For Each of the Following Situations, Determine the Amount of Gross

question 136

Essay

For each of the following situations, determine the amount of gross income that the taxpayer should recognize. Explain why any amounts are excluded from gross income.
a.Harvey is injured in an automobile accident. The driver of the other car is found to be at fault. A judge awards Harvey $10,000 for pain and suffering, $20,000 in punitive damages, and $15,000 for medical expenses. Harvey's total medical costs are $25,000 and his employer provided insurance policy pays $8,000 of the remaining medical costs. He also receives $800 of worker's compensation while he was unable to work. In addition, his employer provided insurance pays him $450 of disability pay while he recuperated and a separate plan that Harvey purchased paid $300 of disability payments.
b.Heather owes $35,000 of credit card debt to First City Bank. Heather is having financial difficulties during the current year and First City agrees to reduce her debt to $20,000 to help her get her financial affairs in order and avoid bankruptcy. Heather's assets were $100,000 and her liabilities were $110,000 before the discharge.
c.On May 1, Ernie receives 1,000 shares of Glimmer Company stock as a graduation present from his uncle. The shares have a fair market value of $5 per share on May 1. Ernie receives an additional 100 shares on July 25 as a result of a 10% stock dividend that Glimmer had declared on July 1. On December 1, Glimmer declares and distributes a $.50 per share cash dividend.
d.Garry works as a reservations clerk for Big Apple Hotels. Big Apple Hotels also owns Mideastern Airlines. Big Apple allows all employees to fly on Mideastern Airlines and to stay in Big Apple Hotels free, on a space available basis. Garry takes advantage of Big Apple's generosity and took a trip to Reno to visit the casinos. The cost of the airfare would have been $480 and the lodging would have cost $600 if he had not been an employee of Big Apple.

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Definitions:

Reward Power

A form of power that is based on the ability to distribute rewards that others view as valuable.

Visionary Leadership

A leadership style characterized by the ability to create and articulate a realistic, credible, attractive vision of the future for an organization or company that grows out of and improves upon the present.

Long-Term Plans

Plans that typically look three or more years into the future.

Personal Power

The influence or authority an individual has over others, derived from skills, knowledge, or personal attributes, rather than formal positions.