Question 1

Freda Freemont receives a nontaxable stock dividend of 30 shares of preferred stock on her Georgia Corporation common stock. Freda purchased the 200 shares of common stock two years ago for $12,000. On the date of distribution, the fair market value of the common stock was $75 per share and the fair market value of the preferred was $100 per share. What is the new basis, per share, of the preferred stock?
A) $75.00
B) $50.00
C) $100.00
D) $66.67

Accepted Answer

$3,000/$18,000 × $12,000 = $2,000 divided by 30 shares = $66.67 per share

Question 2

Bill Burns purchases furniture from his employer for $5,000 during 2012. fte fair market value of the furniture is $8,500. What amount, if any, must Bill include as income for 2012?
A) $0
B) $5,000
C) $7,500
D) $3,500

Accepted Answer

the $3,500 diﬀerence between fair market value and cost is taxable income for 2012.

Question 3

February 20, 2012: Lee Ranger purchased 100 shares of Pine Corp. stock for $30 a share. April 7, 2012: Lee sold 50 shares of Pine Corp. stock for $20 a share. April 24, 2012: Lee purchased 25 shares of Pine Corp. stock for $25 a share.
What is the basis of the 25 shares purchased on April 24, 2012?
A) $625
B) $875
C) $1,125
D) $750

Accepted Answer

the re is a $500 loss on the April 7 sale, but $250 is disallowed and the other $250 is short-term loss. Basis of 25 shares = $625 + $250, or $875.

Question 4

Kurt Kramer purchased stock ﬁve years ago for $12,000 which he gave to Jim Jensen when its fair market value was $9,000. Subsequently, Jim sold the stock for $7,500. What is the amount of Jim's loss on the sale?
A) $3,000
B) $1,500
C) $4,500
D) $2,000

Accepted Answer

the basis for determining a loss for property received through a gift is the lesser of the fair market value or basis at the time of the gift. the refore, there is a $1,500 loss ($7,500 - $9,000).

Question 5

When a taxpayer realizes a loss on the sale of securities and purchases the same or substantially identical securities within 61 days surrounding the date of the sale, this is known as:
A) a related-party transaction.
B) a wash sale.
C) a basket purchase.
D) none of the above.

Accepted Answer

When a taxpayer realizes a loss on the sale of securities and purchases the same or substantially identical securities within 61 days surrounding the date of the sale, this is known as a wash sale

Question 6

On January 6, 2012, Sally Strom purchased 300 shares of common stock in Corporation XYZ for $120 per share. Four months later she purchased 100 additional shares at $180 per share. On December 13, 2012, Sally received a 20 percent nontaxable stock dividend. What is Sally's basis in each share of stock after the stock dividend?
A) 480 shares at $112.50 per share
B) 360 shares at $120 per share and 120 shares at $180 per share
C) 360 shares at $120 per share and 120 shares at $150 per share
D) 360 shares at $100 per share and 120 shares at $150 per share

Accepted Answer

Sally has 360 shares (300 + 60) from the ﬁrst batch purchased for a total of $36,000, which gives a basis of
$100 per share
 She has 120 shares (100 + 20) from the second batch purchased for a total of $18,000, which gives a basis of $150 per share

Question 7

Losses between related parties are:
A) always realized, but never recognized.
B) always recognized, but never realized.
C) always realized and recognized.
D) never realized and recognized.

Accepted Answer

Losses between related parties are always realized, but never recognized

Question 8

Kent Knobe gave Larry Lawson a gift having a fair market value of $133,000 on February 14, 2012. Kent had purchased the gift property in 2004 for $93,000, the taxable gift was $120,000, and paid a gift tax of $15,000. What is Larry's basis in the property?
A) $93,000
B) $120,000
C) $98,000
D) $108,000
E) $133,000

Accepted Answer

A portion of the gift tax is added to the $93,000 basis as follows:
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Question 9

In 2012, Leon Longrove sold a piece of business equipment that had an adjusted basis to him of $50,000 for $75,000 cash plus artwork that had a fair market value of $25,000. fte buyer assumed Leon's $20,000 loan on the equipment. Leon paid $5,000 in selling expenses. What is the amount of Leon's gain on the sale?
A) $25,000
B) $45,000
C) $65,000
D) $75,000
E) None of the above

Accepted Answer

the gain on Leon's sale is the amount realized reduced by the adjusted basis and the selling expenses. the amount realized is $120,000 ($75,000 cash plus the $25,000 of artwork received and the $20,000 loan assumed by the buyer). $120,000 less (the adjusted basis of $50,000 + the selling expenses of $5,000) = $65,000.

Question 10

When taxpayers sell property in an installment sale and realize gain, they generally recognize the gain:
A) in the ﬁrst year in which an installment payment is received.
B) over the tax years in which they collect the proceeds from the sale.
C) at the time of the sale.
D) none of the above.

Accepted Answer

When taxpayers sell property in an installment sale and realize gain, they generally recognize the gain over the tax years in which they collect the proceeds from the sale

Question 11

Which of the following statements is not true concerning installment reporting?
A) At least one payment is to be received after the close of the year in which a sale of property is made.
B) fte installment method allows gain to be spread over more than one year.
C) fte gross proﬁt rate is used to determine the portion of the payment received that is reported as income.
D) An advantage of the installment method is that the dollar amount of income recognized from each payment never varies from year to year.

Accepted Answer

the amount of income can vary from year to year depending on the amount received

Question 12

Freda Freemont receives a nontaxable stock dividend of 30 shares of preferred stock on her Georgia Corporation common stock. Freda purchased the 200 shares of common stock two years ago for $12,000. On the date of distribution, the fair market value of the common stock was $75 per share and the fair market value of the preferred was $100 per share. What is the new basis, per share, of the common stock?
A) $75.00
B) $50.00
C) $100.00
D) $66.67

Accepted Answer

the basis of $12,000 is allocated between the common stock and the preferred stock according to the relative fair market value
$15,000/$18,000 × $12,000 = $10,000 divided by 200 = $50 per share

Question 13

Bob Bixby gave his daughter, Jane, his personal residence with an adjusted basis to him of $260,000 and a fair market value of $250,000. Jane lived in the house for two years and then sold it for $240,000. As a result of the sale, Jane will:
A) Report no gain or loss
B) Report a $10,000 loss
C) Report a $20,000 loss
D) Have her father report a $20,000 loss

Accepted Answer

the basis for determining loss is the lesser fair market value of $250,000. the refore, although Jane realized a
$10,000 loss ($240,000 less $250,000), this is not recognized because losses on the sale of personal-use assets are not recognized

Question 14

George Greco gave Harold Hudson property which George acquired ﬁve years ago for $15,000. At the time of the gift, the property's fair market value was $35,000. Harold subsequently sold the property for $40,000. What amount of gain did Harold realize?
A) $20,000
B) $25,000
C) $5,000
D) $40,000

Accepted Answer

the basis for both gain and loss in this case is $15,000. the refore, the gain is $25,000 ($40,000 - $15,000).

Question 15

Joe Jimson died in 2012. Property with an adjusted basis of $60,000 and a fair market value of $120,000 went to Joe's beneﬁciary. fte executor chose the alternate valuation date when the value was $112,000. fte property was distributed four months after Joe's death when the fair market value was $115,000. What is the basis of the property to the beneﬁciary?
A) $60,000
B) $112,000
C) $115,000
D) $120,000

Accepted Answer

If the alternate valuation date is elected and property is distributed before the alternate valuation date, the basis is the value on the date of distribution.

Question 16

Recognized gain or loss is the term used to describe:
A) a taxpayer's amount of true economic gain or loss when property is disposed.
B) the amount of realized gain or loss taxpayers report on their tax returns.
C) an amount that does not aﬀect the taxpayer's tax liability.
D) none of the above.

Accepted Answer

Recognized gain or loss is the term used to describe the amount of realized gain or loss that taxpayers report on their tax return.

Question 17

On October 7, 2012, Grace Gems purchased a going business for the lump-sum price of $200,000. fte fair market values of the assets Grace purchased were as follows:  What is Grace's basis in the building?
A) $90,000
B) $95,000
C) $100,000
D) $102,500
E) None of the above

Accepted Answer

the purchaser of a business for a lump-sum price must divide the basis among the assets acquired by allocating to each asset an amount of the purchase price proportionate to, but not in excess, of its fair market value, which is $90,000. the excess of the purchase price over the fair market value of the assets is goodwill.

Question 18

On January 1, 2012, Daniel Durrow owned rental property which had an adjusted basis to him of $250,000. Daniel made the following expenditures during 2012: 
A) $225,000
B) $240,000
C) $260,000
D) $275,000
E) None of the above

Accepted Answer

Daniel's basis in the rental property must be adjusted to take into account the cost of improvements and other charges such as legal expenses. ftus, $250,000 adjusted basis + $10,000 legal fees + $15,000 assessment for local street improvements that increased the value of the property = $275,000. the ordinary painting and the roof repair were not improvements to the property.

Question 19

Doug Doolittle receives a nontaxable stock dividend of 20 shares of Edwards Corporation common stock with a fair market value at distribution of $800. Doug previously owned 100 shares of Edwards Corporation common stock which he purchased three years ago for $6,000. fte basis per share of the 20 shares of Edwards Corporation stock is:
A) $0
B) $40
C) $50
D) $60

Accepted Answer

$6,000 divided by 120 shares = $50 per share
 ftis was a nontaxable stock dividend of identical shares.

Question 20

Ralph Rugby wanted to sell 100 shares of a stock that had suﬀered a serious decline in value. Several members of his family were interested in purchasing the stock. In order to preserve the loss deduction, which of the following family members should Ralph sell his stock to?
A) Grandfather
B) Half-sister
C) Ralph, Inc. (Ralph's 51% owned corporation)
D) Cousin

Accepted Answer

A cousin is not a related party.

Quiz 10: Property Transactions: Determination of Basis and Gains and Losses

Bill Burns purchases furniture from his employer for $5,000 during 2012. fte fair market value of the furniture is $8,500. What amount, if any, must Bill include as income for 2012?

February 20, 2012: Lee Ranger purchased 100 shares of Pine Corp. stock for $30 a share. April 7, 2012: Lee sold 50 shares of Pine Corp. stock for $20 a share. April 24, 2012: Lee purchased 25 shares of Pine Corp. stock for $25 a share. What is the basis of the 25 shares purchased on April 24, 2012?

Kurt Kramer purchased stock ﬁve years ago for $12,000 which he gave to Jim Jensen when its fair market value was $9,000. Subsequently, Jim sold the stock for $7,500. What is the amount of Jim's loss on the sale?

When a taxpayer realizes a loss on the sale of securities and purchases the same or substantially identical securities within 61 days surrounding the date of the sale, this is known as:

Losses between related parties are:

Kent Knobe gave Larry Lawson a gift having a fair market value of $133,000 on February 14, 2012. Kent had purchased the gift property in 2004 for $93,000, the taxable gift was $120,000, and paid a gift tax of $15,000. What is Larry's basis in the property?

When taxpayers sell property in an installment sale and realize gain, they generally recognize the gain:

Which of the following statements is not true concerning installment reporting?

Bob Bixby gave his daughter, Jane, his personal residence with an adjusted basis to him of $260,000 and a fair market value of $250,000. Jane lived in the house for two years and then sold it for $240,000. As a result of the sale, Jane will:

George Greco gave Harold Hudson property which George acquired ﬁve years ago for $15,000. At the time of the gift, the property's fair market value was $35,000. Harold subsequently sold the property for $40,000. What amount of gain did Harold realize?

Recognized gain or loss is the term used to describe:

On October 7, 2012, Grace Gems purchased a going business for the lump-sum price of $200,000. fte fair market values of the assets Grace purchased were as follows: What is Grace's basis in the building?

On January 1, 2012, Daniel Durrow owned rental property which had an adjusted basis to him of $250,000. Daniel made the following expenditures during 2012:

Ralph Rugby wanted to sell 100 shares of a stock that had suﬀered a serious decline in value. Several members of his family were interested in purchasing the stock. In order to preserve the loss deduction, which of the following family members should Ralph sell his stock to?