HS 321 - Exam 1
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1. Frank and Gina are trying to calcu- a. I and II
late their gross income. Which of
the following items should they ex- Explanation: Inheritance is not income. Inherited cash
clude from their gross income? or property is excluded from gross income, so Option I
is correct. Borrowed money is also excluded from gross
I. $75,000 in cash inherited by Gina income, so Option II is also correct. Gain on the sale of
from her mother assets (Option III) and interest income (Option IV) are
II. $30,000 borrowed by Frank and both included in gross income.
Gina from First City Bank
III. A $10,000 gain from the sale of
Frank and Gina's boat
IV. $600 of interest earned on a
loan made by Frank to his cousin
Michael
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
2. Bryan and Diane are trying to cal- c. I, II, and III
culate their gross income. Which of
the following items should they ex- Explanation: Gifts are not income. A gift of cash or prop-
clude from their gross income? erty is excluded from gross income. Borrowed money
is also excluded from gross income. Gain on assets is
I. A $25,000 gift from Diane's moth- not taxable until the assets are sold. However, barter
er for the down payment of their transactions are taxable.
new house
II. $30,000 borrowed by Bryan and
Diane from First City Bank
III. A $10,000 increase in the value
of Delta Airlines stock, which they
, HS 321 - Exam 1
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own in their brokerage account
IV. $55,000-worth of home repair
work that was exchanged for tax
work by Bryan
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
3. Arnold and Phoebe have been mar- a. $49,900
ried for 20 years and always file a
joint return, but they never item- Explanation: Arnold and Phoebe's taxable income is
ize their deductions. They have a equal to their gross income less deductions for adjusted
gross income of $80,000 and de- gross income, less the greater of the standard deduc-
ductions for adjusted gross income tion or itemized deductions. Therefore, their taxable
(AGI) in the amount of $5,000, but income can be calculated as follows:
they do not have any children. Nei-
For the Current Tax Year
ther Arnold nor Phoebe are over
- Gross Income= $80,000
the age of 65, and neither is blind.
- Less Deductions for AGI = (- $5,000)
What is Arnold and Phoebe's tax-
- Adjusted Gross Income = $75,000
able income for the current year?
- Less Standard Deduction (given) = $25,100
Assume their standard deduction is
- Less Personal Exemption = (−$0)
$25,1000 for the current tax year.
- Taxable Income = $49,900
a. $49,900
b. $54,900
c. $62,450
d. $75,000
4. Ralph is not married and does not c. Head of household because Ralph's mother is his
have any children. However, Ralph dependent
, HS 321 - Exam 1
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is a very good son and provides Explanation: Ralph provides more than half of his moth-
more than half of the cost of main- er's support and her income is below the exemption
taining a very nice apartment for reference limit (which does not count Social Security
his mother and more than half of income), so he can claim his mother as a dependent
her support since her only income and is eligible to use the head-of-household filing sta-
is a small amount from Social Se- tus. Option (D) is incorrect because Ralph's mother is
curity. Which of the following fil- a qualifying relative, not a qualifying child. Options (A)
ing statuses should Ralph use, and and (B) are incorrect; since Ralph is eligible to use
why? the head-of-household filing status, he should use that
filing status rather than the less advantageous single
a. Single because Ralph is not mar- filing status.
ried
b. Single because Ralph does not
have any qualifying children
c. Head of household because
Ralph's mother is his dependent
d. Head of household because
Ralph's mother is a qualifying child
5. Colin, aged 15, has $11,650 of b. $1,400
earned income from a newspaper
route and $1,800 of unearned in- Explanation: Since Colin's unearned income is below
come. How much is taxable to Colin $2,300 (2022), all of his income in excess of the stan-
at Colin's tax rate? dard deduction is taxed at his rate.
a. $400 His standard deduction is $11,650 + $400 (2022) =
b. $1,400 $12,050.
c. $12,000
His total income is $13,450 − $12,050 standard deduc-
d. $13,450
tion = $1,400.
6. Kelly, aged 14 and a dependent, c. $12,950
has $2,600 in interest and divi-
, HS 321 - Exam 1
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dends and $12,750 in earned in- Explanation: The standard deduction for a single person
come from a part-time job. What is limited to $12,950.
is Kelly's standard deduction in
2022?
a. $2,300
b. $12,550
c. $12,950
d. $13,350
7. Henry, single and aged 42, was di- d. $61,000
vorced after 12/31/2018. He had
the following items of income and Explanation: His income includes the wages and inter-
expense for the current tax year: est. The alimony paid is not deductible for AGI if the
divorce decree is post 12/31/2018. Therefore, his AGI
Wages: $60,000 is $61,000.$60,000 + $1,000 = $61,000
Interest: $1,000
Inheritance: $50,000
Alimony paid: $10,000
Child support paid: $8,000
Federal taxes paid: $5,000
State income taxes paid: $2,000
Medical expenses: $7,500
What is Henry's adjusted gross in-
come (AGI)?
a. $49,000
b. $51,000
c. $59,000
d. $61,000
8.
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1. Frank and Gina are trying to calcu- a. I and II
late their gross income. Which of
the following items should they ex- Explanation: Inheritance is not income. Inherited cash
clude from their gross income? or property is excluded from gross income, so Option I
is correct. Borrowed money is also excluded from gross
I. $75,000 in cash inherited by Gina income, so Option II is also correct. Gain on the sale of
from her mother assets (Option III) and interest income (Option IV) are
II. $30,000 borrowed by Frank and both included in gross income.
Gina from First City Bank
III. A $10,000 gain from the sale of
Frank and Gina's boat
IV. $600 of interest earned on a
loan made by Frank to his cousin
Michael
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
2. Bryan and Diane are trying to cal- c. I, II, and III
culate their gross income. Which of
the following items should they ex- Explanation: Gifts are not income. A gift of cash or prop-
clude from their gross income? erty is excluded from gross income. Borrowed money
is also excluded from gross income. Gain on assets is
I. A $25,000 gift from Diane's moth- not taxable until the assets are sold. However, barter
er for the down payment of their transactions are taxable.
new house
II. $30,000 borrowed by Bryan and
Diane from First City Bank
III. A $10,000 increase in the value
of Delta Airlines stock, which they
, HS 321 - Exam 1
Study online at https://quizlet.com/_e4e84k
own in their brokerage account
IV. $55,000-worth of home repair
work that was exchanged for tax
work by Bryan
a. I and II
b. III and IV
c. I, II, and III
d. I, II, and IV
3. Arnold and Phoebe have been mar- a. $49,900
ried for 20 years and always file a
joint return, but they never item- Explanation: Arnold and Phoebe's taxable income is
ize their deductions. They have a equal to their gross income less deductions for adjusted
gross income of $80,000 and de- gross income, less the greater of the standard deduc-
ductions for adjusted gross income tion or itemized deductions. Therefore, their taxable
(AGI) in the amount of $5,000, but income can be calculated as follows:
they do not have any children. Nei-
For the Current Tax Year
ther Arnold nor Phoebe are over
- Gross Income= $80,000
the age of 65, and neither is blind.
- Less Deductions for AGI = (- $5,000)
What is Arnold and Phoebe's tax-
- Adjusted Gross Income = $75,000
able income for the current year?
- Less Standard Deduction (given) = $25,100
Assume their standard deduction is
- Less Personal Exemption = (−$0)
$25,1000 for the current tax year.
- Taxable Income = $49,900
a. $49,900
b. $54,900
c. $62,450
d. $75,000
4. Ralph is not married and does not c. Head of household because Ralph's mother is his
have any children. However, Ralph dependent
, HS 321 - Exam 1
Study online at https://quizlet.com/_e4e84k
is a very good son and provides Explanation: Ralph provides more than half of his moth-
more than half of the cost of main- er's support and her income is below the exemption
taining a very nice apartment for reference limit (which does not count Social Security
his mother and more than half of income), so he can claim his mother as a dependent
her support since her only income and is eligible to use the head-of-household filing sta-
is a small amount from Social Se- tus. Option (D) is incorrect because Ralph's mother is
curity. Which of the following fil- a qualifying relative, not a qualifying child. Options (A)
ing statuses should Ralph use, and and (B) are incorrect; since Ralph is eligible to use
why? the head-of-household filing status, he should use that
filing status rather than the less advantageous single
a. Single because Ralph is not mar- filing status.
ried
b. Single because Ralph does not
have any qualifying children
c. Head of household because
Ralph's mother is his dependent
d. Head of household because
Ralph's mother is a qualifying child
5. Colin, aged 15, has $11,650 of b. $1,400
earned income from a newspaper
route and $1,800 of unearned in- Explanation: Since Colin's unearned income is below
come. How much is taxable to Colin $2,300 (2022), all of his income in excess of the stan-
at Colin's tax rate? dard deduction is taxed at his rate.
a. $400 His standard deduction is $11,650 + $400 (2022) =
b. $1,400 $12,050.
c. $12,000
His total income is $13,450 − $12,050 standard deduc-
d. $13,450
tion = $1,400.
6. Kelly, aged 14 and a dependent, c. $12,950
has $2,600 in interest and divi-
, HS 321 - Exam 1
Study online at https://quizlet.com/_e4e84k
dends and $12,750 in earned in- Explanation: The standard deduction for a single person
come from a part-time job. What is limited to $12,950.
is Kelly's standard deduction in
2022?
a. $2,300
b. $12,550
c. $12,950
d. $13,350
7. Henry, single and aged 42, was di- d. $61,000
vorced after 12/31/2018. He had
the following items of income and Explanation: His income includes the wages and inter-
expense for the current tax year: est. The alimony paid is not deductible for AGI if the
divorce decree is post 12/31/2018. Therefore, his AGI
Wages: $60,000 is $61,000.$60,000 + $1,000 = $61,000
Interest: $1,000
Inheritance: $50,000
Alimony paid: $10,000
Child support paid: $8,000
Federal taxes paid: $5,000
State income taxes paid: $2,000
Medical expenses: $7,500
What is Henry's adjusted gross in-
come (AGI)?
a. $49,000
b. $51,000
c. $59,000
d. $61,000
8.
