1. (TCO 2) John owns interest coupons that mature on December 31, 20x1. The coupons can be converted into cash at any bank at maturity. John does NOT convert the coupons to cash until 20x2. John: (Points : 2)
will recognize income under the constructive receipt doctrine in 20x1.
will recognize income in 20x2 when converted.
will realize but not recognize income in 20x2.
will realize but not recognize income in 20x1.
None of the above


Question 2.2. (TCO 3) Roger, age 19, is a full-time student at State College and a candidate for a bachelor's degree. During 20x2, he received the following payments:

State scholarship for 10 months (tuition and books) $3,600
Loan from college financial aid office 1,500
Cash support from parents 3,000
Interest on CDs 1,700
Cash prize awarded in contest 500 $10,300
What is Roger's adjusted gross income for 20x2? (Points : 2)
$1,700
$2,200
$5,800
$10,300
None of the above


Question 3.3. (TCO 3) Floral Company owed $100,000 to the National Bank.

I. If Floral transfers land with a cost of $60,000 in payment of the debt, then Floral must recognize $40,000 income.
II. If Floral pays the bank $60,000 in settlement of the liability, then Floral has $40,000 income from discharge of indebtedness.
III. If Floral pays the bank $60,000 in settlement of the liability and Floral is insolvent, then Floral can elect to reduce its basis in assets by $40,000 (in lieu of recognizing $40,000 gain). (Points : 2)
I, II, and III are true.
I, II, and III are false.
I and II are true; III is false.
II and III are true; I is false.
None of the above


Question 4.4. (TCO 3) Which of the following is/are taxable dispositions of an installment obligation?

I. Transfer to a relative as a gift.
II. Transfer to the transferor's 100%-owned corporation.
III. Transfer to a partnership for an interest in partnership capital and profits. (Points : 2)
I only
I and II
I, II, and III
II and III
None of the above


Question 5.5. (TCO 7) In the case of a fringe benefit plan that is discriminatory (e.g., plan favors officers over other employees): (Points : 2)
All employees must include all benefits received in gross income.
De minimis fringes may be excluded from gross income.
The value of a parking space provided (value of $100 per month) must be included in gross income.
Those who are being discriminated against can exclude a certain portion of their cash compensation from gross income to achieve parity.
None of the above


Question 6.6. (TCO 7) In the case of an accrual basis taxpayer, an item of income: (Points : 2)
is not recognized until cash is received.
from services is never recognized until the services are performed.
is not recognized if the customer can return the goods.
is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy.
None of the above


Question 7.7. (TCO 7) Hal sold land held as an investment with a fair market value of $100,000 for $36,000 cash and a note for $64,000 that was due in two years. The note bore interest of 11% when the applicable federal rate was 7%. Hal's cost of the land was $40,000. Because of the buyer's good credit record and the high interest rate on the note, Hal thought the fair market value of the note was at least $74,000. (Points : 2)
Hal can elect to treat the $36,000 as a recovery of capital.
Hal must recognize the $70,000 gain in the year of sale.
Hal must recognize the $60,000 gain in the year of sale.
Unless Hal elects not to use the installment method, Hal must recognize $21,600 gain in the year of sale.
None of the above


Question 8.8. (TCO 7) Taylor sold a capital asset on the installment basis and did NOT charge interest on the deferred payment due in three years. (Points : 2)
Interest will be imputed, thus increasing the capital gain.
Interest will be imputed, thus creating ordinary income.
Interest will not be imputed because the contract is for less than five years.
Interest will be imputed, thus reducing the seller's total income from the transactions.
None of the above


Question 9.9. (TCO 7) The installment method CANNOT be applied to the following: (Points : 2)
Gains on property held for sale in the ordinary course of business
Depreciation recapture under Section 1245 or Section 1250
Gains on stocks or securities traded on an established market
All of the above
None of the above


Question 10.10. (TCO 2) Which of the following is an exclusion from wage and salary taxable income? (Points : 2)
Long-term care insurance
Child adoption expenses
Employee discounts
Qualified transportation fringe
All of the above