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ACT 412 and 690 Exam 1 Spring 2016 Name___________________________________________________________________________ 1. Leonard Lambert's commercial building, which had an adjusted basis of $500,000, was partially destroyed by fire. The fair market value was $800,000 just before the fire and $600,000 immediately after. Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty loss. What is Leonard's basis in the building before any repairs are made? a. b. $350,000 c. $450,000 d. $500,000 e. 2. $300,000 $600,000 Lem Lumberjack sells 100 shares (basis of $5,000) of Redwood Corporation common stock on March 8, 2015, for $4,000. On March 29, 2015, Lem purchases 50 shares of Redwood Corporation common stock for $2,500. Lem's recognized loss on the sale is: a. b. $500 c. $1,500 d. 3. $1,000 $0 In 2015, Allen Anders sold an asset which cost $70,000. Allen incorrectly claimed $40,000 depreciation over a five-year period. He should have claimed $50,000 depreciation. What was the adjusted basis when sold? a. $0 b. $20,000 c. $30,000 d. $50,000 e. $70,000 4. In 2015, Bob Brown's aunt Barbara gave him a house. At the time of the gift, the house had a fair market value of $194,000, the taxable gift was $180,000, and his aunt's adjusted basis was $74,000. His aunt paid a gift tax of $30,000 on the house. What is Bob's basis in the house for purposes of determining gain? a. b. $94,000 c. $180,000 d. 5. $74,000 $194,000 In May 2015, Automatic, Inc. sold land with a basis to Automatic of $100,000, to Jack Jones, its 60% shareholder, for $80,000. In July, Jack sold the land to an unrelated party for $110,000. What is the amount of Jack's recognized gain? a. b. $10,000 c. $20,000 d. 6. $0 $30,000 Brian Brewster sold property to a buyer who paid him $400,000 cash and assumed an existing mortgage of $150,000. The property had cost $250,000 and he had made improvements of $50,000. Depreciation of $100,000 has been claimed and selling expenses were $20,000. What is the amount of gain? a. b. $200,000 c. $250,000 d. $280,000 e. 7. $100,000 $330,000 Brenda Baines sells land to Carla Chandler for $15,000 cash and a piece of equipment with an adjusted basis of $15,000 and a fair market value of $20,000. The land was subject to a $25,000 mortgage which Carla assumed. Brenda incurred $2,500 in selling expenses. What is the amount realized by Brenda? a. $55,000 b. $60,000 c. $52,500 d. $57,500 8. Bill Burns purchases furniture from his employer for $5,000 during 2015. The fair market value of the furniture is $8,500. What is Bill's basis in the furniture? a. b. $8,500 c. $12,500 d. 9. $5,000 $2,500 Bill Burns purchases furniture from his employer for $5,000 during 2015. The fair market value of the furniture is $8,500. What amount, if any, must Bill include as income for 2015? a. $0 b. $5,000 c. $7,500 d. $3,500 10. 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. b. $1,500 c. $4,500 d. 11. $3,000 $2,000 Ed Edmonds exchanged a business truck with an adjusted basis of $320,000 for another business truck with a fair market value of $20,000, a boat with a fair market value of $6,000, and $2,000 cash. What is the basis of the new truck? a. $18,000 b. $20,000 c. $24,000 d. $30,000 e. $32,000 12. Which of the following is not an example of a nontaxable like-kind exchange? a. b. A printer for a computer. c. Common stock of one company exchanged for common stock of another. d. The trade of an apartment building for a store building. e. 13. Improved real estate for unimproved real estate. Real estate for a ranch. Tom Tanner traded in a printing press with an adjusted basis of $20,000 for a smaller press valued at $12,000. In addition to the smaller press, Tom received $3,000 in cash and was relieved of the existing liability on the old press of $5,000. What is Tom's recognized gain? a. b. $3,000 c. $4,800 d. $5,000 e. 14. $0 $8,000 Bobby and Betty Bennett sold for $450,000 in October of 2015 their residence that they had purchased in 2005 for $200,000. They made major capital improvements during their 10-year ownership totaling $40,000. What is their recognized gain? a. b. $210,000 c. $-0- d. $450,000 e. 15. $250,000 None of the above Suppose instead that in the preceding problem the Bennetts sold their home for $800,000. They moved into a smaller home costing $250,000. How much gain must they recognize? a. $560,000 b. $500,000 c. $310,000 d. $60,000 e. None of the above 16. Assume instead that the Bennetts resided in a very depressed neighborhood and the home purchased in 2005 for $200,000 (capital improvements of $40,000) was sold for only $110,000. How much loss is recognized? a. b. $130,000 c. $90,000 d. $-0- e. 17. $200,000 None of the above Carl Cooper's factory with a basis of $580,000 is destroyed by a fire. The insurance proceeds are $550,000. He replaces the factory at a cost of $600,000. What is Carl's recognized gain or loss? a. $30,000 loss b. $20,000 gain c. $50,000 loss d. $0 gain or loss 18. To be a nontaxable, like-kind exchange, all of the following conditions must be met except: a. The property must be tangible property. b. The exchange must meet the completed transaction requirement (180-day requirement). c. The property must be (un)encumbered by mortgages or other liabilities. d. The property must be business or investment property. 19. Gary and Gerda Gray purchased a home for $125,000 on September 15, 2013. On October 7, 2014 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda who sold the home on October 18, 2015 for $350,000. How much can Gerda exclude? a. b. $250,000 c. $225,000 d. $-0- e. 20. $350,000 None of the above Assume instead that in the preceding problem, as part of the divorce agreement, Gary retained ownership of the residence but the use of the home was granted to Gerda as long as Gary owns the residence. If Gary sells the residence on October 18, 2015 for $350,000, how much can Gary exclude? a. $350,000 b. $250,000 c. $225,000 d. $-0- e. None of the above 21. Which of the following is a capital asset? a. b. Accounts or notes receivable acquired in the ordinary course of business c. Machinery and equipment used in a trade or business d. Temporary investment of idle business cash in marketable corporate securities e. 22. Property held primarily for sale to customers Real property used in a trade or business For 2015, Greg Grammer had a short-term capital loss of $4,000, a short-term capital gain of $1,900, a short-term capital loss carryover from 2014 of $700, a long-term capital gain of $800, and a longterm capital loss of $1,000. What is Greg's deductible loss in 2015? a. b. $2,560 c. $2,800 d. $2,900 e. 23. $0 $3,000 Becky Best received a long-term capital gain distribution of $350 from her stock in MXM Corporation. She also had a $4,000 short-term capital gain, a $3,000 long-term capital loss and a short-term capital loss carryover from 2014 of $1,200. What is Becky's net capital gain or (loss)? a. $150 b. $4,000 c. ($3,000) d. ($4,200) 24. Oscar Orsen is an officer of Atlas Company. He loaned the company $10,000 but was unable to collect it because the company went bankrupt a year after the loan was made. Oscar did not own any stock in the company and the loan was not a condition of employment. How should Oscar report this loss? a. b. Short-term capital loss c. Long-term capital loss d. Miscellaneous itemized deduction e. 25. Nondeductible gift Business bad debt For 2015, Joyce Jacobson's books and records reflected the following: Taxable income Short-term capital gain Short-term capital loss Long-term capital gain Long-term capital loss $35,000 500 (4,800) 1,500 (2,600) What is the amount of Joyce's capital loss carryover to 2016? a. $2,400 short-term; $0 long-term b. $1,300 short-term; $1,100 long-term c. $1,900 short-term; $3,500 long-term d. $4,300 short-term; $1,100 long-term 26. Which of the following qualify for capital gain treatment? a. b. Authors of books c. Composers of music d. 27. Inventors with patents Artists Which of the following is not Section 1245 property? a. Intangible personal property b. Machinery used in a business c. An office building depreciated using the regular MACRS method d. An amortized certified pollution control facility 28. All of the following property is used in a trade or business and has been held in excess of one year. Which property will not qualify for gains or losses from Section 1231 property upon its disposition by sale or exchange? a. b. Business property condemned for public use c. Property held for production of rent and royalties d. 29. Property includible in inventory Depreciable property used in a trade or business Ed Evans, who files a single return, sold qualifying small business stock for $30,000 in 2015. He paid $140,000 for the stock in 2007. What is the maximum amount of ordinary loss Ed may deduct on his 2015 return? a. b. $50,000 c. $100,000 d. 30. $0 $110,000 All of the following assets are Section 1245 property except: a. Intangible personal property b. Tangible personal property c. Oil and gas storage tanks d. Warehouse holding sorted and boxed oranges 31. Which of the following is not a method of accounting? a. b. Accrual method c. LIFO inventory d. Long-term contracts method e. 32. Cash receipts and disbursements method None of the above The following statements about the cash basis method of accounting are false, except: a. The prepayment made for future services may be deducted currently. b. Interest credited to a savings account is not taxed until withdrawn. c. Stock received for services rendered are taxed only in the year sold. d. 33. The exchange of services may lead to gross income to both parties. Robert Graves sold his house to George Tombs for a total of $100,000. Earnest money of $5,000 was received at the end of the year prior to the closing. The remaining $15,000 of the down payment was received at closing. George assumed a $50,000 mortgage on the property and signed a second mortgage for $30,000. If Robert's basis was $35,000 the tax results, in part, are as follows: a. b. Contract price: $50,000; gross profit: 100%; payments in year of sale: $50,000 c. Contract price: $65,000; gross profit: 100%; payments in year of sale: $20,000 d. 34. Contract price: $65,000; gross profit: 100%; payments in year of sale: $35,000 Contract price: $80,000; gross profit: 65/80%; payments in year of sale: $30,000 An accrual basis taxpayer must recognize income when a sale is made, even if on credit. This means that income is recognized: a. When the order is received b. When the delivery is made c. When the invoice is mailed d. At any of the above events, if consistently used 35. All of the following deferred payment sales qualify for installment reporting except: a. Sale of depreciable property at a gain to seller's brother b. Transfer of a building subject to a mortgage in excess of basis where no other consideration is paid c. Sale of real property used in a trade or business d. Sale of depreciable property to the seller's 82 percent owned corporation 36. Which of the following entities may select any tax period (calendar or fiscal)? a. sole partnership b. partnership c. S corporations d. trusts e. corporations other than S corporations. 37. Which factors should be considered when selecting a tax year for a taxpayer? a. business factors b. natural business year c. timing of income and deductions d. tax law requirements e. all of the above f. none of the above 38. Which factors should be considered when selecting a tax year for a taxpayer? a. business factors b. natural business year c. timing of income and deductions d. tax law requirements 39. What is the name of the act that the senate and the house passed before it recessed in 2015. a. American Taxpayer Relief Act b. Path Act c. Pension Protection Act d. Economic Growth and Tax Relief Reconciliation Act 40. Name FIVE items this tax legislation made permanent? a. b. c. d. e