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AC 256 Federal Tax Exam 2 Answers


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AC 256 Exam 2 (Kaplan)

Amanda, who lost her modeling job, sued her employer for age

 discrimination. She was awarded $75,000 in lost wages, $25,000

 for emotional distress, and $150,000 punitive damages. The

 amount taxable is

One of the requirements that must be met in order to defer

 recognition of income for advance payments for goods is

Hoyt rented office space 2 years ago to Harris, receiving the

 first and last months' rent plus a security deposit of $1,000.

 In early January of this year, Harris moves and Hoyt refunds

 $250 of the deposit and keeps the remainder to cover $500 which

 is spent for repairs to the office space and 1 week of unpaid

 rent that amounts to $250. How would this information be

 reflected on Hoyt's tax return this year?

Which of the following statements is false?

Which of the following statements regarding qualified tuition

 programs is incorrect?

Which of the following is not excluded from income? (Assume that

 any amounts received by the taxpayer were kept.)

Norah's Music Lessons Inc. is a calendar-year taxpayer using the

 accrual method of accounting. On October 1 of this year, the

 corporation received $1,200 for a 1-year contract beginning on

 that date to provide 10 lessons. The company provided six

 lessons this year under the contract. How much should

 corporation include in income this year with respect to this


Over the years, Rianna paid $65,000 in premiums on a life

 insurance policy with a face value of $100,000. Upon reaching

 65, while still in good health, Rianna surrendered the policy

 and collected $95,000. In the year of collection, Rianna will


Hope receives an $18,500 scholarship from State University. The

 university specifies that $8,500 is for tuition, books,

 supplies, and equipment, while $10,000 is for room and board. In

 addition, Hope works part-time at the campus library and earns

 $5,000. Hope's gross income is

Carla redeemed EE bonds which qualify for the educational

 exclusion. The redemption consisted of $14,000 principal and

 $6,000 interest. The net qualifying educational expenses are

 $10,000. Her AGI is below the threshold for phase-out of the

 exclusion. The taxable interest is

Bret carries a $200,000 insurance policy on his life and has paid

 premiums of $10,000 over the years. Dividends on the policy have

 totaled $8,500. Each year, Bret has left the dividends with the

 insurance company. In the current year, the insurance company

 credited $800 of interest on the accumulated dividends to Bret's

 account. In addition, $600 of dividends was added by the

 insurance company. In the current year, Bret must report income


David has been diagnosed with cancer and is expected to live less

 than 18 months. David is covered by a life insurance policy with

 a $400,000 face amount. David cashes in the policy early under a

 special option and receives 80% of the face amount or $320,000.

 In the year of collection, David will report

All of the following items are excluded from gross income except

Distributions from corporations to the shareholders in a

 nonliquidating distribution will usually be classified as a

 dividend up to the amount of the corporation's

Greg is the owner and beneficiary of a $100,000 policy on the

 life of his mother. Greg gives the policy to his brother, Don.

 Don subsequently pays premiums of $40,000. Upon his mother's

 death, how much of the insurance proceeds must Don include in


Frasier and Marcella, husband and wife, file separate returns.

 Frasier and Marcella live in a community property state that

 considers separate property income to be separate. Frasier's

 salary is $42,000 and Marcella's salary is $46,000. Marcella

 receives dividend income of $4,000 from stock inherited from her

 parents. Frasier receives interest income of $1,000 from bonds

 purchased with his salary after marriage. Frasier and Marcella

 receive $3,200 dividend income from stock they purchased

 jointly. Marcella's income would be

Elisa sued her former employer for discrimination. She was

 awarded $200,000 for lost wages, $30,000 for medical expenses

 related to emotional distress resulting from the discrimination,

 and $300,000 in punitive damages. The amount taxable is

Which one of the following items is not considered gross income

 for tax purposes?

Speak Corporation, a calendar-year accrual basis taxpayer, sells

 packages of foreign language lessons to individuals planning to

 work overseas. In December 2014, it sold and received payment

 for $600,000 of 24-month lesson packages to be provided evenly

 through 2015 and 2016. Speak Corporation will recognize the

 $600,000 of income

Tyler has rented a house from Camarah since last year. The rent is usually $1,200 per month, but Camarah reduced the monthly

rent down to $200 for all 12 months this year in exchange for

Tyler putting in an inground pool in the backyard. The

improvement has a fair market value of $20,000. How much total

rental income must Camarah report this year?

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