Question 1

Marjorie starts a new consulting business out of her home.She converts her personal computer,which cost $3,400,to business use when it is worth $1,200.Which of the following is correct?
I.The initial basis for determining a gain on the sale of the computer is $1,200.
II.The basis for depreciation purposes is $1,200.
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Accepted Answer

When property is converted from personal use to business use, the initial basis for determining a gain or loss is the lower of its adjusted basis (cost minus depreciation) or its fair market value at the time of conversion. Therefore, the initial basis for determining a gain on the sale of the computer is $1,200. Further, the basis for depreciation purposes is also $1,200 since it is the lower of the original cost and the fair market value at the time of conversion.

Question 2

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.After a few months of business use,Dana sells the automobile for $18,000.What is the amount of gain or loss recognized on the sale of the automobile?

Accepted Answer

The recognized loss is $1,000, calculated as the difference between the fair market value at the time of conversion to business use ($19,000) and the sale price ($18,000). The loss is recognized because the sale price is less than the value at the time of conversion to business use, not the original purchase price.

Question 3

Tony died on April 5,2017.As part of his will,he leaves land that he paid $6,000 for in 2003 to his son Philip.On April 5,2017,the land is worth $11,000.However,due to local real estate conditions,the land continues to decline in value.On July 28 it is worth only $10,000;it declines further to $9,000 on October 5 and plunges to $7,000 on December 18.
I.In the absence of any special elections,Philip's basis in the land is $6,000.
II.If the executor distributes the land to Philip on July 28,Philip's basis in the land will be $10,000.
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Accepted Answer

The answer of Tony died on April 5,2017.As part of...

Question 4

During 2006,Charles purchased 1,000 shares of Ryan Corporation stock for $12,000.On February 22,2017,he sells all the shares for $9,000.On March 15,2017,he repurchases 1,000 shares of Ryan for $8,000 and holds them until May 29,2076,when he sells them for $10,000.What is Charles' recognized gain or loss on the May 29,2017,sale?

Accepted Answer

The answer of During 2006,Charles purchased 1,000 shares of Ryan...

Question 5

If the executor of a decedent's estate elects the alternate valuation date and none of the estate's property is sold or distributed before the alternate date,the estate's assets are valued as of how many months after the date of death?

Accepted Answer

The alternate valuation date is 6 months after the date of death. If the executor chooses this option and no property is sold or distributed before the alternate date, then the estate's assets are valued as of 6 months after the date of death.

Question 6

Kim owns a truck that cost $35,000 several years ago.After using it personally for two years,she converts the truck to business use when the truck's fair market value is $20,000.She uses the truck in her business and appropriately deducts $5,000 in depreciation.Then,she sells the truck for $42,000.What is Kim's recognized gain or loss on the sale?

Accepted Answer

The answer of Kim owns a truck that cost $35,000...

Question 7

On February 3 of the current year,Samantha converts her house to a rental property.Samantha's adjusted basis in the house is $150,000 and the fair market value is $120,000 on the date of conversion.Samantha uses the rental for 3 years and properly deducts depreciation totaling $12,000.Then,she sells the house for $130,000.What is the amount of the gain or (loss)recognized on the sale?

Accepted Answer

The answer of On February 3 of the current year,Samantha...

Question 8

Reiko buys 200 shares of Saratoga Corporation common stock on December 10,2016,for $2,000.He buys an additional 200 shares for $1,800 on December 23,2017.On December 28,2017,Reiko sells 100 of the first 200 shares for $800.He sells the remaining 300 shares for $2,500 on November 15,2018.What is(are)the amount(s)and the year of recognition of losses that Reiko can recognize?
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2017 2018

Accepted Answer

Reiko sells 100 shares from the first batch in 2017 for $800, which is a $200 gain ($800 - $600 cost basis). In 2018, he sells the remaining 300 shares for $2,500. The cost basis for these shares is $3,000 ($1,200 for the remaining 100 shares from the first batch and $1,800 for the second batch), resulting in a $500 loss ($2,500 - $3,000).

Question 9

Match each statement with the correct term below.
-Tangible property

Accepted Answer

The answer of Match each statement with the correct term...

Question 10

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.What is Dana's basis for depreciation purposes?

Accepted Answer

When Dana converts the automobile to business use, the basis for depreciation purposes is the lesser of the fair market value at the time of conversion or the original cost. In this case, the fair market value is $19,000, so that becomes the new basis.

Question 11

Terri owns 1,000 shares of Borneo Corporation common stock.On March 31 of the current year,when the stock is trading at $2 per share,Borneo declares a 5% stock dividend with the option to receive $2 cash per dividend share in lieu of taking the dividend shares.The dividend is distributed on April 30.Terri elects to receive the stock shares rather than the cash dividend.What are the tax effects for Terri?
I.Terri's stock dividend is nontaxable.
II.Terri's basis in her new shares is $100.
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Accepted Answer

The answer of Terri owns 1,000 shares of Borneo Corporation...

Question 12

Match each statement with the correct term below.
-Intangible property

Accepted Answer

Intangible property refers to assets that do not have a physical existence but hold value, such as intellectual property, copyrights, and trademarks.

Question 13

Jenny purchased 1,000 shares of Hewlett Corporation preferred stock for $66,000 two years ago.During the current year,Jenny receives a 10% nontaxable stock dividend at a time when the stock has a fair market value of $40.What is Jenny's basis in the stock dividend shares?

Accepted Answer

The answer of Jenny purchased 1,000 shares of Hewlett Corporation...

Question 14

Mitaya purchased 500 shares of Sundown Inc. ,common stock on December 13,2015,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2016,she received 250 shares of Sundown Inc. ,common stock as a tax-free dividend.Mitaya sells 600 shares for $3,700 on January 8,2017,and pays a $100 commission on the sale.Mitaya's gain (loss)on the sale is characterized as:

Accepted Answer

The shares sold were purchased on December 13, 2015, and sold on January 8, 2017, more than one year later. Therefore, the gain is a long-term capital gain.

Question 15

Melonie purchased 100 shares of Wake Corporation stock for $6 per share on August 3,2015.On December 18,2016,Melonie sells all 100 shares for $4 per share.On January 5,2017,Melonie purchases 50 shares of Wake stock for $5 per share.What is the basis of the 50 shares Melonie holds on January 5,2017?

Accepted Answer

The basis of the 100 shares purchased on August 3, 2015, is $600 (100 shares x $6 per share). 
When Melonie sells all 100 shares for $4 per share on December 18, 2016, she gets $400 (100 shares x $4 per share), resulting in a loss of $200 ($600 - $400). 
When Melonie purchases 50 shares on January 5, 2017, she does not have any loss or gain to carry over from the previous shares because she sold all 100 of them. 
Therefore, the basis of the 50 shares purchased on January 5, 2017, is simply the cost of the shares, which is $250 (50 shares x $5 per share).

Question 16

On February 3 of the current year,Caroline converts her house to a rental property.Caroline's adjusted basis in the house is $120,000 and the fair market value is $150,000 on the date of conversion.What is Caroline's adjusted basis in the rental property for depreciation purposes?

Accepted Answer

For depreciation purposes, when converting personal property to rental property, the basis is the lower of the adjusted basis or the fair market value at the time of conversion. In this case, Caroline's adjusted basis ($120,000) is lower than the fair market value ($150,000), so her basis for depreciation is $120,000.

Question 17

Match each statement with the correct term below.
-Mixed-use property

Accepted Answer

Mixed-use property refers to a single property that is utilized for multiple purposes, such as residential, commercial, or industrial, rather than being dedicated to a single use category.

Question 18

Ludwig died on April 5,2017.As part of his will,he leaves land for which he paid $6,000 on December 31,2016,to his son Don.On April 5,2017,the land is worth $11,000.However,due to local real estate conditions,the land declines in value.On July 28 it is worth only $10,000;it declines further to $9,000 on October 5 and plunges to $7,000 on December 18.
I.In the absence of any special elections,Don's basis in the land is $11,000.
II.If the executor elects the alternate valuation date and distributes the land to Don on July 28,Don's basis in the land will be $9,000.
III.If the executor elects the alternate valuation date and distributes the land to Don on December 18,Don's basis will be $7,000.
IV.In the absence of any special elections,if the executor distributes the land to Don on October 5,Don's basis in the land will be $9,000.
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Accepted Answer

Statement I is correct because Don's basis in the land is the fair market value at the time of Ludwig's death, which was $11,000. 
Statements II, III, and IV are incorrect because they assume the alternate valuation date was chosen. However, the question does not specify that this election was made. Therefore, Statement I is the only correct statement.

Question 19

Dustin buys 200 shares of Monroe Corporation common stock on December 1,2016,for $2,000.He buys an additional 200 shares for $1,800 on December 23,2017.On December 28,2017,Dustin sells the first 200 shares for $1,700.He sells the last 200 for $1,600 on June 15,2018.What is (are)the amount(s)and the year of recognition of losses that Dustin can recognize?
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2017 2018

Accepted Answer

The answer of Dustin buys 200 shares of Monroe Corporation...

Question 20

Kevin buys one share of Mink,Inc. ,common stock for $100.On February 3 of the current year,the corporation makes a nontaxable distribution of one share of preferred stock to all holders of record of common stock.On the distribution date,the common stock is trading at $250 and the preferred stock is trading at $50.After the distribution,Kevin's bases in the two shares of stock are:
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Common Preferred

Accepted Answer

When a corporation makes a nontaxable distribution of stock to its shareholders, the basis in the distributed stock is allocated between the distributed stock and the stock with respect to which the distribution was made. The allocation is made based on the relative fair market values (FMVs) of the distributed stock and the remaining stock on the distribution date.

In this case, Kevin's basis in the common stock after the distribution is $83.33 (=$250 FMV of common stock / ($250 FMV of common stock + $50 FMV of preferred stock) x $100 original basis). His basis in the preferred stock is $16.67 (=$50 FMV of preferred stock / ($250 FMV of common stock + $50 FMV of preferred stock) x $100 original basis). Therefore, the correct answer is C.

Quiz 9: Acquisitions of Property

If the executor of a decedent's estate elects the alternate valuation date and none of the estate's property is sold or distributed before the alternate date,the estate's assets are valued as of how many months after the date of death?

Match each statement with the correct term below. -Tangible property

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.What is Dana's basis for depreciation purposes?

Match each statement with the correct term below. -Intangible property

Jenny purchased 1,000 shares of Hewlett Corporation preferred stock for $66,000 two years ago.During the current year,Jenny receives a 10% nontaxable stock dividend at a time when the stock has a fair market value of $40.What is Jenny's basis in the stock dividend shares?

Melonie purchased 100 shares of Wake Corporation stock for $6 per share on August 3,2015.On December 18,2016,Melonie sells all 100 shares for $4 per share.On January 5,2017,Melonie purchases 50 shares of Wake stock for $5 per share.What is the basis of the 50 shares Melonie holds on January 5,2017?

On February 3 of the current year,Caroline converts her house to a rental property.Caroline's adjusted basis in the house is $120,000 and the fair market value is $150,000 on the date of conversion.What is Caroline's adjusted basis in the rental property for depreciation purposes?

Match each statement with the correct term below. -Mixed-use property