Chapter 5 Test Bank, Tax test 2, TAX
QUESTIONS
1. Bobby and Sissy got married 2.5 years ago.
100,000 is
Since that time, they have lived in Bobby's home.
taxable because
Sissy sold her previous home three years ago
Sissy is ineligible
and ex- cluded her entire gain ($80,000) at that
for the exclusion,
time. Bob- by and Sissy decided to move to a
the amount
bigger home this year. As a result, they sold
drops down to
Bobby's home for
$500,000 (original cost $150,000). How much of 250,000 allowed
the gain from the sale is taxable? to exclude. They
made 350,000
off the sale, so
350,000-
250,000=
2. T/F Gambling winnings are included in gross in- 100,000.
come only to the extent that the winnings exceed
gambling losses incurred during the same False- Taxpayers
period. must include all
gambling
winnings for the
year in gross
3. Hazel received 20 NQOs (each option gives her income.
the right to purchase 10 shares of stock for $7
per share) at the time she started working when On the Exercise
the stock price was $14 per share. Now that the date she will
recognize
$2600.
10 shares of stock
share price is $20 per share, she exercises all of her at a savings of $1
options. How much income will Hazel recognize Maren recogniz
on the exercise date and how much tax will she on the sale and
pay assuming her marginal tax rate is 25 percent? how much tax
will she pay
4. Maren received 10 NQOs (each option gives her assuming her
the right to purchase 10 shares of stock for $8 marginal tax rat
per share) at the time she started working when is 35 percent? a
the stock price was $6 per share. When the $0 gain and $0
share price was $15 per share, she exercised all tax.
of her options. Eighteen months later she sold b) $500 gain and
all of the $75 tax.
shares for $20 per share. How much gain will
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, Chapter 5 Test Bank, Tax test 2, TAX
QUESTIONS
(20-7) x 20 NQOs
2600. She will pay 650 in taxes.
D
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, Chapter 5 Test Bank, Tax test 2, TAX
QUESTIONS
c) $500 gain and $175 tax.
d) $1,200 gain and $180 tax.
5. Shaun is a student who has received an acade- D) Because
mic scholarship to State University. The Shaun is
scholar- ship paid $14,000 for tuition, $2,500 for required to per-
fees, and form services in
$1,000 for books. In addition, Shaun's dormitory or- der to
fees of $8,500 were paid by the University when receive this
he agreed to counsel freshman on campus living. money it is
What amount must Shaun include in his gross in- deemed taxable.
come?
a) $9,500
b) $11,000
c) $2,500
d) $8,500
e) Zero - none of these benefits is included in
gross income
6. Blake is a limited partner in Kling-On Partners.
This year Kling-On reported that Blake's share of 3700+2400+42000
divi- dend income was $3,700 and his share of = 48,
municipal interest was $2,750. Early this year 3700+2750+2400+
Blake found a bundle of $100 bills in the alley 4200
outside his apart- ment. When no one claimed the
money, the cash (a total of $2,400) was returned to
Blake. Finally, Blake earned salary of $42,000 but
almost $6,500 was withheld for income taxes and
FICA tax. Compute Blake's realized income and
gross income.
7. T/F Retired taxpayers over 59 ½ years of age at the False- It is 70 and a
end of the year must receive minimum Dora's grand-
distributions from defined contribution plans or daughter. What
they are subject to a penalty. amount must
Dora's
8. Dora made a gift of stock to her granddaughter. granddaughter
At the time of the gift, the stock was worth include in her
$15,000. Several months after the gift, a $500 gross income?
dividend was declared on the stock and paid to
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, Chapter 5 Test Bank, Tax test 2, TAX
QUESTIONS
half
E because she would only need to include
dividend in- come and that is
not an option. 15000 is only subject to
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