Question 1

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 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.What is Dana's basis for depreciation purposes?

Accepted Answer

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

Question 3

Tony receives an automobile from his uncle,Ned,as a graduation gift.Ned used the vehicle only for commuting to his office during the 3 years he owned it.Ned paid $20,000 for the vehicle.It is valued at $8,000 on the date of the gift.Tony will use the automobile 100% of the time for his business.Determine Tony's basis in the automobile for depreciation purposes.Explain your answer in terms of the concepts of taxation.

Accepted Answer

The answer of Tony receives an automobile from his uncle,Ned,as...

Question 4

Melonie purchased 100 shares of Wake Corporation stock for $6 per share on August 3,2014.On December 18,2015,Melonie sells all 100 shares for $4 per share.On January 5,2016,Melonie purchases 50 shares of Wake stock for $5 per share.What is the basis of the 50 shares Melonie holds on January 5,2016?

Accepted Answer

The basis of the 100 shares purchased on August 3, 2014 is:
100 shares x $6 per share = $600
Melonie sells all 100 shares on December 18, 2015 for $4 per share, resulting in a loss of:
100 shares x ($4 per share - $6 per share) = -$200
Therefore, Melonie has a net loss of $200 from selling the 100 shares. When she purchases 50 shares on January 5, 2016 for $5 per share, the basis of these shares will be adjusted by the amount of the net loss. The adjusted basis is:
($600 - $200)/100 shares = $4 per share
The basis of the 50 shares Melonie holds on January 5, 2016 is:
50 shares x $4 per share = $200
So, the correct answer is option D.

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 generally 6 months after the date of death. Therefore, if the executor elects this option and no property is sold or distributed before the alternate date, the assets are valued as of 6 months after the date of death.

Question 6

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 7

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 8

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 9

During 2006,Charles purchased 1,000 shares of Ryan Corporation stock for $12,000.On February 22,2016,he sells all the shares for $9,000.On March 15,2016,he repurchases 1,000 shares of Ryan for $8,000 and holds them until May 29,2016,when he sells them for $10,000.What is Charles' recognized gain or loss on the May 29,2016,sale?

Accepted Answer

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

Question 10

Tony died on April 5,2016.As part of his will,he leaves land that he paid $6,000 for in 2003 to his son Philip.On April 5,2016,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 5,2016.As part of...

Question 11

Ludwig died on April 5,2016.As part of his will,he leaves land for which he paid $6,000 on December 31,2015,to his son Don.On April 5,2016,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

In the absence of any special elections, the basis of inherited property is generally the fair market value at the date of the decedent's death, which is $11,000 in this case.

Question 12

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 13

Dustin buys 200 shares of Monroe Corporation common stock on December 1,2015,for $2,000.He buys an additional 200 shares for $1,800 on December 23,2016.On December 28,2016,Dustin sells the first 200 shares for $1,700.He sells the last 200 for $1,600 on June 15,2017.What is (are)the amount(s)and the year of recognition of losses that Dustin can recognize?
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Accepted Answer

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

Question 14

Indicate the classification of each of the following assets as personal property,real property,intangible property,personal use property or business use property.
a.A dentist purchases a sofa for the waiting room at his dental office.
b.A dentist purchases a sofa for his living room at home.
c.A dentist has a landscape architect plant shrubbery and trees around his office building.
d.A dentist pays a landscaper to grade his land and install fencing for a baseball practice field for his son.
e.A dentist obtains a patent for a procedure he developed.

Accepted Answer

The answer of Indicate the classification of each of the...

Question 15

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 16

Sara constructs a small storage shed for resale to customers and incurs the following costs:

Accepted Answer

The answer of Sara constructs a small storage shed for...

Question 17

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 18

Determine the adjusted basis of the following assets.
a.Dennis buys land by paying $45,000 in cash and assuming a loan for $45,000. He incurs legal fees and commissions of $5,000. He pays $3,000 to have tree seedlings planted on the property. A flood causes $6,000 of damage to the property. Dennis does not carry flood insurance, so he deducts the total loss on his tax return. His property tax liability for this year is $750 and his interest on the loan is $1,850.
b.Tyler buys 100 shares of Oliver Corporation stock at $150 per share plus commissions of $300. At the end of the year, Oliver pays a $10 per share cash dividend and informs shareholders that $6 per share is taxable as a dividend and $4 is a nontaxable dividend.
c.Taylor Corporation acquires an asset for $8,000 in its first year of operation. Since the company suffers a loss during this first year of operation, the bookkeeper decides to deduct only half of the depreciation that was allowable on this asset and claims a depreciation deduction of $800, instead of $1,600.

Accepted Answer

The answer of Determine the adjusted basis of the following...

Question 19

Mitaya purchased 500 shares of Sundown Inc.,common stock on December 13,2014,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2015,she received 250 shares of Sundown Inc.,common stock as a tax-free dividend.Mitaya sells 600 shares for $3,700 on January 8,2016,and pays a $100 commission on the sale.Mitaya's gain (loss)on the sale is characterized as:

Accepted Answer

The shares were held for more than one year, so the gain is long-term capital gain. The gain is $600, calculated as follows:Selling price: $3,700Less: Commission: $100Net proceeds: $3,600Less: Cost of shares sold: $3,000Gain: $600

Question 20

Reiko buys 200 shares of Saratoga Corporation common stock on December 10,2015,for $2,000.He buys an additional 200 shares for $1,800 on December 23,2016.On December 28,2016,Reiko sells 100 of the first 200 shares for $800.He sells the remaining 300 shares for $2,500 on November 15,2017.What is(are)the amount(s)and the year of recognition of losses that Reiko can recognize?
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Accepted Answer

The answer of Reiko buys 200 shares of Saratoga Corporation...

Quiz 9: Acquisitions of Property