1. . Determine the proper classification(s) of the asset discussed in the following scenario: "An author of computer instruction manuals receives a copyright for a new manuscript." 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. 2. Determine the proper classification(s) of a house owned and used by a taxpayer as an insurance agency office. 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 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. 3. 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 capital expenditures for improvements and betterments. III. Add the capital recovery resulting from collections for easements. IV. Add the capital recovery resulting from depreciation deductions. a. Only statement I is correct. b. Statements I and II are correct. c. Statements III and IV are correct. d. Statements I, II, and III are correct. e. Statements I, II, III, and IV are correct. 4. Vijay buys a 10% interest in Duvall Corporation paying $82,000 cash on January 1, 2013. During 2013, Duvall Corporation reports a loss of $30,000 and pays cash dividends to shareholders of $10,000. For 2014, Duvall Corporation has a loss of $60,000 and pays cash dividends of $20,000. If Duvall Company is organized as an S Corporation, Vijay's basis in the Duvall Corporation stock at the end of 2014 is: a. $ 70,000 b. $ 76,000 c. $ 82,000 d. $ 88,000 e. $ 94,000 5. 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 6. Christy purchases all of the assets of Michael's Security Service for $200,000. The assets are as follows: Asset Adjusted Basis Fair Market Value Inventory $ 25,000 $ 50,000 Equipment 60,000 40,000 Supplies 20,000 20,000 Building 80,000 95,000 Land 10,000 20,000 $195,000 $225,000 What is Christy's basis in the equipment? a. $17,776 b. $35,556 c. $40,000 d. $60,000 e. $61,538 7. John purchases all of the common stock of Clarke Corporation for $280,000. The assets of the corporation are: Asset Adjusted Basis Fair Market Value Inventory $ 25,000 $ 50,000 Equipment 60,000 40,000 Supplies 20,000 20,000 Building 80,000 95,000 Land 10,000 20,000 $195,000 $225,000 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 8. Willis receives a gift of rare books valued at $7,000. The books have an adjusted basis of $11,000 to the donor. No gift tax was paid on the transfer. Several months later, Willis sells the books to a professional collector for $8,000. What is Willis '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 9. Larry gives Linda 3,000 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 3000 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 10. Emily inherits 1,000 shares of Lexus Airline Corporation stock from the estate of her Uncle Tony. Tony died on August 4, 2014. The stock's value on August 4, 2014, is $2,000. Tony's basis in the stock was $3,000. The alternate valuation date is not used. Emily plans to sell the stock within the week following the transfer. What is Emily's basis in the stock? a. $ - 0 - b. $1,000 c. $2,000 d. $3,000 e. $4,000 11. Elise sells 100 shares of Terrace Corporation stock on April 4, 2014. She inherited the stock from Christine, who died on January 30, 2014. The executor of the estate used the primary valuation date. Elise'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. 12. 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. 13. Bill died on April 5, 2014. As part of his will, he leaves land that he paid $6,000 for in 1993 to his son Don. On April 5, 2014, 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 $10,000. 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 $11,000. a. Only I is correct. b. I and II are correct. c. I, II and IV are correct. d. II and IV are correct. e. All the statements are correct. 14. Jenny purchased 1,000 shares of Hewlett Corporation preferred stock for $33,000 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? a. $ - 0 - b. $3,000 c. $3,300 d. $4,000 e. $4,400 15. Terrell buys 200 shares of Orange Corporation common stock on December 10, 2014, for $2,000. He buys an additional 200 shares for $1,800 on December 23, 2014. On December 28, 2014, Terrell sells 100 of the first 200 shares for $800. He sells the remaining 300 shares for $2,500 on November 15, 2015. What is(are) the amount(s) and the year of recognition of losses that Terrell can recognize? 2014 2015 a. - 0 - $ 300 b. - 0 - $ 500 c. $ 200 $ 500 d. $ 200 $ 300 16. During 1995, Charles purchased 1,000 shares of Flagstaff Corporation stock for $12,000. On February 22, 2014, he sells all the shares for $9,000. On March 15, 2014, he repurchases 1,000 shares of Flagstaff for $8,000 and holds them until May 29, 2014, when he sells them for $10,000. What is Charles' realized gain or loss on the May 29, 2014, sale? a. $1,000 loss. b. $2,000 gain. c. $2,000 loss. d. $1,000 gain. e. $ - 0 - gain or loss. 17. Which of the following statements related to the Section 179 election to expense is (are) true? I. A Section 179 deduction can be claimed on tangible trade or business personal property II. A Section 179 deduction can be claimed on property held for the production of income. III. A Section 179 deduction can be claimed on real property. IV. A Section 179 deduction is allowed only for corporations and partnerships. a. Only statement I is true. b. Only statements I and II are true. c. Only statements I, II, and III are true. d. Only statements I and III are true. e. All of the statements are true. 18. Sawback Corporation purchases a new machine in January 2014 for $200,000. No other fixed assets are placed in service in 2014. Sawback has substantial taxable income and desires to minimize this amount to the fullest extent possible. How much can Sawback deduct under Section 179? a. $34,000 b. $12,000 c. $25,000 d. $28,000 e. $200,000 19. During 2014, Witt Processing Corporation places $215,000 of Section 179 property in service for use in its business. What is the amount of Witt Processing's maximum Section 179 deduction for 2014? a. $0 b. $25,000 c. $215,000 d. $10,000 e. $15,000 20. What is the MACRS recovery period for a video game used in an arcade? a. 3 years. b. 5 years. c. 6 years. d. 7 years. e. 10 years. 21. Residential rental real estate placed in service on July 17, 2014, is depreciated over a. 39 years, straight-line method, mid-month convention. b. 40 years, straight-line method, mid-month convention. c. 27.5 years, 150%-declining-balance method, mid-year convention. d. 27.5 years, straight-line method, mid-month convention. e. 31.5 years, 200%-declining-balance method, mid-year convention. 22. Nonresidential commercial realty placed in service on March 2, 2014, is depreciated over a. 27.5 years, 200%-declining-balance method, mid-year convention. b. 31.5 years, straight-line method, mid-month convention. c. 31.5 years, 200%-declining-balance method, mid-year convention. d. 39 years, straight-line method, mid-month convention. e. 40 years, straight-line method, mid-month convention. 23. The mid-year convention under MACRS provides that a. Depreciation is allowable in the year of acquisition of qualified property only if the property is placed in service in the first one-half of that year. b. One half of the year-of-acquisition depreciation is allowed regardless of when the property is placed in service during the year. One-half year's depreciation is allowable for the year of disposition. Disregard the 40% rule. c. Depreciation is allowable in the year of disposition only if the property is disposed of in the last one-half of that year. d. The cost recovery deduction is based on the number of months the property was in service in the year of acquisition. Therefore, one-half month's cost recovery is allowable for the month in which the property is place in service and for the month of disposition. 24. The mid-month convention under MACRS provides that a. Depreciation is allowable for the month of disposition only if the property is disposed of in the last one-half of that month. b. Depreciation is allowable for the month of acquisition of qualified property only if the property is placed in service in the first one-half of that month. c. One half of the year-of-acquisition depreciation is allowed regardless of when the property is placed in service during the year. One-half year's depreciation is allowable for the year of disposition. d. The cost recovery deduction is based on the number of months the property was in service in the year of acquisition. Therefore, one-half month's cost recovery is allowable for the month in which the property is placed in service and for the month of disposition. 25. Robert purchases equipment classified as 7-year property on January 5, 2012, at a cost of $80,000 and a 5% salvage value. Section 179 was not elected. He sells the equipment on February 12, 2014. What is Robert's 2014 depreciation deduction? a. $ - 0 - b. $ 3,498 c. $ 6,996 d. $ 9,794 e. $13,992 26. Brent purchases a new warehouse building on May 16, 2014, for $6,000,000 (exclusive of the cost of the land). What is Brent's 2014 depreciation deduction? a. $ - 0 - b. $ 76,924 c. $ 96,300 d. $119,040 e. $400,000 27. Vernon purchases a taxicab (5-year MACRS property) for $20,000 on December 3, 2014. This is the only business asset Vernon acquires in 2014. He does not desire to use the Section 179 election. What is the maximum amount of depreciation that he can deduct in 2014? a. $ 1,000 b. $ 3,000 c. $ 4,000 d. $10,500 e. $14,000 28. The Cox Accounting Firm places the following property in service during the 2014 tax year: Property Placed in Description Service MACRS Life Cost Basis Computers Feb 6 5 years $ 52,000 Office furniture June 24 7 years $ 80,000 Fax machine Aug 3 5 years $100,000 Phone system Dec 11 5 years $ 40,000 Cox wants to obtain the maximum possible first year depreciation deduction for these property acquisitions including full utilization of the election to expense property under Section 179. Cox will report 2014 taxable income in the amount of $500,000 before consideration of depreciation on their 2014 property acquisitions. What is the maximum combined amount of depreciation and Section 179 expense that may be obtained under this set of fact circumstances? a. $71,260 b. $38,868 c. $54,400 d. $49,832 e. $25,000 29. Sunrise Apratments purchases a residential apartment building on November 9, 2014, for $1,000,000 (exclusive of the cost allocated to the land). What is the 2014 MACRS depreciation deduction? a. $ 3,970 b. $ 4,550 c. $ 7,580 d. $34,850 e. $45,500 30. Listed property rules include the following: I. If listed property is not predominantly used in the taxpayer's business, the business-use portion of the asset cannot be depreciated. II. If more than 50 percent of the listed property's total use for each year is related to the taxpayer's business, the asset is treated the same as any other mixed-use business asset. III. When listed property is used 50% or less in the taxpayer's business, the Section 179 expense election does not apply to the asset. IV. Listed property includes cellular telephones, computers, and passenger automobiles. a. Statements I and III are correct. b. Only statement IV is correct. c. Statements II and III are correct. d. Statements II, III, and IV are correct. e. Statements I, II, III, and IV are correct. 31. Daniel purchases 5-year class listed property (a computer) on March 2, 2014, for $30,000. It is used 75% for business, and the remainder for personal use. Daniel wishes to maximize his 2014 depreciation deduction without regard to section 179. What is Daniel 's 2014 depreciation deduction? a. $ 2,250 b. $ 2,700 c. $ 3,375 d. $ 4,500 e. $ 6,000 32. Jeanne sells 200 shares of General Motors stock for $80 per share. She pays a $100 commission on the sale and has an adjusted basis of $8,000 on the stock. I. The amount realized from the sale is $15,900. II. Jeanne has a recognized gain of $8,000. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 33. Gross selling price may include I. the amount of a seller's debt assumed by the buyer. II. the fair market value of services received by the seller from the buyer. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 34. Long-term capital gain classification is advantageous to taxpayers because of which of the following? I. Long-term capital gains are taxed at a lower rate than ordinary income. II. The long-term capital gains tax rate is 50% of the rate for ordinary income. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 35. Matthew has the following capital gains and losses for the current tax year Short-term capital gains $12,000 Long-term capital gains 3,000 Short-term capital losses (7,000) Long-term capital losses (6,000) What is Matthew's net capital gain or loss position for the year? a. $5,000 net short-term capital gain. b. $2,000 net long-term capital loss. c. $2,000 net short-term capital gain. d. $3,000 net long-term capital loss. e. $4,000 net short-term capital loss. 36. Lois has the following gains and losses for the current year: Short-term capital loss $(8,000) Long-term capital gain 3,000 Section 1231 gain 3,000 Section 1231 loss (5,000) What is Lois's net capital gain or loss position for the year? a. $7,000 net short-term capital loss. b. $8,000 net short-term capital gain. c. $5,000 net short-term capital loss. d. $3,000 net short-term capital gain. ANS: C PTS: 1 37. A taxable entity has the following capital gains and losses in 2011: Short-term capital loss $(22,000) Long-term capital gain 15,000 I If the entity is an individual, a $3,000 deduction is allowed in 2011. II. If the entity is a corporation, a $7,000 deduction is allowed in 2011. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 38. Which of the following is not a capital asset? a. Office building used by a CPA firm. b. Antique automobile. c. Land held for investment. d. Stock held for investment. 39. Section 1231 assets include a. Inventory. b. Stocks and bonds. c. Personal residence. d. Business-use realty. e. Personal automobile. 40. Hank realizes Section 1231 losses of $12,000 and Section 1231 gains of $7,000 during the current year. Hank's current-year adjusted gross income will increase (decrease) by what amount? a. $(12,000) b. $ (5,000) c. $ (3,000) d. $ 7,000 41. During 2014, Thomas has a net Section 1231 gain of $57,000. In 2011, Thomas reported a net Section 1231 loss of $60,000. What is the character of the 2014 gain? a. $60,000 long-term capital gain. b. $60,000 ordinary gain. c. $57,000 ordinary gain. d. $57,000 long-term capital loss. e. $57,000 long-term capital gain. 42. Karl paid $200,000 for business-use equipment. Using straight-line depreciation, his deduction would have been $22,000, but Karl uses MACRS depreciation and deducts $37,500 for the first two years of usage. At the beginning of the third year, Karl sells the equipment for $190,000. How much of the gain is recaptured under Section 1245 as ordinary income? a. $ - 0 - b. $ 5,500 c. $22,000 d. $27,500 e. $37,500 43. Which of the following best describes the tax treatment of a taxpayer's net Section 1231 loss that resulted from the sale of depreciable equipment used in a business activity? a. Such losses are not deductible. b. Such losses are deducted as ordinary losses. c. Such losses are deducted as long-term capital losses. d. Such losses are deductible as short-term capital losses. e. Such losses are deducted as ordinary losses only to the extent that the business activity produces other ordinary net income. 44. Unrecaptured Section 1250 gain I. applies to real property owned by individuals and corporations. II. is the gain on the sale of real estate not already classified as ordinary income if the property were Section 1245 property. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 45. Which of the following qualifies as a like-kind exchange of property? I. Commercial retail building and its land for an office building and its land. II. Yankee Food, Inc. common stock for Yankee Food, Inc. corporate bonds. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 46. Which of the following exchanges of property are like-kind exchanges? I. Common stock of Intel traded for preferred stock of Intel. II. Principal residence traded for 20 acres of undeveloped investment land. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 47. Rebecca trades in her four-wheel drive truck for a new one. Rebecca's truck cost $20,000 and has an $8,000 basis on the date of the trade-in. The price of the new truck is $27,000 and the dealer gives Rebecca a $10,000 trade in allowance on her old truck. She uses the trucks in her business. What is Rebecca's basis in the new truck? a. $ 8,000 b. $18,000 c. $25,000 d. $27,000 e. $29,000 48. Which of the following statements is/are correct? I. The carryover-holding period only applies if the property exchanged is personal-use property. II. The holding period of like-kind property received includes the holding period of the property exchanged. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 49. Which of the following is/are correct concerning a principal residence? I. A principal residence can be a house, condominium, mobile home, or houseboat. II. A taxpayer can have more than one principal residence at a time. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct. 50. Which of the following is/are correct concerning a principal residence? I. The maximum amount of gain a single taxpayer can exclude on the sale of a principal residence is $500,000. II. To qualify for a $250,000 exclusion, a single taxpayer must have owned and used the property as a principal residence for at least 2 of the previous 5 years. a. Only statement I is correct. b. Only statement II is correct. c. Both statements are correct. d. Neither statement is correct.