Question 1

Pedro purchased all of the stock of Regis Corporation. Since he purchased all of the stock the basis in all of the corporation's assets must be restated to fair market value.

Accepted Answer

Purchasing all of the stock of a corporation does not trigger a revaluation of the corporation's assets to fair market value; the basis of the assets remains unchanged unless a specific election or transaction, such as an asset purchase agreement, is made to step up the basis.

Question 2

Phyllis purchased an automobile for $3,000 down and a note for $15,000. During the year she paid interest of $1,000. Her basis is $18,000.

Accepted Answer

The basis of an asset includes the original purchase price plus any additional costs such as interest paid on a loan. In this case, the original purchase price was $3,000 down and a note for $15,000, making the total purchase price $18,000. The interest paid on the loan of $15,000 is also included in the basis, bringing the total basis to $18,000 + $1,000 = $19,000.

Question 3

Adjusted basis is equal to the initial basis, plus or minus the cumulative effects of adjustments.

Accepted Answer

This statement is true. Adjusted basis takes into account any changes to the initial basis during the holding period, such as depreciation, capital improvements, and tax credits.

Question 4

When a stock dividend is nontaxable, part of the basis of the original stock must be allocated to the new stock received as a dividend.

Accepted Answer

This statement is true. When a stock dividend is nontaxable, the basis of the original stock is divided among the new stock received as a dividend. This allocation of basis helps determine the amount of gain or loss in the future upon selling the stock.

Question 5

Taxpayers who construct property for their own use must capitalize both the direct and indirect construction costs.

Accepted Answer

This is true according to the IRS regulations. Direct construction costs include the expenses for materials and labor, while indirect costs include expenses such as legal fees, permits, and insurance. These costs are not deductible in the year they are incurred but must be added to the basis of the property and depreciated over the useful life of the property.

Question 6

General Telephone gave Wynonna $2,000 for an easement for power lines across her property. She must realize the gain or loss on the receipt of cash.

Accepted Answer

An easement is a non-possessory right to use the property of another. The payment for an easement is typically considered a return of capital, not a gain or loss, unless the payment exceeds the property's basis.

Question 7

Determine the proper classification(s) of the asset discussed in the following scenario: Judge Marshall purchased a new gold-trimmed gavel to decorate his living room.
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
​
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements I, III and VI are correct.

Accepted Answer

The asset in question is a tangible property that is intended for personal use, making statements I and III correct. Additionally, it is not used for any business purposes, eliminating statement II. The asset is also not an intangible property or real estate, eliminating statements IV and V. Finally, since the gavel was purchased for Judge Marshall's personal use, it qualifies as personal property, making statement VI correct. Therefore, the best choice is E, as it includes all correct statements.

Question 8

Personal property consists of any property that is held by an individual.

Accepted Answer

Personal property refers to movable property owned by an individual or entity, not to all property held by an individual, which could include real property (immovable property like land and buildings).

Question 9

The split basis rule for determining the basis of gifts allows for one basis for determining losses and another for calculation of gains.

Accepted Answer

The split basis rule allows for different bases to be used for determining losses and gains for a gifted asset. This is done by using the donor's basis for calculating losses and the fair market value at the time of the gift for calculating gains.

Question 10

Intangible property lacks a physical existence; the rights exist only because of economic rights the property possesses.

Accepted Answer

Intangible property refers to property that is not physical in nature, such as patents, copyrights, trademarks, and goodwill. These property rights do not have a physical existence but are based on the economic value they possess.

Question 11

The general rule for determining the basis of inherited property is that the basis in the hands of the heir is its fair market value at the date of death or at the alternative valuation date.

Accepted Answer

This is the general rule for determining the basis of inherited property under the U.S. tax code. However, there may be exceptions or special circumstances that could affect the basis calculation.

Question 12

An asset's holding period normally begins on the day after it is acquired and ends on the day of its disposition.

Accepted Answer

This is correct. The holding period of an asset starts the day after it is acquired and ends on the day it is disposed of.

Question 13

When a security is sold at a loss and and a substantially identical security has been purchased within 30 days before the sale date the loss is disallowed because it is classified as a wash sale.

Accepted Answer

This statement is true. A wash sale occurs when a security is sold at a loss and a substantially identical security has been purchased within 30 days before or after the sale date. In such cases, the loss is disallowed for tax purposes.

Question 14

Determine the proper classification(s) of the asset discussed in the following scenario: Victoria purchased a new show case saw for her antique business.
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
​
A)Statements I, III and VI are correct.
B)Statements II and III are correct.
C)Only statement VI is correct.
D)Statements II, III, and VI are correct.
E)Statements II, IV and VI are correct.

Accepted Answer

The asset discussed in the scenario is a showcase saw that Victoria purchased for her antique business. This makes it a tangible property, which is owned by Victoria's business, making it a business use property. However, it cannot be considered as real estate as it is not land or any interest in land. As the showcase saw is owned and used for Victoria's business, it cannot be considered as personal use property. And it cannot be considered as an intangible asset because it is a physical, tangible asset. Therefore, only statements II, III, and VI are correct, making choice D the best answer.

Question 15

The split basis rules for business property prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property.

Accepted Answer

The split basis rules for business property do indeed prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property. This is to prevent taxpayers from claiming more deductions than they are entitled to, which could result in an unfair tax advantage.

Question 16

Whenever the donor's adjusted basis is used to compute a gain or loss on the donee's disposition of property received by gift, the donee's holding period is always the period of time the property was owned by the donee only.

Accepted Answer

When the donor's adjusted basis is used for determining gain or loss, the donee's holding period includes the time the property was held by the donor, effectively tacking the donor's holding period onto the donee's.

Question 17

Brad, an engineering consultant, was given stock valued at $3,000 for services rendered. His basis in the stock he received for the services is zero since he received no cash.

Accepted Answer

Brad's basis in the stock is not zero; it is the fair market value of the services he provided, which in this case is $3,000, the value of the stock he received.

Question 18

Determine the proper classification(s) of the asset discussed in the following scenario: Jack bought a new table saw for his home.
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
​
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements I, III, and VI are correct.

Accepted Answer

The asset in the scenario is a tangible personal property as it is a physical item that can be touched and moved. It is also for personal use, as mentioned in the scenario. Therefore statements I and III are correct. Additionally, it is not an intangible asset as it has a physical form. It is not real estate as it is not land or any permanent structures attached to land. It is not a business asset as it is not used for business purposes. Therefore, statement IV is incorrect and statements II and V are also incorrect. Therefore, the correct choice is E.

Question 19

Determine the proper classification(s) of the asset discussed in the following scenario: "Cher receives a copyright for a new song she has written"
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
​
A)Statements I and III are correct.
B)Only statement IV is correct.
C)Statements II and IV are correct.
D)Statements II, IV, and VI are correct
E)Statements II and VI are correct.

Accepted Answer

The answer of Determine the proper classification(s) of the asset...

Question 20

Determine the proper classification(s) of the asset discussed in the following scenario: Judge Ruiz purchased a new brass-trimmed gavel to use in her courtroom.
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
​
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements II and VI are correct.

Accepted Answer

The gavel is a business use property because it is used in Judge Ruiz's professional capacity in the courtroom, making statement II correct. It is tangible because it is a physical object that can be touched, making statement III correct. It is also personal property because it is movable and not attached to land, making statement VI correct.

Quiz 9: Acquisitions of Property

Pedro purchased all of the stock of Regis Corporation. Since he purchased all of the stock the basis in all of the corporation's assets must be restated to fair market value.

Phyllis purchased an automobile for $3,000 down and a note for $15,000. During the year she paid interest of $1,000. Her basis is $18,000.

Adjusted basis is equal to the initial basis, plus or minus the cumulative effects of adjustments.

When a stock dividend is nontaxable, part of the basis of the original stock must be allocated to the new stock received as a dividend.

Taxpayers who construct property for their own use must capitalize both the direct and indirect construction costs.

General Telephone gave Wynonna $2,000 for an easement for power lines across her property. She must realize the gain or loss on the receipt of cash.

Personal property consists of any property that is held by an individual.

The split basis rule for determining the basis of gifts allows for one basis for determining losses and another for calculation of gains.

Intangible property lacks a physical existence; the rights exist only because of economic rights the property possesses.

The general rule for determining the basis of inherited property is that the basis in the hands of the heir is its fair market value at the date of death or at the alternative valuation date.

An asset's holding period normally begins on the day after it is acquired and ends on the day of its disposition.

When a security is sold at a loss and and a substantially identical security has been purchased within 30 days before the sale date the loss is disallowed because it is classified as a wash sale.

Determine the proper classification(s) of the asset discussed in the following scenario: Victoria purchased a new show case saw for her antique business. I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property. ​

The split basis rules for business property prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property.

Whenever the donor's adjusted basis is used to compute a gain or loss on the donee's disposition of property received by gift, the donee's holding period is always the period of time the property was owned by the donee only.

Brad, an engineering consultant, was given stock valued at $3,000 for services rendered. His basis in the stock he received for the services is zero since he received no cash.

Determine the proper classification(s) of the asset discussed in the following scenario: Jack bought a new table saw for his home. I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property. ​

Determine the proper classification(s) of the asset discussed in the following scenario: "Cher receives a copyright for a new song she has written" I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property. ​

Determine the proper classification(s) of the asset discussed in the following scenario: Judge Ruiz purchased a new brass-trimmed gavel to use in her courtroom. I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property. ​

Determine the proper classification(s) of the asset discussed in the following scenario: Victoria purchased a new show case saw for her antique business. I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property.

Determine the proper classification(s) of the asset discussed in the following scenario: Jack bought a new table saw for his home. I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property.

Determine the proper classification(s) of the asset discussed in the following scenario: "Cher receives a copyright for a new song she has written" I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property.

Determine the proper classification(s) of the asset discussed in the following scenario: Judge Ruiz purchased a new brass-trimmed gavel to use in her courtroom. I.Personal use property. IV.Intangible property. II.Business use property. V.Real estate. III.Tangible property. VI.Personal property.