Question

Sally was an all-state soccer player during her junior and senior years in high school. She accepted an athletic scholarship from State University. The scholarship provided the following:

Tuition and fees $15,000
Housing and meals $6,000
Books and supplies $1,500
Transportation $1,200
a. Determine the effect of the scholarship on Sally's gross income.

Included in/Excluded from
Income
Tuition and fees
Housing and meals
Books and supplies
Transportation
b. Sally's brother, Willy, was not a gifted athlete, but he received $8,000 from their father's employer as a scholarship during the year. The employer grants the children of all executives a scholarship equal to one-half of annual tuition, fees, books, and supplies. Willy also received a $6,000 scholarship (to be used for tuition) as the winner of an essay contest related to bioengineering, his intended field of study. Indicate whether the following statements are "True" or "False" regarding the effect of the scholarships on Willy's and his father's gross income.

• The $8,000 scholarship is additional compensation to Willy's father and is included in his gross income.
• The scholarship is simply a payment to assist children of employees seeking an education and so is excluded from Willy's father's gross income.
• The $6,000 scholarship is taxable to Willy since he received it as a result of a contest.

Answer 1

a. Determine the effect of the scholarship on Sally's gross income.

The $15,000 received for tuition- fees and the 1,500 received for books supplies can be excluded from Sally’s gross income as a scholarship. The $6,000 received for housing and meals and the 1,200 received for transportation has to be included in the gross income.

b. Sally’s brother, Willy, was not a gifted athlete, but he received $8,000 from their father’s employer as a scholarship during the year. The employer grants the children of all executives a scholarship equal to one-half of annual tuition, fees, books, and supplies. Willy also received a $6,000 scholarship (to be used for tuition) as the winner of an essay contest related to bioengineering, his intended field of study. Indicate whether the following statements are "True" or "False" regarding the effect of the scholarships on Willy's and his father's gross income.

• The $8,000 scholarship is additional compensation to Willy's father and is included in his gross income.

True.

The $ 8,000 is additional compensation to Willy’s father. Therefore, the father should include this amount in his gross income.

• The scholarship is simply a payment to assist children of employees seeking an education and so is excluded from Willy's father's gross income.

False.

• The $6,000 scholarship is taxable to Willy since he received it as a result of a contest.

False.

$6,000 is a scholarship which is used for tuition and is not taxable.