Answer the following statements true (T) or false (F)

Question

1. An individual buys 200 shares of General Electric Corporation stock. In lieu of receiving quarterly dividends, the individual signs an agreement to have dividends reinvested by GE into additional shares of stock. The individual does not receive dividend checks so he need not recognize the quarterly dividends for tax purposes.
2. Under the accrual method of accounting, income is considered earned when all the events have occurred which fix the right to receive the income and when the amount of income can be determined with reasonable accuracy.
3. An accrual-basis taxpayer receives advance payment for services to be provided over three future years. The taxpayer can recognize the income over the three-year period as services are provided, consistent with its financial statements.
4. Gains realized from property transactions are included in gross income unless a nonrecognition rule applies.
5. Interest on the obligations of the U.S. government, states, territories, and U.S. possessions and their political subdivisions are tax-exempt.

Answer 1

1. FALSE
The dividends are constructively received and must be recognized.
2. TRUE
These are the two general requirements for income recognition under the accrual method.
3. FALSE
Advance payments for future years must be recognized no later than the tax year following the year of receipt even if the payments relate to multiple future years.
4. TRUE
All income from whatever source derived is taxable unless an exclusion is provided in the law.
5. FALSE
Interest on U.S. government obligations is generally taxable.