Question 1

Pedro borrowed $125,000 to purchase a machine costing $150,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $115,000 and $21,000.Pedro sells the machine subject to the two liabilities for $27,000.What is his realized gain or loss?
A)$0.
B)$27,000.
C)$136,000.
D)$163,000.
E)None of the above.

Accepted Answer

The answer of Pedro borrowed $125,000 to purchase a machine...

Question 2

Which of the following is correct?
A)Realized gains are always recognized and realized losses are never recognized.
B)Realized gains and realized losses on the sale of personal use assets are not recognized.
C)Realized gains and realized losses on the sale of personal use assets are recognized.
D)Only a.and b.are correct.
E)None of the above.

Accepted Answer

The answer of Which of the following is correct?
A)Realized gains...

Question 3

Elvis owns all of the stock of Shadow Corporation.The accumulated earnings and profits of Shadow Corporation at the end of the year are a deficit of $12,000.The current earnings and profits are $25,000.Elvis' basis for his stock is $290,000.He receives a distribution of $340,000 on the last day of the tax year.How much dividend income and/or capital gain should Elvis report?
A)$0.
B)Dividend income of $13,000 and capital gain of $37,000.
C)Dividend income of $25,000 and capital gain of $25,000.
D)Dividend income of $0 and capital gain of $50,000.
E)None of the above.

Accepted Answer

The answer of Elvis owns all of the stock of...

Question 4

Katie sells her personal use automobile for $15,000.She purchased the car four years ago for $31,000.What is Katie's recognized gain or loss?
A)$0.
B)$15,000.
C)($16,000).
D)($31,000).
E)None of the above.

Accepted Answer

The answer of Katie sells her personal use automobile for...

Question 5

Steve purchased his home for $500,000.As a sole proprietor, he operates a certified public accounting practice in his home.For this business, he uses one room exclusively and regularly as a home office.In Year 1, $3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2, Steve sustained losses in his business; therefore, no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense, his depreciation expense would have been $3,175.What is the adjusted basis in the home?
A)$493,783.
B)$496,825.
C)$496,958.
D)$500,000.
E)None of the above.

Accepted Answer

The answer of Steve purchased his home for $500,000.As a...

Question 6

Khalid sells two personal use assets during the taxable year. A gain of $6,000 is realized on the sale of one asset and a loss of $2,000 is realized on the sale of the other asset. What is the recognized gain or loss?
A)$0.
B)$4,000.
C)$6,000.
D)($2,000).
E)None of the above.

Accepted Answer

The answer of Khalid sells two personal use assets during...

Question 7

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?
A)$0.
B)$7,000.
C)$7,800.
D)$10,200.
E)None of the above.

Accepted Answer

The answer of Sandra's automobile, which is used exclusively in...

Question 8

Alicia buys a beach house for $425,000 which she uses as her personal vacation home.She builds an additional room on the house for $45,000.She sells the property for $510,000 and pays $30,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?
A)$0.
B)$6,000.
C)$30,000.
D)$40,000.
E)None of the above.

Accepted Answer

The answer of Alicia buys a beach house for $425,000...

Question 9

Jamie bought her house in 2007 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, 2012. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Sammy buys the house for $500,000 in cash, assumes her mortgage of $194,000, and pays property taxes of $4,200 for the entire year on December 1, 2012. What is Jamie's adjusted basis at the date of the sale and the amount realized?
A)$370,000 adjusted basis; $661,400 amount realized.
B)$370,000 adjusted basis; $661,100 amount realized.
C)$370,000 adjusted basis; $665,200 amount realized.
D)$325,000 adjusted basis; $663,200 amount realized.
E)$325,000 adjusted basis; $694,000 amount realized.

Accepted Answer

The answer of Jamie bought her house in 2007 for...

Question 10

The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000, and the fair market value is $750,000.What is Lisa's recognized gain or loss?
A)$270,000.
B)($750,000).
C)$0.
D)($480,000).
E)None of the above.

Accepted Answer

The answer of The bank forecloses on Lisa's apartment complex.The...

Question 11

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1, 2012, for $11,000.The maturity date is December 31, 2021.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2012, and the adjusted basis for the bonds at the end of 2012, assuming straight-line amortization is appropriate?
A)$0 and $11,000.
B)$0 and $10,900.
C)$100 and $11,000.
D)$100 and $10,900.
E)None of the above.

Accepted Answer

The answer of Karen owns City of Richmond bonds with...

Question 12

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?
A)$1,350,000.
B)$1,378,000.
C)$1,385,000.
D)$1,413,000.
E)None of the above.

Accepted Answer

The answer of Carlton purchases land for $550,000.He incurs legal...

Question 13

Albert purchased a tract of land for $140,000 in 2009 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000.Highway engineers surveyed the property and indicated that he would probably get $180,000.The highway project was abandoned in 2012 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2012?
A)$40,000.
B)$60,000.
C)$80,000.
D)$100,000.
E)None of the above.

Accepted Answer

The answer of Albert purchased a tract of land for...

Question 14

On February 2, 2012, Karin purchases real estate for $375,000.The annual property taxes of $5,000 are payable on December 31.Realizing that she will pay the property taxes for the entire year, Karin remits $374,575 to the seller at closing.Karin's adjusted basis for the real estate is:
A)$374,575.
B)$375,000.
C)$375,425.
D)$379,575.
E)None of the above.

Accepted Answer

The answer of On February 2, 2012, Karin purchases real...

Question 15

Capital recoveries include:
A)The cost of capital improvements.
B)Ordinary repair and maintenance expenditures.
C)Payments made on the principal of a mortgage on taxpayer's building.
D)Amortization of bond premium.
E)All of the above.

Accepted Answer

The answer of Capital recoveries include:
A)The cost of capital improvements.
B)Ordinary...

Question 16

Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?
A)If the bond is taxable, Milton must amortize the $3,000 premium over its remaining life.
B)The adjusted basis of the taxable bond remains at $28,000, as the amortized amount is deducted as interest.
C)If the bond is tax-exempt, Milton can elect to amortize the $3,000 premium over the remaining life of the bond.
D)The adjusted basis of the tax-exempt bond remains at $28,000, as the amortized amount cannot be deducted as interest.
E)None of the above is correct.

Accepted Answer

The answer of Milton owns a bond (face value of...

Question 17

Noelle owns an automobile which she uses for personal use.Her adjusted basis is $45,000 (i.e., the original cost).The car is worth $22,000.Which of the following statements is correct?
A)If Noelle sells the car for $22,000, her realized loss of $23,000 is not recognized.
B)If Noelle exchanges the car for another car worth $22,000, her realized loss of $23,000 is not recognized.
C)If the car is stolen and it is uninsured, Noelle may be able to recognize part of her realized loss of $23,000.
D)Only a.and b.are correct.
E)a., b., and c.are correct.

Accepted Answer

The answer of Noelle owns an automobile which she uses...

Question 18

Alice owns land with an adjusted basis of $610,000, subject to a mortgage of $350,000.Real estate taxes are $9,000 per calendar year and are payable on December 31.On April 1, 2012, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000.What is the amount realized?
A)$1,370,000.
B)$1,372,219.
C)$1,720,000.
D)$1,722,219.
E)None of the above.

Accepted Answer

The amount realized is the sum of cash received, the fair market value of the other property received, and the amount of any mortgage or other debts on the property assumed by the buyer.

Cash received: $650,000
Fair market value of property received: $120,000
Note received: $600,000

Total amount realized: 
$650,000 + $120,000 + $600,000 = $1,370,000

However, the mortgage of $350,000 must be subtracted from the amount realized: 
$1,370,000 - $350,000 = $1,020,000

Therefore, the correct answer is D.

Question 19

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000). Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce's recognized gain or loss?
A)$0.
B)$10,000 loss.
C)$10,000 gain.
D)$40,000 gain.
E)None of the above.

Accepted Answer

The insurance proceeds of $360,000 are less than the fair market value of the building, so Joyce incurred a casualty loss. However, since she received less than the full amount of the loss due to a co-insurance clause, she can only deduct a portion of the loss. The formula to determine the amount of the deductible loss is:
(insurance proceeds received / fair market value of property) x amount of loss
= ($360,000 / $400,000) x ($400,000 - $350,000)
= 0.9 x $50,000
= $45,000

Since Joyce invested $50,000 of the insurance proceeds instead of using them to replace the building, she must recognize a gain equal to the lesser of the realized gain or the investment in the replacement property. The realized gain is the amount by which the insurance proceeds exceed the adjusted basis of the destroyed building: $360,000 - $350,000 = $10,000. Therefore, the recognized gain is $10,000.

Question 20

Ashley sells real property for $280,000.The buyer pays $4,000 in property taxes that had accrued during the year while the property was still legally owned by Ashley.In addition, Ashley pays $14,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Ashley realize (the amount realized) from the sale of her property?
A)$259,000.
B)$263,000.
C)$267,000.
D)$280,000.
E)None of the above.

Accepted Answer

The amount realized from the sale of the property is calculated as follows:
Sale price = $280,000
Less: Property taxes paid by buyer = $4,000
Less: Commissions = $14,000
Less: Legal fees = $3,000
Amount realized = $280,000 - $4,000 - $14,000 - $3,000 = $259,000
Therefore, the correct answer is C.

Quiz 13: A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Which of the following is correct?

Katie sells her personal use automobile for $15,000.She purchased the car four years ago for $31,000.What is Katie's recognized gain or loss?

Khalid sells two personal use assets during the taxable year. A gain of $6,000 is realized on the sale of one asset and a loss of $2,000 is realized on the sale of the other asset. What is the recognized gain or loss?

On February 2, 2012, Karin purchases real estate for $375,000.The annual property taxes of $5,000 are payable on December 31.Realizing that she will pay the property taxes for the entire year, Karin remits $374,575 to the seller at closing.Karin's adjusted basis for the real estate is:

Capital recoveries include:

Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?

Noelle owns an automobile which she uses for personal use.Her adjusted basis is $45,000 (i.e., the original cost) .The car is worth $22,000.Which of the following statements is correct?