Question

1. True or False. Taxpayer (“T”), a cash basis individual taxpayer, bought a bond for $8,760 on January 1, 2019, with a maturity value of $10,000 on January 1 2022 (meaning there are no scheduled payments other than the $10,000 received at maturity).  Assume the yield to maturity is 4.5% on an annual basis.  If the bond is a series EE government bond T will not be required to include any gross income in 2019, but if the bond is issued by a corporation, T must include $394.20 ($8,760*4.5%) in gross income in 2019?

______  (Write “T” for true or “F” for false)

2. True or False.  Taxpayer (“T”) an individual calendar year taxpayer can take a deduction for qualifying medical expenses and the standard deduction in the same year?

______  (Write “T” for true or “F” for false)

3. True or False.  An advance payment received in June 2019 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period, can be spread over the 36 month period for tax reporting purposes?

______  (Write “T” for true or “F” for false)

4. On January 1, Year 1, Taxpayer (“T”) purchased both a bond and stock of Corporation X.  The bond was purchased for $10,000, had a face value of $10,000 and paid 10% interest ($1,000) on December 31 of each year.  The stock was purchased for $10,000 and paid a dividend of $1,000 on December 31, ex- dividend date December 15.  T sold both the X stock and the X bond on July 1, of Year 1.  The bond sold for $10,300 and the stock sold for $11,000.  What income, gain or loss, including character type (e.g. capital gain, interest, dividend, ordinary) will T recognize as a result of the sales?

__________________________________ BOND

__________________________________ STOCK

Answer 1

Answer :

True

Reason Being the series EE governement bond interest are excluded from the total income. However, if the same had been issued by corporation than the same will be consider in the total income. therefore the given statement is true and correct

False

You can't take the standard deduction if you itemize your deductions. And medical expenses is an itemize deduction

Income from Bond

Interest income = $1000

Gain on sale of bond = $10300 - $10000 = $300 (Capital gain)

Income from stock

Dividend income = $1000

Gain on sale of stock = $11000 - $10000 = $1000 (Capital gain)

Note ; The character on sale of bond and stock depends on the nature of activity taxpayer T is carrying on. Like if its ordinary business is of purchasing and selling bond, stock than it would be consider as ordinary gain otherwiese capital gain otherwise capital gain. Also to term as capital gain requirement of minimum holding period period must be fulfilled. It is assumed that both the conditions are fulfilled .

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