Deck 9: Acquisitions of Property

Question 1

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Realized loss

Answer 1

G

Question 2

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Basis

Answer 2

B

Question 3

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Carryover basis

Answer 3

C

Question 4

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Indirect purchase

Question 5

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Adjusted basis

Question 6

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Realized gain

Question 7

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Primary valuation date

Question 8

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

Question 9

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Holding period

Question 10

Match each statement with the correct term below.
a.Land and structures permanently attached to land.
b.Property that lacks a physical existence.
c.Property that is used by the taxpayer for purely personal purposes.
d.Any property that has form, shape, and substance.
e.Property with a physical existence that is not real estate.
f.A single property used in more than one category.
Mixed-use property

Question 11

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

Question 12

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Direct purchase

Question 13

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Split basis

Question 14

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Alternate valuation date

Question 15

Match each statement with the correct term below.
a.Land and structures permanently attached to land.
b.Property that lacks a physical existence.
c.Property that is used by the taxpayer for purely personal purposes.
d.Any property that has form, shape, and substance.
e.Property with a physical existence that is not real estate.
f.A single property used in more than one category.
Intangible property

Question 16

Match each statement with the correct term below.
a.Land and structures permanently attached to land.
b.Property that lacks a physical existence.
c.Property that is used by the taxpayer for purely personal purposes.
d.Any property that has form, shape, and substance.
e.Property with a physical existence that is not real estate.
f.A single property used in more than one category.
Real property

Question 17

Match each statement with the correct term below.
a.Begins on the day after acquisition and ends on the day of disposition.
b.The initial investment in an asset.
c.An asset's basis transfers from one owner to another.
d.The capital investment remaining in an asset at the date of its disposition.
e.Sales price less expenses of disposition.
f.A purchase of all of the assets of a business.
g.Amount realized is less than adjusted basis.
h.A purchase of all of the assets of a business by buying the stock of a corporation.
i.A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
j.The date of death used to value a decedent's estate in the absence of any special election.
k.Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
l.Amount realized is greater than adjusted basis.
Amount realized

Question 18

Match each statement with the correct term below.
a.Land and structures permanently attached to land.
b.Property that lacks a physical existence.
c.Property that is used by the taxpayer for purely personal purposes.
d.Any property that has form, shape, and substance.
e.Property with a physical existence that is not real estate.
f.A single property used in more than one category.
Personal use property

Question 19

Match each statement with the correct term below.
a.Land and structures permanently attached to land.
b.Property that lacks a physical existence.
c.Property that is used by the taxpayer for purely personal purposes.
d.Any property that has form, shape, and substance.
e.Property with a physical existence that is not real estate.
f.A single property used in more than one category.
Tangible property

Question 20

Match each statement with the correct term below.
a.Land and structures permanently attached to land.
b.Property that lacks a physical existence.
c.Property that is used by the taxpayer for purely personal purposes.
d.Any property that has form, shape, and substance.
e.Property with a physical existence that is not real estate.
f.A single property used in more than one category.
Personalty

Question 21

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. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ 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.

Question 22

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

Question 23

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.

Question 24

General Telelpnone 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.

Question 25

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.

Question 26

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. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ 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.

Question 27

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.

Question 28

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. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ 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.

Question 29

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

Question 30

Determine the proper classification(s)of a house owned and used by Rhonda as her insurance agency office.
I. Personal use property. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ VI. Personal property.

A)Statements I, III, and V are correct.
B)Statements II, III, and V are correct.
C)Only statements I and V are correct.
D)Only statement V is correct.
E)Only statement II is correct.

Question 31

Determine the proper classification(s)of a house owned and used by John as his principal residence.
I. Personal use property. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ VI. Personal property.

A)Statements I, III, and V are correct.
B)Statements I, III, and VI are correct.
C)Only statement I and V are correct.
D)Only statement V is correct.
E)Only statement I is correct.

Question 32

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.

Question 33

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

Question 34

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.

Question 35

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. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ 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.

Question 36

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.

Question 37

The split basis rule for determining the basis of gifts allows for the transfer of unrealized losses from one taxpayer to another for calculation of gains.

Question 38

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. $\quad$$\quad$$\quad$ IV. Intangible property.
II. Business use property. $\quad$$\quad$$\quad$ V. Real estate.
III. Tangible property. $\quad$$\quad$$\quad$$\quad$ 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.

Question 39

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.

Question 40

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.

Question 41

David pays $35,000 cash and issues a mortgage note for $95,000 to purchase land.He pays $750 to his attorney for reviewing the purchase agreement.David's initial basis in the land is

A)$ - 0 -
B)$ 35,000
C)$ 35,750
D)$130,000
E)$130,750

Question 42

Sammy buys a 20% interest in Duvall Corporation paying $100,000 cash on January 1,2012.During 2012,Duvall Corporation reports a loss of $60,000 and pays cash dividends to shareholders of $5,000.For 2013,Duvall Corporation has income of $200,000 and pays cash dividends of $40,000.If Duvall Company is organized as an S Corporation,Sammy's basis in the Duvall Corporation stock at the end of 2013 is:

A)$ 88,000
B)$ 89,000
C)$100,000
D)$119,000
E)$128,000

Question 43

Harold purchases land and a building by paying cash of $35,000,and assuming the seller's $82,000 mortgage.In addition,Harold pays $3,000 of legal fees related to the purchase.For property tax purposes,the land is valued at $17,000 and the building at $34,000.Harold's basis in the building is

A)$ 17,000
B)$ 34,000
C)$ 40,000
D)$ 80,000
E)$120,000

Question 44

Lu is interested in purchasing the assets of Idaho Potato Chip Company.Idaho's assets are:
$\begin{array}{lcc}& \underline {\text { Adjusted Basis }}& \underline {\text { Fair Market Value } }\\\text { Cash } & \$ 2,300 & \$ 2,300 \\\text { Inventory } & \$ 16,500 & \$ 19,200 \\\text { Equipment } & \$ 13,000 & \$ 9,000 \\\text { Land } & \$ 10,000 & \$ 40,500 \\\text { Building } &\underline { \$ 76,600} & \underline {\$ 129,000 }\\&\underline { \$ 118,400} & \underline {\$ 200,000} \\\end{array}$
All of the following statements are correct except:

A)If Lu pays $225,000 for the assets, Lu's basis in the tangible assets will be $200,000.
B)If Lu buys the stock of Idaho for $225,000, the basis in the assets wll be $118,400.
C)If Lu pays $225,000 for the assets, Lu will have a basis in the building of $129,000.
D)If Lu buys the stock of Idaho for $225,000, he will recognize goodwill, of $25,000.

Question 45

Makemore Company purchases a factory for $800,000.The purchase price is properly allocated 90% to the building and 10% to the land.In the first year,Makemore adds a storage shed to the building at a cost of $8,000.The utility company pays Makemore $1,500 for an easement to run utility lines across the land.A total depreciation of $45,000 is deducted over the 3 years.Determine the adjusted basis of the building and the land as of the end of year 3:

A)$728,000 building; $ 78,500 land
B)$683,000 building; $ 80,000 land
C)$683,000 building; $ 78,500 land
D)$728,000 building; $ 80,000 land

Question 46

Ted purchases some forest land in 2011 with the intention of building a log cabin to use as a vacation home.To obtain the land,Ted pays $10,000 cash,assumes the seller's $19,000 mortgage on the land and pays $3,000 in commissions and legal fees related to the purchase.In 2012,Ted pays a contractor $4,000 to bulldoze and level the site of the log cabin.In 2013,Ted has a well dug and water and sewer lines laid in the ground at a cost of $6,000.Ted paid $2,000 of property taxes in 2011 and $5,000 of property taxes in 2012 and 2013 on the land.What is Ted's basis in the land at the end of 2013?

A)$54,000
B)$42,000
C)$38,000
D)$36,000
E)$32,000

Question 47

Courtney is interested in purchasing The Matrix Company.Matrix's assets are:
$\begin{array}{lcc}& {\text { Adjusted Basis }}& {\text { Fair Market Value } }\\\text { Cash } & \$ 2,300 & \$ 2,300 \\\text { Inventory } & 16,500 & 19,200 \\\text { Equipment } & 13,000 & 9,000 \\\text { Land } & 25,000 & 40,500 \\\text { Building } & 66,600 & \$ 129,000 \\\text { Totals } & \underline {\$ 123,400} & \underline { \$ 200,000}\end{array}$
I.If Courtney buys the stock of The Matrix for $225,000,the total basis in the assets will be $200,000.
II.If Courtney pays Matrix $240,000 for the Matrix assets,Courtney's total basis in all of the assets of the business will be $123,400.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 48

Mary pays $25,000 and secures a mortgage note for $75,000 to purchase a vacation home.She pays $200 to her attorney for reviewing the purchase agreement and $1,500 in points to the mortgage company.Mary's initial basis in the vacation home is

A)$ - 0 -
B)$ 25,000
C)$ 26,700
D)$100,200
E)$101,700

Question 49

Nanci purchases all of the assets of Michael's Security Service for $200,000.The assets are as follows:
$\begin{array}{lcc}\underline {\text {Asset}}& \underline {\text { Adjusted Basis }}& \underline {\text { Fair Market Value } }\\\text { Inventory } & \$ 25,000 & \$ 50,000 \\\text { Equipment } & 60,000 & 40,000 \\\text { Supplies } & 20,000 & 20,000 \\\text { Building } & 80,000 & 95,000 \\\text { Land } & \underline {10,000 }& \underline {20,000} \\&\$ 195,000 & \$ 225,000\end{array}$
What is Nanci's basis in the equipment?

A)$17,776
B)$35,556
C)$40,000
D)$60,000
E)$61,538

Question 50

Janet is the business manager for Greenville Auto Mart.She buys a new car from the dealership for $35,000.The basis of the car to the dealership was $30,000.The car lists for $42,00,but the dealer would sell the car for $40,000.What is Janet's basis in the new car?

A)$30,000
B)$35,000
C)$40,000
D)$42,000
E)$47,000

Question 51

Determine the year-end adjusted basis of Roberto's 1/2 interest in the Halifax Partnership.At the beginning of the year,Roberto's adjusted basis is $80,000.The net operating profit of the partnership is $90,000.Also,Halifax distributes $15,000 of cash to Roberto.

A)$ 65,000
B)$110,000
C)$140,000
D)$155,000
E)$185,000

Question 52

John purchases all of the common stock of Clarke Corporation for $280,000.The assets of the corporation are:
$\begin{array}{lcc}\underline {\text {Asset}}& \underline {\text { Adjusted Basis }}& \underline {\text { Fair Market Value } }\\\text { Inventory } & \$ 25,000 & \$ 50,000 \\\text { Equipment } & 60,000 & 40,000 \\\text { Supplies } & 20,000 & 20,000 \\\text { Building } & 80,000 & 95,000 \\\text { Land } & \underline {10,000 }& \underline {20,000} \\&\$ 195,000 & \$ 225,000\end{array}$
What is John's basis in the common stock he acquired?

A)$195,000
B)$215,000
C)$225,000
D)$250,000
E)$280,000

Question 53

Oscar buys a 10% interest in Britanny Corporation paying $92,000 cash on January 1,2012.During 2012,Britanny Corporation reports a loss of $30,000 and pays cash dividends to shareholders of $10,000.For 2013,Britanny Corporation has a loss of $60,000 and pays cash dividends of $20,000.If Britanny Company is organized as an S Corporation,Oscar's basis in the Britanny Corporation stock at the end of 2013 is:

A)$ 80,000
B)$ 86,000
C)$ 92,000
D)$ 98,000
E)$ 104,000

Question 54

Tien purchases an office building for $400,000,paying a $75,000 cash down payment and borrowing $325,000 from Atlantic Meridian Mortgage Co.The purchase price is properly allocated 90% to the building and 10% to the land.Two years after the purchase,Tien remodeled one floor of the building at a cost of $25,000.Annual maintenance costs and property taxes total $4,000.A total depreciation of $36,000 is deducted over the 3 years.Determine the adjusted basis of the building and the land as of the end of year 3:

A) $\$ 56,500 \text { building; } \quad \$ 7,500 \text { land }$
B) $\$ 89,000$ building; $\quad$$\quad$$\quad$$\quad$ $\$ 10,000$ land
C) $\$ 346,500 \text { building; } \quad \$ 42,500 \text { land }$
D) $\$ 349,000$ building; $\quad$$\quad$$\quad$$\quad$$\$ 40,000$ land
E) $\$ 353,000 \text { building; } \quad \$ 40,000 \text { land }$

Question 55

Juan and Dorothy purchase a new residence on May 1,2013.Juan and Dorothy pay the full amount of the 2013 property taxes of $7,200 on their new house when the taxes became due in December of 2013.What amount of the taxes that Juan and Dorothy pay in December 2013 can they deduct on their 2013 tax return?

A)Zero, no amount is deductible.
B)$2,400
C)$4,800
D)$7,200

Question 56

Kobe receives a gift of rare books valued at $10,000.The books have an adjusted basis of $6,000 to the donor.Several months later,Kobe sells the books to a professional collector for $7,000.What is Kobe' gain or (loss)on the sale?

A)No gain or (loss) is recognized
B)$1,000 gain
C)$4,000 gain
D)$1,000 loss
E)$3,000 loss

Question 57

Which of the following is/are adjustment(s)to the basis of property after the initial basis is determined?
I)Add the costs of protecting ownership of the property.
II)Add the expenditures for painting the company name on the property.
III)Subtract the capital recovery resulting from collections for easements.
IV)Subtract the capital recovery resulting from depreciation deductions.

A)Only statement IV is correct.
B)Only statements I and III are correct.
C)Only statements III and IV are correct.
D)Only Statements II, and IV are correct.
E)Statements I, II, III, and IV are correct.

Question 58

Morrris,an attorney,performs 5 hours of legal work for Andy.Morrris 's normal billing rate is $120 per hour.Andy,a software consultant,gives Morrris a new computer for his office in payment of the bill.The computer's adjusted basis was $500 and its fair market value is $550 Morrris ' basis in the computer is

A)$ - 0 -
B)$ 500
C)$ 550
D)$ 600
E)$1,150

Question 59

Tillman is building a warehouse for use in his business.The construction costs include the following:
$$\begin{array} { l r } \text { Direct labor } & \$ 35,000 \\\text { Direct materials } & 20,000 \\\text { Architect fees } & 5,000 \\\text { Interest on construction loan } & 3,000 \\\text { Depreciation of equipment used in construction } & 1,500 \\\text { Indirect Administrative costs during construction } & 2,000\end{array}$$
What is Tillman's basis in the warehouse?

A)$60,000
B)$61,500
C)$63,500
D)$64,500
E)$66,500

Question 60

Buffey operates a delivery service.She purchased a van in 2011 for $25,000,and she sold it in 2013 for $15,000.Buffey did not deduct any depreciation on the van from 2011 through 2013,although total allowable depreciation on the van would have been $17,000.What is the amount of Buffey 's recognized gain or loss on the sale of the van?

A)$10,000 loss
B)$ 7,000 gain
C)$ 8,000 gain
D)$15,000 gain
E)$17,000 gain

Question 61

On June 10,2012,Akira receives a gift of a rare marble statue with a fair market value of $9,000.The marble statue had an adjusted basis of $12,000 to the donor and was purchased in 2011.Akira sells the marble statue July 5,2013,for $8,000.When does Akira's holding period for the rare marble statue begin?

A)It begins in 2011.
B)It begins in 2013.
C)It is irrelevant because the transfer was a gift and gifts are always considered to be held long-term.
D)It depends on whether a gift tax was paid at the time of the gift.
E)It begins in 2012.

Question 62

Rosie inherits 1,000 shares of Northern Skies Airline Corporation stock from the estate of her Uncle Tony.Tony died on July 2,2013.The stock's value on July 2,2013,is $4,000.Tony's basis in the stock was $3,000.The stock has a fair market vale of $7,000 on October 1,2013,when it is transferred to her.Rosie sells the stock October 11,2014.What is Rosie's basis in the stock?

A)$ - 0 -
B)$1,000
C)$3,000
D)$4,000
E)$7,000

Question 63

Sandi sells 100 shares of Gray Corporation stock on December 4,2013.She inherited the stock from Christine,who died on January 30,2013.The executor of the estate used the primary valuation date.Sandi's holding period for the stock is

A)Long-term.
B)Short-term.
C)Long-term if sold at a gain; short-term if sold at a loss.
D)Short-term if sold at a gain; long-term if sold at a loss.

Question 64

Sarah gave her granddaughter,Alice,some Eli Lilly Co.stock last year when its fair market value was $25,000.Gift taxes of $4,000 were paid on this transfer.Sarah acquired the stock in 2000 at a cost of $35,000.Alice sold the Eli Lilly stock this year for $32,000.What amount of gain (loss)will Alice recognize from her sale of the stock?

A)No gain or loss is recognized.
B)$7,000
C)($7,000)
D)($3,000)

Question 65

Hilliard receives a gift of stock from Martha on June 1 of the current year.Martha paid $15,000 for the stock several years ago.Martha pays a gift tax of $400 on the transfer.
I)If the fair market value of the stock on June 1 of the current year is $20,000,Hilliard has a basis in the stock of $15,100.
II)If the fair market value of the stock on June 1 of the current year is $14,000,and Hilliard sells the stock for $13,000 on June 2 of the current year,Hilliard realizes a loss on the sale of $1,000.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question 66

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

A)0, date of death is the correct valuation date.
B)3 months.
C)6 months.
D)9 months.
E)12 months.

Question 67

Ludwig died on April 5,2013.As part of his will,he leaves land for which he paid $6,000 on December 31,2012,to his son Don.On April 5,2013,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.

A)Only I is correct.
B)I and II are correct.
C)I, II and IV are correct.
D)I and IV are correct.
E)All the statements are correct.

Question 68

Terry gives Brenda 1,000 shares of stock he had purchased several years ago for $5,000.On the date of the gift,the stock has a fair market value of $4,000.Brenda sells the 1,000 shares for $5,500 one month after the gift,Brenda realizes a

A)$ - 0 - gain or loss
B)$ 500 short-term capital gain
C)$ 500 long-term capital gain
D)$1,500 short-term capital gain
E)$1,500 long-term capital gain

Question 69

Hector receives a gift of rare books valued at $7,000.The books have an adjusted basis of $11,000 to the donor.Several months later,Hector sells the books to a professional collector for $8,000.What is Hector's gain or (loss)on the sale?

A)$1,000 gain
B)$4,000 gain
C)No gain or loss is recognized
D)$1,000 loss
E)$3,000 loss

Question 70

Sarah purchased a diamond bracelet for $3,000 while vacationing in Hong Kong during 2005.Sarah gives the bracelet to her daughter Amy when she graduates from college in 2013.The bracelet is appraised at $8,000 on that date.In October 2013,Amy sells the bracelet for $9,000.What is the amount of gain Amy should recognize on the sale?

A)No gain or (loss) is recognized
B)$1,000
C)$4,000
D)$5,000
E)$6,000

Question 71

Valerie receives a painting as a gift from her aunt.The painting is valued at $6,000 on the date of the gift.Valerie's aunt's basis in the painting is $13,000.Three years later Valerie sold the painting for $8,000.What is the amount of gain or (loss)recognized by Valerie on the sale?

A)No gain or (loss) is recognized
B)$5,000 loss
C)$2,000 gain
D)$7,000 loss
E)$2,000 loss

Question 72

Lydia purchased a sapphire bracelet for $3,000 while vacationing in Hong Kong during 2001.Lydia gives the bracelet to her daughter Amy when she graduates from college in 2013.The bracelet is appraised at $8,000 on that date.In October 2013,Amy sells the bracelet for $9,000.How is Amy's holding period for the bracelet determined?

A)It depends on whether a gift tax was paid at the time of the gift.
B)It begins in 2001.
C)It begins in 2013.
D)It is irrelevant because the transfer was a gift and gifts are always considered to be held long-term.

Question 73

Mary inherits an interest in Laser Partnership from her Aunt Lillian during 2013.The fair market value of the interest as of the primary valuation date is $28,000.Aunt Lillian's adjusted basis was $16,000.What is Mary's initial basis and holding period in the partnership interest if she sells the interest seven months after inheriting it?

A)$16,000, short-term.
B)$16,000, long-term.
C)$28,000, short-term.
D)$28,000, long-term.
E)Both depend on whether it is sold at a gain or a loss.

Question 74

Sanford gives Mitchell 100 shares of stock that cost Sanford $5,000 several years ago.On the date of the gift,the stock is valued at $3,000.Mitchell holds the stock until the value increases and sells it for $4,000.What is Mitchell's recognized gain or loss on the sale?

A)No gain or (loss) is recognized
B)$1,000 loss
C)$1,000 gain
D)$2,000 loss
E)$4,000 gain

Question 75

On July 3,2013,Cynthia receives a gift of a collection of books valued at $10,000.The books have an adjusted basis of $6,000 to the donor.They had been purchased in 2001.Several months after receiving the gift,Cynthia sells the books to a professional collector for $9,000.How is Cynthia's holding period for the books determined?

A)It depends on whether a gift tax was paid at the time of the gift.
B)It begins in 2001.
C)It begins in 2013.
D)It is irrelevant because the transfer was a gift. Gifts are always considered to be held long-term.

Question 76

Robert receives a car as a gift from his mother.The car's purchase price was $20,000,and it was used personally prior to the gift.Robert uses the car 80% of the time in his pizza business.The car's value at the date of the gift is $9,000.What is Robert's basis in the car for depreciation purposes?

A)$ - 0 -
B)$ 7,200
C)$ 9,000
D)$ 16,000
E)$ 20,000

Question 77

Sonya inherits 1,000 shares of Big Red Airline Corporation stock from the estate of her Uncle Tony.Tony died on August 4,2013.The stock's value on August 4,2013,is $2,000.Tony purchased the stock for $3,000 several years ago.Sonya sells the 1,000 shares for $2,300 on December 8,2013.What is Sonya's holding period of the stock?

A)Short-term.
B)Long-term.
C)Depends on which value is used.
D)Depends on whether an estate tax was paid.

Question 78

Diane receives a gift of stock from Sue on July 2,2013,when the stock was trading for $20,000.Sue paid $4,000 for the stock several years ago.Sue pays a gift tax of $500 on the transfer.Diane's basis in the stock is:

A)$ 4,000
B)$ 4,100
C)$ 4,400
D)$20,000
E)$20,400

Question 79

On June 10,2012,Wilhelm receives a gift of gold coins with a fair market value of $10,000.The gold coins had an adjusted basis of $12,000 to the donor.Wilhelm sells the gold coins August 1,2013,for $8,000.What is the amount of the recognized gain or loss on the sale?

A)$ - 0 -
B)$2,000 loss
C)$3,000 loss
D)$4,000 loss
E)$5,000 loss

Question 80

Larry gives Linda 300 shares of stock he had purchased several years ago for $8,000.On the date of the gift,the stock has a fair market value of $6,000.Linda sells the 300 shares for $5,500 one month after the gift,Linda realizes a

A)$ - 0 - gain or loss
B)$ 500 short-term capital loss
C)$ 500 long-term capital loss
D)$2,500 short-term capital loss
E)$2,500 long-term capital loss