Question 1. A scholarship recipient at State University may exclude from gross

1. A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:

a. Only tuition.

b. Tuition, books, and supplies.

c. Tuition, books, supplies, meals, and lodging.

d. Meals and lodging.

e. None of the above.

2. Ron, age 19, is a full-time graduate student at City University. During 2014, he received the following payments:

Ron served as a resident advisor in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Ron’s adjusted gross income for 2014?

a. $1,500.

b. $3,900.

c. $9,000.

d. $15,400.

e. None of the above.

3. Barney is a full-time graduate student at State University. He serves as a teaching assistant for which he is paid $700 per month for 9 months and his $5,000 tuition is waived. The university waives tuition for all of its employees. In addition, he receives a $1,500 research grant to pursue his own research and studies. Barney’s gross income from the above is:

a. $0.

b. $6,300.

c. $11,300.

d. $12,800.

e. None of the above.

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4. Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent. Her only source of income is a $10,000 athletic scholarship ($1,000 for books, $5,500 tuition, $500 student activity fee, and $3,000 room and board). Jena’s gross income for the year is:

a. $10,000.

b. $4,000.

c. $3,000.

d. $500.

e. None of the above.

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5. As an executive of Cherry, Inc., Ollie receives a fringe benefit in the form of annual tuition scholarships of $10,000 to each of his three children. The scholarships are paid by the company on behalf of the children of key employees directly to each child’s educational institution and are payable only if the student maintains a B average.

a. The tuition payments of $30,000 may be excluded from Ollie’s gross income as a scholarship.

b. The tuition payments of $10,000 each must be included in the child’s gross income.

c. The tuition payments of $30,000 may be excluded from Ollie’s gross income because the payments are for the academic achievements of the children.

d. The tuition payments of $30,000 must be included in Ollie’s gross income.

e. None of the above.

6. The taxpayer is a Ph.D. student in accounting at City University. The student is paid $1,500 per month for teaching two classes. The total amount received for the year is $13,500.

a. The $13,500 is excludible if the money is used to pay for tuition and books.

b. The $13,500 is taxable compensation.

c. The $13,500 is considered a scholarship and, therefore, is excluded.

d. The $13,500 is excluded because the total amount received for the year is less than her standard deduction and personal exemption.

e. None of the above.

7. During the current year, Khalid was in an automobile accident and suffered physical injuries. The accident was caused by Rashad’s negligence. Khalid threatened to file a lawsuit against Amber Trucking Company, Rashad’s employer, claiming $50,000 for pain and suffering, $90,000 for loss of income, and $70,000 in punitive damages. Amber’s insurance company will not pay punitive damages? therefore, Amber has offered to settle the case for $100,000 for pain and suffering, $90,000 for loss of income, and nothing for punitive damages. Khalid is in the 35% marginal tax bracket. What is the after­tax difference to Khalid between Khalid’s original claim and Amber’s offer?

a. Amber’s offer is $20,000 less. ($50,000 + $90,000 + $70,000 – $100,000 – $90,000).

b. Amber’s offer is $7,000 less. [($50,000 + $90,000 + $70,000 – $100,000 – $90,000) × .35)].

c. Amber’s offer is $4,500 more. {$190,000 – ($50,000 + $90,000) + [$70,000 × (1 – .35)]}.

d. Amber’s offer is $22,000 more. [($190,000 – $210,000) + ($120,000 × .35)].

e. None of the above.

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