AICPA CPA-Regulation Exam - Topic 3 Question 32 Discussion

Actual exam question for AICPA's CPA-Regulation exam

Question #: 32
Topic #: 3

DAC Foundation awarded Kent $75,000 in recognition of lifelong literary achievement. Kent was not required to render future services as a condition to receive the $75,000. What condition(s) must have been met for the award to be excluded from Kent's gross income?

I Kent was selected for the award by DAC without any action on Kent's part.

II Pursuant to Kent's designation, DAC paid the amount of the award either to a governmental unit or to a charitable organization.

AI only.

BII only.

CBoth I and II

DNeither I nor II

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. Generally, the fair market value of prizes and awards is taxable income. However, an exclusion from income for certain prizes and awards applies where the winner is selected for the award without entering into a contest (i.e., without any action on their part) and then assigns the award directly to a governmental unit or charitable organization. Therefore, conditions 'I' and 'II' must be met in order for Ken to exclude the award from his gross income.

Choice 'a' is incorrect. 'II' is a necessary condition as well. See Explanation: above.

Choice 'b' is incorrect. 'I' is a necessary condition as well. See Explanation: above.

Choice 'd' is incorrect. 'I' and 'II' are both necessary conditions. See Explanation: above.

by Gladys at May 03, 2022, 04:04 AM

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5 months ago

Hmm, this seems like a tricky one. I'll need to think carefully about the differences between the various enterprise CA servers and cloud-based controllers.

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