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SmartBook Chapter 5 Tax

Terms in this set (14)

Sec. 61 of the Internal Revenue Code defines ______ income as "all income, from whatever source derived."
Multiple choice question.
realized
earned
gross
taxable
gross
Which one of the following choices does NOT represent an economic benefit to the taxpayer?
Multiple choice question.
Proceeds from a loan
Proceeds from property sales
Income from services
Income from investments
Proceeds from a loan
The ______ principle for determining when income is generated provides taxpayers with an objective measure for valuing the transaction and with the wherewithal to pay the taxes when cash is involved.
Multiple choice question.
wherewithal to pay
gross income
recognition
realization
realization
Taxpayers who realize an economic benefit must ____________the benefit in gross income unless it is specifically______________ by the tax code.
Blank 1: include, recognize, included, recognized, add, report, or record
Blank 2: excluded, exclude, exempt, or exempted
Which of the following statements are correct? (Check all that apply.)
Multiple select question.
A taxpayer must recognize cash received in exchange for services rendered, but NOT property or services if they were received instead of cash.
If a taxpayer receives a state tax refund for a tax year where she deducted the state tax paid, she must report the refund as gross income.
A current year insurance reimbursement of prior year medical expenses is recognized even if the expenses were NOT deducted in the prior year.
When taxpayers sell nondepreciable assets, they may exclude the original cost of those assets from gross income.
Taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income.
If a taxpayer receives a state tax refund for a tax year where she deducted the state tax paid, she must report the refund as gross income.
When taxpayers sell nondepreciable assets, they may exclude the original cost of those assets from gross income.
Taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income.
True or false: Gross income only includes income received in cash because cash is a measurable change in wealth.
True false question.
True
False
False
Reason:
Gross income includes income realized in any form - money, property, or services.
Which one of the following is NOT an advantage of the cash method for reporting income?
Multiple choice question.
The cash method generally simplifies the computation of income.
Taxpayers recognize income in the period they receive it, giving them the wherewithal to pay the tax.
Taxpayers have some control over when income is received and expenses are paid which assists in tax planning.
Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them.
Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them.
Which of the following represents economic benefits to a taxpayer? (Check all that apply.)
Multiple select question.
Cash received for completing a job
Interest income on investments
Cash received from a bank loan
A computer received in exchange for services rendered
Cash received for completing a job
Interest income on investments
A computer received in exchange for services rendered
What are the advantages of the realization principle for defining gross income? (Check all that apply.)
Multiple select question.
It provides the taxpayer with the opportunity to shift income to a related taxpayer who is in a lower tax bracket.
It allows the taxpayer to exclude the transaction from gross income.
It provides the taxpayer with the wherewithal to pay when cash is received in the transaction.
It provides an objective measure of the value of the transaction.
It provides the taxpayer with the wherewithal to pay when cash is received in the transaction.
It provides an objective measure of the value of the transaction.
When a taxpayer includes an economic benefit in gross income, he is said to have ___________________the income.
Blank 1: recognized, recognize, or recognizing
Which of the following transactions results in realized income during the current year?
Multiple choice question.
Louie sold stock for $400 that he had purchased for $400 in a prior year.
Donald borrowed $400 from his brother on a 6-month note.
Huey receives a set of new tires valued at $400 for his car in exchange for cleaning and painting the mechanic's garage.
Dewey received a $400 refund for returning an item he had previously purchased.
Huey receives a set of new tires valued at $400 for his car in exchange for cleaning and painting the mechanic's garage.
Under the cash method, taxpayers recognize income in the period they _________ it, rather than when they actually___________it
Blank 1: receive, get, received, collect, collected, obtain, or obtained
Blank 2: earn or earned
Sam traded a parcel of land for a tractor and a car. He had purchased the land five years earlier for $16,000. The market value of the car and tractor is $20,000. What is the amount of gross income resulting from this transaction?

$20,000
$4,000.
$0
$16,000
$4,000.

The gross income is the fair market value received ($20,000) less the basis in the property given ($16,000) which equals $4,000.
Which of the following statements is CORRECT regarding the recognition of income?
.
Income is realized for the return of the capital received in a sales transaction.
Income may be in the form of cash, property, or services received in a transaction.
Income is realized when a taxpayer receives a refund of an amount that was not deducted in a prior period.
Income may be in the form of cash, property, or services received in a transaction.
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