Question

Please explain the below questions

88. Under the terms of a divorce agreement, Ron is to pay his former wife Jill $10,000 per month. The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18. During the current year, Ron paid $120,000 under the agreement. Assuming all of the other conditions for alimony are satisfied, Ron can deduct from gross income (and Jill must include in gross income) as alimony:
a.
$120,000.
b.
$84,000.
c.
$36,000.
d.
$0.
e.
None of these is correct.
ANSWER:
b
89. The purpose of the tax rules that apply to below-market loans between family members is to:
a.
Discourage loans between related parties.
b.
Prevent shifting of income among family members.
c.
Prevent gifts from being disguised as bad debt expenses.
d.
Prevent gift tax avoidance.
e.
None of these is true.
ANSWER:
b
90. On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.
a.
If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
b.
Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra’s investment income.
c.
Debra must recognize $6,090 of imputed interest income.
d.
Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income.
e.
None of these.
ANSWER:
a
91. Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation.
a.
Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
b.
Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
c.
Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
d.
Neither Sarah’s nor the corporation’s gross income is affected by the loans because no interest was charged.
e.
None of these.
ANSWER:
b
92. The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are:
a.
The corporation has imputed interest income and the employee is deemed to have received a gift.
b.
The corporation has imputed interest income and dividends paid.
c.
The employee has no income unless the funds are invested and produce investment income for the year.
d.
The employee has imputed compensation income and the corporation has imputed interest income.

Answer 1

88) 7000$ out of 10000$ is alimony. 3000$ is child's support as it has to be paid till child reached 18years of age.

Ron can deduct from gross income (and Jill must include in gross income) as alimony:

7000$*12Months = 84000$