Discuss AICPA CPA-Regulation Exam Topic 3 Question 49

Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom's dependent.

Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994 Form 1040.

The Moores received a $500 security deposit on their rental property in 1994. They are required to return the amount to the tenant.

Suggested Answer: A

'A' is correct. $0. The security deposit is not taxable income because the Moores are required to return it when the tenant leaves. If the deposit is applied to damages in a later tax year, the portion the Moores retain would be income to them in the year they retain the deposit, and the money they spend to repair the damage would be a deduction to them.

11 comments · newest first

Kati 11 months ago

I think people are overthinking this. It's just $0, plain and simple.

Josue 11 months ago

Definitely $0, it's a liability, not income!

Maira 12 months ago

Wait, are you sure? I thought deposits could count as income sometimes.

Lilli 12 months ago

Totally agree, it should be $0 on the tax return!

Karrie 12 months ago

The security deposit is $500 but it's not income since it has to be returned.

Mitsue 1 year ago

I recall something about how only non-refundable deposits count as income. So, I guess the answer is $0, but I hope I’m remembering that correctly!

Lezlie 1 year ago

I think the security deposit doesn't count as income since they have to return it. So, I would lean towards $0, but I’m a bit uncertain.

Chuck 1 year ago

I'm not entirely sure, but I feel like we had a practice question about rental income that mentioned something similar. Could it be $500 since they received that amount?

Glendora 1 year ago

I remember that security deposits are typically not considered income if they are refundable, so I think the answer might be $0.

King 1 year ago

Hmm, I'm not entirely sure about this one. The price category and the pricing calculation seem like they could be parts of a pricing element, but I'm not 100% confident. I'll have to think this through carefully.

Percy 1 year ago

Okay, let me think this through. The key is understanding the difference between the features and functions that customers purchase versus the ones they actually use. I think the term for that gap is "consumption gap," but I'll double-check the other options just to be sure.

AICPA CPA-Regulation Exam - Topic 3 Question 49 Discussion