Chapter 3, Problem 63P

Determine whether the taxpayer has income that is subject to taxation in each of the following situations:

1. a. Capital Motor Company is going out of business. As a result, June is able to purchase a car for $12,000; its original sticker price was $25,000.
2. b. Chuck is the sole owner of Ransom, Inc., a corporation. He purchases a machine from Ransom for $10,000. Ransom had paid $50,000 for the machine, which was worth $30,000 at the time of the sale to Chuck.
3. c. Gerry is an elementary school teacher. She receives the Teacher of the Month Award for February. As part of the award, she gets to drive a new car supplied by a local dealer for a month. The rental value of the car is $400 per month.
4. d. Payne has worked for Stewart Company for the last 25 years. On the 25th anniversary of his employment with Stewart, he receives a set of golf clubs worth $1,200 as a reward for his years of loyal service to the company.
5. e. Anna enters a sweepstakes contest that was advertised on the back of a cereal box, and wins $30,000. The prize will be paid out in 30 annual installments of $1,000. She receives her first check this year.
6. f. Terry buys an antique vase at an estate auction for $780. Upon returning home, she accidentally drops the vase and finds that a $100 bill had been taped inside it.