Question

 

Jay owns a 25% interest in the capital and profits of Grey Company (a calendar year partnership). For tax year 2017, the partnership earned revenue of $800,000 and had operating expenses of $400,000. During the year, Jay withdrew from the partnership a total of $80,000. He also invested an additional $50,000 in the partnership. For 2017, Jay’s gross income from the partnership is:

a.	$70,000.
b.	$100,000.
c.	$125,000.
d.	$215,000.
e.	None of the above.

____   26.   Ron, age 19, is a full-time graduate student at City University. During 2016, he received the following payments:

State scholarship for ten months (tuition and books)	$ 7,000
Loan from college financial aid office	6,000
Gift from his aunt	3,500
Cash award for being the outstanding resident adviser	2,000
	$18,000

Ron served as a resident advisor in a dormitory and, therefore, the university waived the $3,500 charge for the room he occupied. What is Ron’s adjusted gross income for 2016?

a.	$3,500.
b.	$18,000.
c.	$2,000.
d.	$10,500.
e.	None of the above.

____   27.   Jerome received a court award in a civil libel suit against Morehouse Inquirer. He received $90,000 for damages to his professional reputation, $80,000 for damages to his personal reutation, and $80,000 in punitive damages. Jerome must include in his gross income as a damage award:

a.	$0.
b.	$100,000.
c.	$270,000.
d.	$250,000.
e.	None of the above.

____   28.   Jack’s interest and gains on investments for 2017 were as follows:

Interest on Band County bonds	$900
Interest on U.S. government bonds	700
Interest on Apple Corp bonds	400
Interest on a Federal income tax refund	300
Gain on the sale of Band County bonds	600

Jack’s gross income from the above is:

a.	$2,000.
b.	$1,800.
c.	$1,400.
d.	$1,300.
e.	None of the above.

Answer 1

Solution:

Particulars	Amount	Workings
Earned revenue	$800,000
Less: Operating expenses	$400,000
	$400,000
Tax Rate	25%
Gross Income	$100,000

Therefore Option (b) $100,000 is the correct answer.

26.)

Option (C) $2,000 is the correct answer

Scholarships for ten months of $7000 will be excluded from gross income.
Loan from college financial aid office $6000 is not an income.
Gift from Aunt $3500 is not an income.

The $2000 award for being the outstanding resident adviser is included in Ron gross income.

The $3500 wavier for housing is not included in Ron gross income because the house is provided for the convenience.

27.)

The amount that Jerome must include in his gross income as damage award = $90,000 + $80,000 + $80,000 = $250,000

Option (d) $250,000 is the correct answer.

28.)

While the $900 interest on the Bland County School bonds is tax-exempt, the $600 gain on the sale of these bonds is included in Heather's gross income.

The $ interest on the Federal income tax refund and the $700 interest on U.S. government bonds are included in gross income. Thus the Include able amount is $1600 ($700+$300+$600)

Option (e) None of the above