1. Under the rules governing income recognition in divorces:

a. To determine whether a cash payment is alimony, one must refer to the IRC definition, and not to state law governing alimony.

b. If one spouse is given ownership of property that was wholly owned by the other spouse, without giving anything in return, the receiving spouse has experienced an increase in wealth and is subject to tax on the income.

c. Child support is included in the gross income of the recipient of the payments.

d. A payment is not treated as alimony unless the divorce decree states that it is alimony.

e. A person who earns $90,000 in wages, but whose employer pays $20,000 in alimony to the person's former spouse, includes only $70,000 in gross income because the $20,000 alimony is income assigned to the former spouse.

2. The Maroon & Orange Gym, Inc., uses the calendar tax year and the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 ($480/12 = $40 per month); a two-year membership costs $720 ($720/24 = $30 per month). Cash payment for the full amount of the contract is required at the beginning of the membership period. On July 1, 2019, the company sold a one-year membership and a two-year membership. For book purposes, the corporation reports the payments for months after the end of each calendar year as unearned income. Assuming the transactions are treated for income tax purposes as advanced payments for services, the company should report as gross income from the two contracts:

a. $1,200 in 2019. b. $420 in 2019. c. $780 in 2020. d. $600 in 2020. e. b and c are both correct.

3. Teal company is an accrual basis taxpayer. On December 1, 2019, a customer paid Teal for an inventory item that was on hand, but the customer wanted the item delivered in early January of 2020. Teal delivered the item on January 4, 2020. Teal included the sale in its 2020 income for financial accounting purposes. For tax purposes:

a. Teal must recognize the income in 2019.

b. Teal must recognize the income in the year title to the goods passed to the customer, as determined under the laws of the state in which the store is located.

c. Teal can elect to recognize the income from this prepayment in either 2019 or 2020.

d. Teal must recognize the income in 2020.

e. Teal must recognize the income in the same year as it does for financial accounting purposes.

4. As a general rule: I. Income from property is taxed to the person who owns the property. II. Income from services is taxed to the person who performs the services as an agent for another taxpayer. III. The person to whom income from property is assigned must pay tax on that income. IV. The person who receives the benefit of the income must pay the tax on the income.

a. Only I and II are true.

b. Only I is true.

c. I, II, and III are true, but IV is false.

d. I, II, III, and IV are true.

e. None of these is true.

5. Daniel purchased a bond on July 1, 2017, at par of $10,000 plus accrued interest of $300. On December 31, 2017, Daniel received payment of the entire $600 interest payable on the bond for the year. On July 1, 2018, Daniel sold the bond for $10,200. Using monthly accrual of interest on the bond:

a. Daniel must recognize $300 interest income for 2017 and a $200 capital gain on the sale of the bond in 2018.

b. Daniel must recognize $600 interest income for 2017 and a $200 capital gain on the sale of the bond in 2018.

c. Daniel must recognize $300 interest income for 2017, $300 in interest income for 2018, and a $100 capital loss on the sale of the bond in 2018.

d. Daniel must recognize $300 interest income for 2017 and $200 in interest income in 2018.

e. Daniel must recognize $300 interest income for 2017 and a $100 capital loss on the sale of the bond in 2018.