HS 321 - Exam 1 Questions With Correct
Answers
Frank and Gina are trying to calculate their gross income. Which of the
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following items should they exclude from their gross income?
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I. $75,000 in cash inherited by Gina from her mother
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II. $30,000 borrowed by Frank and Gina from First City Bank
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III. A $10,000 gain from the sale of Frank and Gina's boat
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IV. $600 of interest earned on a loan made by Frank to his cousin
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Michael
a. I and II
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b. III and IV
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c. I, II, and III
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d. I, II, and IV - CORRECT ANSWER✔✔-a. I and II
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Explanation: Inheritance is not income. Inherited cash or property is | | | | | | | | | |
excluded from gross income, so Option I is correct. Borrowed money is
| | | | | | | | | | | |
also excluded from gross income, so Option II is also correct. Gain on the
| | | | | | | | | | | | |
|sale of assets (Option III) and interest income (Option IV) are both
| | | | | | | | | | | |
included in gross income. | | |
,Bryan and Diane are trying to calculate their gross income. Which of the
| | | | | | | | | | | | |
following items should they exclude from their gross income?
| | | | | | | |
I. A $25,000 gift from Diane's mother for the down payment of their
| | | | | | | | | | | | |
new house |
II. $30,000 borrowed by Bryan and Diane from First City Bank
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III. A $10,000 increase in the value of Delta Airlines stock, which they
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own in their brokerage account
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IV. $55,000-worth of home repair work that was exchanged for tax work
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by Bryan |
a. I and II
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b. III and IV
| | |
c. I, II, and III
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d. I, II, and IV - CORRECT ANSWER✔✔-c. I, II, and III
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Explanation: Gifts are not income. A gift of cash or property is excluded
| | | | | | | | | | | | |
from gross income. Borrowed money is also excluded from gross
| | | | | | | | | |
income. Gain on assets is not taxable until the assets are sold. However,
| | | | | | | | | | | | |
barter transactions are taxable. | | |
,Arnold and Phoebe have been married for 20 years and always file a
| | | | | | | | | | | | |
joint return, but they never itemize their deductions. They have a gross
| | | | | | | | | | | |
income of $80,000 and deductions for adjusted gross income (AGI) in
| | | | | | | | | | |
the amount of $5,000, but they do not have any children. Neither
| | | | | | | | | | | |
Arnold nor Phoebe are over the age of 65, and neither is blind. What is
| | | | | | | | | | | | | | |
Arnold and Phoebe's taxable income for the current year? Assume their
| | | | | | | | | | |
standard deduction is $25,1000 for the current tax year.
| | | | | | | |
a. $49,900
|
b. $54,900
|
c. $62,450
|
d. $75,000 - CORRECT ANSWER✔✔-a. $49,900
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Explanation: Arnold and Phoebe's taxable income is equal to their gross
| | | | | | | | | | |
income less deductions for adjusted gross income, less the greater of
| | | | | | | | | | |
the standard deduction or itemized deductions. Therefore, their taxable
| | | | | | | | |
income can be calculated as follows:
| | | | |
For the Current Tax Year
| | | | |
- Gross Income= $80,000
| | |
- Less Deductions for AGI = (- $5,000)
| | | | | | |
- Adjusted Gross Income = $75,000
| | | | |
- Less Standard Deduction (given) = $25,100
| | | | | |
- Less Personal Exemption = (−$0)
| | | | | |
, - Taxable Income = $49,900
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Ralph is not married and does not have any children. However, Ralph is
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a very good son and provides more than half of the cost of maintaining
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a very nice apartment for his mother and more than half of her support
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since her only income is a small amount from Social Security. Which of
| | | | | | | | | | | | |
the following filing statuses should Ralph use, and why?
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a. Single because Ralph is not married
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b. Single because Ralph does not have any qualifying children
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c. Head of household because Ralph's mother is his dependent
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d. Head of household because Ralph's mother is a qualifying child -
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CORRECT ANSWER✔✔-c. Head of household because Ralph's mother is
| | | | | | | | |
his dependent
|
Explanation: Ralph provides more than half of his mother's support and
| | | | | | | | | | |
her income is below the exemption reference limit (which does not
| | | | | | | | | | |
count Social Security income), so he can claim his mother as a
| | | | | | | | | | | |
dependent and is eligible to use the head-of-household filing status.
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Option (D) is incorrect because Ralph's mother is a qualifying relative,
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not a qualifying child. Options (A) and (B) are incorrect; since Ralph is
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eligible to use the head-of-household filing status, he should use that
| | | | | | | | | | |
filing status rather than the less advantageous single filing status.
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Answers
Frank and Gina are trying to calculate their gross income. Which of the
| | | | | | | | | | | | |
following items should they exclude from their gross income?
| | | | | | | |
I. $75,000 in cash inherited by Gina from her mother
| | | | | | | | |
II. $30,000 borrowed by Frank and 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 - CORRECT ANSWER✔✔-a. I and II
| | | | | | | | | |
Explanation: Inheritance is not income. Inherited cash or property is | | | | | | | | | |
excluded from gross income, so Option I is correct. Borrowed money is
| | | | | | | | | | | |
also excluded from gross income, so Option II is also correct. Gain on the
| | | | | | | | | | | | |
|sale of assets (Option III) and interest income (Option IV) are both
| | | | | | | | | | | |
included in gross income. | | |
,Bryan and Diane are trying to calculate their gross income. Which of the
| | | | | | | | | | | | |
following items should they exclude from their gross income?
| | | | | | | |
I. A $25,000 gift from Diane's mother for the down payment of their
| | | | | | | | | | | | |
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
| | | | | | | | | | | | |
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 - CORRECT ANSWER✔✔-c. I, II, and III
| | | | | | | | | | |
Explanation: Gifts are not income. A gift of cash or property is excluded
| | | | | | | | | | | | |
from gross income. Borrowed money is also excluded from gross
| | | | | | | | | |
income. Gain on assets is not taxable until the assets are sold. However,
| | | | | | | | | | | | |
barter transactions are taxable. | | |
,Arnold and Phoebe have been married for 20 years and always file a
| | | | | | | | | | | | |
joint return, but they never itemize their deductions. They have a gross
| | | | | | | | | | | |
income of $80,000 and deductions for adjusted gross income (AGI) in
| | | | | | | | | | |
the amount of $5,000, but they do not have any children. Neither
| | | | | | | | | | | |
Arnold nor Phoebe are over the age of 65, and neither is blind. What is
| | | | | | | | | | | | | | |
Arnold and Phoebe's taxable income for the current year? Assume their
| | | | | | | | | | |
standard deduction is $25,1000 for the current tax year.
| | | | | | | |
a. $49,900
|
b. $54,900
|
c. $62,450
|
d. $75,000 - CORRECT ANSWER✔✔-a. $49,900
| | | | |
Explanation: Arnold and Phoebe's taxable income is equal to their gross
| | | | | | | | | | |
income less deductions for adjusted gross income, less the greater of
| | | | | | | | | | |
the standard deduction or itemized deductions. Therefore, their taxable
| | | | | | | | |
income can be calculated as follows:
| | | | |
For the Current Tax Year
| | | | |
- Gross Income= $80,000
| | |
- Less Deductions for AGI = (- $5,000)
| | | | | | |
- Adjusted Gross Income = $75,000
| | | | |
- Less Standard Deduction (given) = $25,100
| | | | | |
- Less Personal Exemption = (−$0)
| | | | | |
, - Taxable Income = $49,900
| | | |
Ralph is not married and does not have any children. However, Ralph is
| | | | | | | | | | | | |
a very good son and provides more than half of the cost of maintaining
| | | | | | | | | | | | | |
a very nice apartment for his mother and more than half of her support
| | | | | | | | | | | | | |
since her only income is a small amount from Social Security. Which of
| | | | | | | | | | | | |
the following filing statuses should Ralph use, and why?
| | | | | | | |
a. Single because Ralph is not married
| | | | | |
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 -
| | | | | | | | | | | |
CORRECT ANSWER✔✔-c. Head of household because Ralph's mother is
| | | | | | | | |
his dependent
|
Explanation: Ralph provides more than half of his mother's support and
| | | | | | | | | | |
her income is below the exemption reference limit (which does not
| | | | | | | | | | |
count Social Security income), so he can claim his mother as a
| | | | | | | | | | | |
dependent and is eligible to use the head-of-household filing status.
| | | | | | | | | |
Option (D) is incorrect because Ralph's mother is a qualifying relative,
| | | | | | | | | | |
not a qualifying child. Options (A) and (B) are incorrect; since Ralph is
| | | | | | | | | | | | |
eligible to use the head-of-household filing status, he should use that
| | | | | | | | | | |
filing status rather than the less advantageous single filing status.
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