Accounting Tax

CHAPTER 5

.= (F)For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income and $1,350 (1.35 × $1,000) of taxable income yield the same after-tax iAncome.

-$1,000 of tax-exempt income is equivalent to $1,538 [($1,000)/(1 – .35)] of income that is subject to taxation. Income before tax of $1,538 yields $1,000 [$1,538 × (1 – .35)] of after-tax income.

= (F)In his will, John named his nephew Steve as executor of the estate. Steve is to receive a fee of $12,000 for serving as executor. When John died, Steve performed the executorial services and received the fee. Steve can exclude the $12,000 from gross income as an inheritance from his uncle’s estate.

-The $12,000 fee was a payment for services rendered rather than a bequest.

= (T)Brooke works part-time as a waitress in a restaurant. For groups of 7 or more customers, the customer is charged 15% of the bill for Brooke’s services. For parties of less than 7, the tips are voluntary. Brooke received $12,000 from the groups of 7 or more and $6,000 in voluntary tips from all other customers. Brooke must include $18,000 ($12,000 + $6,000) in gross income.

-The tips are compensation for income tax purposes because they are received for her services, rather than as a result of the customer’s “detached, disinterested generosity” (i.e., not a gift).

= (T)Marvin was the beneficiary of a $50,000 group term life insurance policy on his wife. His wife’s employer paid all of the premiums on the policy. Marvin used the life insurance proceeds to purchase a United States Government bond, which paid him $2,000 interest during the current year. Marvin’s Federal gross income from the above is $2,000.

-The $2,000 interest on United States Government bonds must be included in gross income. The life insurance proceeds of $50,000 are excluded from gross income.

= (F)Zack was the beneficiary of a life insurance policy on his wife. Zack had paid $20,000 in premiums on the policy. He collected...