Question 1. Stuart owns 300 shares of Turquoise Corporation stoc

1. Stuart owns 300 shares of Turquoise Corporation stock and 2,000 shares of Blue Corporation stock. During the year, Stuart received 150 shares of Turquoise as a result of a 1 for 2 stock split. The value of the shares received was $4,800. Stuart also received 100 shares of Blue Corporation stock as a result of a 5% stock dividend. Stuart did not have the option of receiving cash from Blue. The additional shares he received had a value of $7,200. Stuart’s gross income from the receipt of the additional Turquoise and Blue shares is:

a. $0.

b. $4,800.

c. $7,200.

d. $12,000.

e. None of the above.

2. Assuming a taxpayer qualifies for the exclusion treatment, the interest income on educational savings bonds:

a. Is gross income to the person who purchased the bond in the year the interest is earned.

b. Is gross income to the student in the year the interest is earned.

c. Is included in the student’s gross income in the year the savings bonds are sold or redeemed to pay educational expenses.

d. Is notincluded in anyone’s gross income if the proceeds are used to pay college tuition.

e. None of the above.

3. The exclusion of interest on educational savings bonds:

a. Applies only to savings bonds owned by the child.

b. Applies to parents who purchase bonds for which the proceeds are used for their child’s education.

c. Means that the child must include the interest in income if the bond is owned by the parent.

d. Does apply even if used to pay for room and board.

e. None of the above.

4. Martha participated in a qualified tuition program for the benefit of her son. She invested $6,000 in the fund. Four years later her son withdrew $8,000, the entire balance in the program, to pay his college tuition.

a. Martha is not required to include the $2,000 ($8,000 – $6,000) in her gross income when the funds are used to pay the tuition.

b. Martha’s son must include the $2,000 ($8,000 – $6,000) in his gross income when the funds are used to pay the tuition.

c. Martha must include $8,000 in her gross income.

d. Martha’s son must include $8,000 in his gross income.

e. None of the above.

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