ERRATA

I. REG
A. Module 1: Chapter: Individual Taxation - Basics (Ref – IX.C.3)

The cost of maintaining a household includes the expenses incurred for the mutual benefit
of the members of the household such as rent, property taxes and insurance, mortgage
interest, repairs, utilities, and food consumed in the home, and other household expenses.
These expenses do not include costs of clothing, education, medical treatment, vacations,
life insurance, or transportation, rental value of a home owned or the value of the services
of the household members. In the following 3 circumstances, an individual is considered
not married.
a. Not married on the last day of the taxable year.
b. Legally separated from his or her spouse under a divorce or separate
maintenance decree.
c. Married but
i. files a separate return,
ii. maintains as his home a household which is the main home of a child for
more than one-half of the taxable year,
iii. furnishes over one-half of the cost of maintaining such household, and
iv. during the last 6 months of the taxable year, such individual’s spouse is
not a member of such household.

B. Module 1: Chapter: Individual Taxation – Gross Income (Ref – II.B.2)

1. Employee Achievement Award

Employee achievement awards (received in the form of ‘tangible personal property’)
for length of service or safety achievement are generally not included in gross
income. ‘Tangible personal property’ does not include (a) cash, cash equivalents, gift
cards, gift coupons, or gift certificates, or (b) vacations, meals, lodging, tickets to
theater or sporting events, stocks, bonds, other securities, and other similar items

a. Limit on Exemption
The amount not included in the employee’s gross income is limited to the
extent the cost of the award is deductible by the employer and cannot be more
than $1,600 for qualified plan awards ($400 for nonqualified plan awards).
$1,600 ($400 for nonqualified plan awards) for all such awards.

b. Not Exempt
i. Employee achievement award received in the form of-
1) cash, cash equivalents, gift cards, gift coupons, or gift certificates, or

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2) vacations, meals, lodging, tickets to theater or sporting
events, stocks, bonds, other securities, and other similar items.

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 ii. If a length-of-service award is received for less than 5 years of service or if
another length-of-service award was received during the year or the
previous 4 years.
iii. An item of tangible personal property which is awarded under conditions
and circumstances that create a significant likelihood of the payment of
disguised compensation is not considered an employee achievement
award.
II. FAR
A. Lease – Example 5 (Ref – Worksheet)

On January 1, year 2, Rolling Stone Co. leased a truck for a period of 3 years to Singer
Distribution Co. on an annual rental of $5,000 payable on December 31st each year. Rolling
Stone is provided a residual value guarantee of $18,000 by a third party. The fair value of
the truck on the inception of lease is $32,174. The total useful life of the truck is 10 years.
The rate implicit in the lease is 8%. The carrying amount of the truck at the inception of
lease is $30,000 $25,000. The truck reverts to Rolling Stone Co. at the end of the lease. It
is probable that Rolling Stone Co. will collect the lease payments. The PV of an ordinary
annuity of 1 for 4 3 periods at 8% is 2.577. The PV of 1 for 3 periods at 8% is 0.7938.
Prepare the journal entries on January 1, year 2, related to the lease in the books of Rolling
Stone Co.

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