taxable Income = $49,900
c. Head of household because Ralph's
Ralph is not married and does not have
mother is his dependent
any children. However, Ralph is a very
good son and provides more than half
Explanation: Ralph provides more than
of the cost of maintaining a very nice
half of his mother's support and her in-
apartment for his mother and more than
come is below the exemption reference
half of her support since her only income
limit (which does not count Social Secu-
is a small amount from Social Securi-
rity income), so he can claim his mother
ty. Which of the following filing statuses
as a dependent and is eligible to use the
should Ralph use, and why?
head-of-household filing status. Option
(D) is incorrect because Ralph's moth-
a. Single because Ralph is not married
er is a qualifying relative, not a quali-
b. Single because Ralph does not have
fying child. Options (A) and (B) are in-
any qualifying children
correct; since Ralph is eligible to use
c. Head of household because Ralph's
the head-of-household filing status, he
mother is his dependent
should use that filing status rather than
d. Head of household because Ralph's
the less advantageous single filing sta-
mother is a qualifying child
tus.
Colin, aged 15, has $11,650 of earned
income from a newspaper route and
$1,800 of unearned income. How much
is taxable to Colin at Colin's tax rate?
a. $400
, HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
b. $1,400
Explanation: Since Colin's unearned in-
come is below $2,300 (2022), all of his
income in excess of the standard deduc-
tion is taxed at his rate.
His standard deduction is $11,650 +
$400 (2022) = $12,050.
His total income is $13,450 $12,050
standard deduction = $1,400.
Kelly, aged 14 and a dependent, has
$2,600 in interest and dividends and
$12,750 in earned income from a
part-time job. What is Kelly's standard c. $12,950
deduction in 2022?
Explanation: The standard deduction for
a. $2,300 a single person is limited to $12,950.
b. $12,550
c. $12,950
d. $13,350
Henry, single and aged 42, was divorced
after 12/31/2018. He had the following
items of income and expense for the cur-
rent tax year:
d. $61,000
Wages: $60,000
Explanation: His income includes the
Interest: $1,000
wages and interest. The alimony paid
Inheritance: $50,000
is not deductible for AGI if the divorce
Alimony paid: $10,000
decree is post 12/31/2018. Therefore,
Child support paid: $8,000
his AGI is $61,000.$60,000 + $1,000 =
Federal taxes paid: $5,000
$61,000
State income taxes paid: $2,000
Medical expenses: $7,500
What is Henry's adjusted gross income
, HS 321 - EXAM 1 QUESTIONS WITH 100% SOLVED ANSWERS, GRADED
A+/NEWEST UPDATE
(AGI)?
a. $49,000
b. $51,000
c. $59,000
d. $61,000
Clark invested $100,000 in an annu-
ity contract many years ago. This year, b. $3,333.31
Clark annuitized the contract. The in-
surance company agreed to pay Clark Explanation: Clark's expected return is
$520.83 per month for 20 years. Assum- $125,000, that is, 20 years × 12 months ×
ing that Clark receives eight payments $520.83. Therefore, his exclusion ratio is
this year, how much can Clark exclude 80%, or $100,000 ÷ $125,000. Clark will
from his gross income this year? receive $4,166.64 in annuity payments
this year (8 payments × $520.83), of
a. $833.33 which $3,333.31 can be excluded. There-
b. $3,333.31 fore, Clark must include $833.33, or 20%
c. $4,164.64 × $520.83 × 8, in his income this year.
d. $6,249.96
b. $330
Eleanor loans $30,000 to her son James
and does not charge any interest. James
Explanation: James has net investment
has investment income of $1,500 and
income of $1,000. Therefore, the amount
investment expenses of $500. Assume
of imputed interest is the lesser of net
that the applicable federal rate (AFR) is
investment income and the AFR-calcu-
1.1%. How much interest must be imput-
lated interest minus the interest based on
ed on the loan?
the stated rate of the loan. Since the stat-
ed rate of interest on the loan is 0%, the
a. $1,500
amount of imputed interest is the lesser
b. $330
of $1,000 and $330 (that is, $30,000 ×
c. $2,000
0.011). Therefore, $330 of interest must
d. $1,000
be imputed on the loan.
Doug and Katie are trying to calculate
their gross income for the current year.
Which of the following items should they
include in their gross income?
