Question

1.In October of 2017 Bruce, a cash basis CPA, contracted to perform an audit for $2,000 and to prepare the corporate tax return for $1,000. The contract called for payment January 31 of 2018. The client called Bruce on December 31, 2017, and offered him $1,500. Bruce accepted and the client mailed him a check on December 31, 2017. What amount must Bruce include in his 2017 tax return?

$1,000

$0

$1,500

$3,000

2. Bobby is age 62, single, and claimed as a dependent by his daughter on her tax return. During the current year, Bobby received Social Security payments of $6,000, interest on a bank account of $3,500, and $2,300 from a part-time job. What is Bobby’s taxable income?

$0

$550

$2,300

$3,150

3.Sally is 92 years old and single and claimed by her daughter as a dependent. During the tax year she received $1,900 in interest from her savings account, $1,500 in interest from State of New York general obligation bonds, and $8,000 distributions from a Roth IRA. What is her gross income?

$1,500

$1,900

$3,400

$11,400

4.George, age 21 is a full-time student at the University and is claimed as a dependent by his parents he had earned income of $2000 from a part-time job. In addition he had $950 interest from a savings account. He had total itemized deductions of $200 in the current year. What is George’s taxable income this year?

$600

$950

$2,000

$2,950

Answer 1

(1) Since tax return for the year 2017 will be for all income between January 1 2017 to December 31 2017, Bruce does not need to include any amount in his 2017 tax return as he has not received any payment in the year 2017. The mailing of cheque to Bruce on 31st December 2017 does not count because the cash has not reached Bruce's account on 31st December 2017. Therefore the answer to this question is $0. (2) Bobby's gross income is $11,800. He does not have to pay any taxes on his social security income component of $6,000. His remaining income component of $5800 falls within the standard deduction limit of $6350. Therefore, Bobby's total taxable income is $0. (3) As per U.S. federal income tax law, Sally's Roth IRA distributions and interest earned from general obligation bonds are not considered as part of gross income. Therefore, Sally's gross income is her income from bank interest i.e. $ 1900. (4) George's taxable income is $2950 which is the sum of his income from part-time job and the earnings from his savings account.