Question
Chapter 5

1.

Problem 5-55 (LO 5-2)

For each of the following independent situations, indicate the amount the taxpayer must include in gross income:

a.

Phil won $790 in the scratch-off state lottery. There is no state income tax.

Amount to be included

$

b.

Ted won a compact car worth $18,700 in a TV game show. Ted plans to sell the car next year.

Amount to be included

$

c.

Al Bore won the Nobel Peace Prize of $585,000 this year. Rather than take the prize, Al designated that the entire award should go to Weatherhead Charity, a tax-exempt organization.

Amount to be included

$

d.

Jerry was awarded $5,500 from his employer, Acme Toons, when he was selected most handsome employee for Valentine?s Day this year.

Amount to be included

$

e.

Ellen won a $1,950 cash prize in a school essay contest. The school is a tax-exempt entity, and Ellen plans to use the funds to pay her college education.

Amount to be included

$

f.

Gene won $760 in the office March Madness pool.

Amount to be included

$

Explanation:

a.

All $790 is economic income realized this year and is, therefore, included in gross income.

b.

The value of the car, $18,700, is economic income realized this year and is, therefore, included in gross income.

c.

The entire award is excluded and therefore tax exempt. The award is excluded because it was for scientific, literary, or charitable achievement, and the taxpayer immediately transferred the award to a qualified charity.

d.

All $5,500 is economic income realized this year and is, therefore, included in gross income.

e.

All $1,950 is economic income realized this year and is, therefore, included in gross income.

f.

Gene should include $760 in his gross income.

2.

Problem 5-72 (LO 5-3)

Dontae?s employer has offered him the following employment package.

Salary

$ 450,000

Health insurance

15,500

Dental insurance

1,050

Membership to Heflin Country Club

17,000

Season tickets to Atlanta Braves games

5,100

Tuition reimbursement for graduate courses

4,150

Housing allowance (for a McMansion in his
neighborhood of choice)

37,000

What is Dontae?s gross income from his employment?

Gross income

$

3.

Problem 5-63 (LO 5-3)

For each of the following situations, indicate how much the taxpayer is required to include in gross income:

a.

Steve was awarded a $9,200 scholarship to attend State Law School. The scholarship pays Steve’s tuition and fees.

b.

Hal was awarded a $19,400 scholarship to attend State Hotel School. All scholarship students must work 40 hours per week at the School residency during the term.

c.

Bill was the recipient of an athletic scholarship that pays his $20,200 tuition to State University and provides him with a $840 per month stipend to pay for food and housing. The scholarship requires Bill to participate in athletic competition each term.

a.

How much of scholarship is Steve required to include in his gross income?

Amount to be included

$

b.

What is the amount of scholarship Hal should include in his gross income?

Amount to be included

$

c.

How much of scholarship and stipend (for 12 months) are to be included in Bill’s gross income?

Amount of scholarship to be included

$

Amount of stipend to be included

$