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(Solved): TRUE-FALSE QUESTIONS 1. Dr. Yomo, a cash basis taxpayer, received a check for $250 after banking ho ...


1. Dr. Yomo, a cash basis taxpayer, received a check for $250 after banking hours on December 30, 2020, from a patient. Since Dr. Yomo could not deposit the check in his business checking account until January 2, 2021, the fee of $250 is not included in his income for 2020.

2. A scholarship received by a student that represents compensation for past, present, or future services is includible in gross income.

3. Compensation for damages to a person's character or for personal injury or illness is taxable.

4. Paul Penn, a cash basis taxpayer, received a desk in exchange for bookkeeping services. He should report the fair market value of the desk as income.

5. On December 31, 2020, George Gaines' bank credited his savings account with interest earned from October 1, 2020 through December 31, 2020. The bank posted this interest to his passbook on January 15, 2021, when he made a withdrawal. George, a calendar year cash method taxpayer, must report this interest on his 2020 income tax return.

6. If the tenant pays any expenses of the landlord, in lieu of paying rent, these payments are rental income to the landlord and must be included in the landlord's return.

7. An amount called a security deposit which is to be used as a final payment of rent should not be included in rental income in the year received, but should be included in income in the year the lease expires.

8. Ms. Clara Crayola, a teacher, received a cash award of $5,000 from the Chamber of Commerce in recognition of her past accomplishments in the field of education. She was chosen without action on her part and is not expected to perform any future services. The $5,000 award is the same as any other prize and must be reported by Clara as income in 2020.

9. Dr. Nelly Newman recently graduated from medical school and has begun her internship in a university hospital. Dr. Newman receives a $1,200 per month stipend, the same as all other interns. The internship is a required part of Dr. Newman's training as it is of all other medical school graduates entering her field of specialty. The $1,200 per month stipend represents a nontaxable grant.

10. Rick Rambler is divorced from his wife, who has custody of their child. The divorce decree, dated December 2017, provides that Rick must pay his former wife $150 per week toward the child's support, which he did throughout the calendar year. The decree also provides that he may claim the child as his exemption. Rick's former wife can prove that during the year she contributed $7,500 toward the support of the child. Rick is entitled to claim the exemption for the child.

11. Dan Drew owned two shares of a corporation's common stock. He paid $60 for one share and $30 for the other share. The corporation declared a stock dividend which gave stockholders two new shares of common stock for each share they held. After the distribution, Dan owns six shares of stock with an adjusted basis of $15 each.

12. When corporate bonds are sold between interest dates, the purchaser may take a deduction for that part of the purchase price that represents accrued interest as a return on capital from the next interest payment.

13. Jody Juniper owns ten shares of stock in Treeside Corporation. The corporation declared a ten percent stock dividend. Jody should treat the share received as a stock dividend as an ordinary taxable dividend.

14. Alan Anderson, a lessor, entered into a 10-year lease with a lessee in 20X1. In addition to the $5,000 received for the 20X1 rent, Alan received $5,000 in advance rent for the last year of the lease. Alan must include $10,000 in rental income in 20X1.

15. Tim Thayer, a lessee of part of an office building from an unrelated lessor, made permanent improvements which had a useful life longer than the remaining term of the lease. Tim moved out of the building when the lease expired. Therefore, the landlord must recognize income for the improvements Tim made when the lease expired.

16. Advance rent must be included in rental income in the year received regardless of the period covered or the accounting method used.

17. If both alimony and child support payments are required by the divorce decree or agreement, dated March 2015, and less than the required amount is paid, the payments apply first to child support and then to alimony.

18. Payments of a former wife's medical expenses under a divorce decree, dated March 2020, requiring that the husband pay the wife's future medical expenses in addition to qualifying alimony are deductible as alimony.

19. In 20X1, Greta Grady received $50,000 in advance payments under a 50-month lease agreement. The $50,000 represented the entire amount due under the lease. There were no restrictions on the use or enjoyment of the payments. Greta must include the $50,000 as income in 20X1.

20. The fair market value of property or services received in bartering must be included in gross income.

21. Zelda Zayer leased a room to Victor Vaughn for one year. He paid her $500 for November's and December's rent and $100 as a security deposit to be returned to him at the end of the lease. Zelda must include the $600 as income when received.

22. Greg Greystone rents an apartment to Brad Berry. If Brad pays any of Greg's expenses, Greg must include the payments in his rental income. Greg may deduct the expenses paid by Brad if they are otherwise deductible.

23. If the taxpayer owns Series E or Series EE bonds and chooses to report the increase in redemption value as interest income each year, the taxpayer must continue to do so for all discount bonds that are owned or obtained later.

24. When corporate bonds, which are not original discount bonds, are sold between interest dates, the accrued interest to the date of the sale must be reported by the seller as taxable interest income. When the purchaser receives the next payment, the total amount must be reported as taxable interest income and the accrued interest shown as an adjustment (or subtraction).

25. Jerome Judson's divorce decree, dated 2016, calls for him to pay his former wife $200 a month as child support and $200 a month as alimony. This year he paid only $3,600. Jerome may deduct $1,200 as alimony.

26. On August 1 of this year, Bart Barnes transferred property to his former spouse in settlement of marital rights, under a divorce instrument effective July 26, 20X1. The property cost $10,000 and had a fair market value of $20,000 when transferred. Bart will recognize gain on the transfer.

27. Cal Cotton, under a divorce instrument effective June 2018, is required to pay for medical and dental expenses of his former wife. Cal may deduct these payments as alimony.

28. Jose Cruz was divorced in March 2018. In order to limit the extent that "front-loaded" payments may qualify as alimony, a recapture rule may apply to the part of the payments made in the first two post-separation years that exceed $25,000 a year.

29. Paul and Joan divorced in 2018. They have two children, ages five and ten. The divorce decree requires Joan to pay $300 a month to Paul and does not specify the use of the money. According to the decree, the payments will stop after the children reach 18. Joan may deduct payments as alimony.

30. Gross income is a taxpayer's total income less exclusions.

31. Makayla, a cash basis saleswoman, receives commissions in February 2021 based on sales made in the last quarter of 2020. The commissions are includible in 2020 gross income.

32. Abigail deposited $10,000 in a bank to purchase a 6 month money market certificate which matures in 20X1. Abigail is required to include this interest as income for tax year 20X1.

33. Todd, a politician, uses political contributions to pay his household electric bill. The amount used to pay the electric bill is taxable income to Todd.

34. Eric agrees to paint Naomi's porch if Naomi pays $200 to Eric's elderly mother. The $200 is included in Eric's gross income.

35. All interest on United States savings bonds is tax-exempt.

36. Harry and Wilma are divorced in 2018. Payments from Harry to Wilma under a 2018 property settlement agreement may qualify for alimony treatment.

37. Ed and Edna are divorced in 2018. The couple has one child, age 11. Under a 2018 divorce instrument, Edna is to pay Ed alimony of $1,000 per month. Alimony payments will be reduced by $600 a month when the child reaches 18. Under this fact situation, $600 of the $1,000 a month payment from Edna to Ed is treated as nondeductible child support.

38. Interest was credited to Jane's savings account on December 31, 20X1. As long as Jane leaves the interest in the account and does not withdraw it, the interest is not taxable to her.

39. Mr. Barley, an accountant, accepted a painting for his office from his client in lieu of payment of his customary fee of $400 for preparation of a tax return. The fair market value of the painting was $400. He must include the $400 in income.

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Dr. Yomo, a cash basis taxpayer, received a check for $250 after banking hours on December 30, 2020, from a patient. Since Dr. Yomo could not deposit the check in his business checking account until January 2, 2021, the fee of $250 is not included in his income for 2020.

False. Dr. Yomo must include the $250 in his income for 2020 even though he did not deposit the check until January 2021. This is because the check was received in 2020.

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