ACCT 323 7980 INCOME TAX I (Fall 2016)
QUIZ III
1) Estelle owns a pickup truck costing $16,000 that she uses
in her personal activities. The truck had a $10,000 FMV when it was transferred
to Estelle’s business, which she operates as a sole proprietorship.
a. What is
Estelle’s basis in the truck for calculating depreciation?
b. What is Estelle’s realized gain or loss on the truck if
she sells it for $5,000 after claiming depreciation of $4,500?
2) Bill files as head of household in 2015. He had taxable
income of $90,000, including the sale of stock he held for investment for two
years for a $20,000 gain. Bill sold no other assets during the year, and he did
not have any capital loss carryovers.
a.
What is Bill’s 2015 tax liability?
b.
What would Bill’s 2015 tax liability be if he had held the
stock for 10 months?
3)
Bernice purchased land and a building for use in connection
with her business. The costs
associated with this purchase were:
Cash down payment
$ 40,000
Mortgage on property
350,000
Survey costs
2,000
Title and transfer taxes
2,500
Charges for hookup of gas, water, and sewer lines
3,000
Seller-owed back property taxes paid by Bernice
5,000
What is Bernice’s tax basis for the land and building?
$ 44,500
$394,500
$397,500
$402,500
4) Jasmine received
a parcel of land as a gift from her Uncle Eustace. At the time of the gift, the
land had a fair market value of $83,000 and an adjusted basis of $23,000. This
was the only gift that Jasmine received from Eustace during 2015. If Eustace
paid a gift tax of $15,000 on the transfer of the gift to Jasmine, what tax
basis will Jasmine have for the land?
a. $23,000
b. $35,443
c. $36,043
d. $83,000
5) For tax
purposes, which of the following costs must be included in inventory of a
manufacturing company?
a. Raw
materials
b.
Advertising
c.
Payroll taxes for factory employees
d.
Research and experimental costs
e.
Factory insurance
f.
Repairs to factory equipment
g.
Factory utility costs
h.
Factory rent
6) Klondike Construction Company is building a highway under
a three-year construction contract. Klondike will receive $11,200,000 for
building five miles of highway. Klondike estimates that it will incur
$10,000,000 of costs before the contract is completed. At the end of year one,
Klondike had incurred $3,000,000 of contract costs.
a. How much income from the contract must
Klondike report for year one?
b.
Assume Klondike incurs an additional $5,000,000 of costs during the
second year. How much income should be reported for that year?
c. If
Klondike incurs another $2,500,000 of costs in the third and final year of the
contract, how much income must Klondike report for the third year.
d. Will
Klondike receive or pay look-back interest?
Explain.
7) Denise married Glenn on January 10, 2015. Glenn sold his
personal residence on October 25, 2014, and excluded the entire gain of
$175,000. They had originally planned to live in the house that Denise had
received as a gift from her parents in 2005, but they decided instead to
purchase a larger house, and Denise sold her house 60 days after their wedding
and realized a $370,000 gain.
a. If Denise and Glenn file a joint return, how much of the
$370,000 gain may be excluded from income?
b. If Denise files as married filing separately, how much of
the $370,000 gain may be excluded from income?
8) Jordan owns a building used in his business with an
adjusted basis of $340,000 and a $750,000 FMV. He exchanges the building for a
building owned by Dexter, whose building has a FMV of $950,000 but is subject
to a $200,000 liability. Jordan assumes the liability and uses the building in
his business. What is Jordan’s
a.
realized gain?
b.
recognized gain?
c. basis
in the building received from Dexter?
9) Lloyd gifted property to Louise. Lloyd’s basis in the
property was $1,200. The fair market value at the time of the gift was $1,400.
Louise sold the property for $2,500. What was the amount of Louise’s gain on
the disposition?
$0
$1,100
$1,300
$2,500
10) An office
building owned by Elroy was condemned by the state on January 2, 2012. Elroy
received the condemnation award on March 1, 2013. In order to qualify for
non-recognition of gain on this involuntary conversion, what is the last date
for Elroy to acquire qualified replacement property?
a. August 1,
2014.
b. January 2,
2015.
c. March 1, 2016.
d. December 31,
2016.
11) On July 1,
2015, Jennifer sold an antique for $12,000 that she had bought for her personal
use in 2010 at a cost of $15,000. In her 2015 tax return, Jennifer should treat
the sale of the antique as a transaction resulting in
a. A nondeductible
loss.
b. Ordinary loss.
c. Short-term
capital loss.
d. Long-term
capital loss.
12) Ronald, a
calendar-year taxpayer, purchased used furniture and fixtures for use in his
business and placed the property in service on November 1, 2015. The furniture
and fixtures cost $56,000 and represented Ronald’s only acquisition of
depreciable property during the year. Ronald did not elect to expense any part
of the cost of the property under Sec. 179. What is the amount of Ronald’s
depreciation deduction for the furniture and fixtures under the Modified
Accelerated Cost Recovery System (MACRS) for 2015?
a. $ 2,000
b. $ 2,667
c. $ 8,000
d. $16,000
13) Under
the modified accelerated cost recovery system (MACRS) of depreciation for
property placed in service after 1986, which of the following is correct”
a. Used
tangible depreciable property is excluded from the computation.
b.
Salvage value is ignored for purposes of computing the MACRS deduction.
c. No
type of straight-line depreciation is allowable.
d. The
recovery period for depreciable realty must be at least 27.5 years.
14) Brad Johnson owned a parcel of investment real estate
that had an adjusted basis of $25,000 and a fair market value of $40,000.
During 2015, Johnson exchanged his investment real estate for the items of
property listed below.
Land to be held for investment (fair market value)
$35,000
A small sailboat to be held for personal use (fair market
value)
3,000
Cash
2,000
What is Johnson’s recognized gain and basis in his new
investment real estate?
15) An individual’s
losses on transactions entered into for personal purposes are deductible only
if
a. The losses
qualify as casualty or theft losses.
b. The losses can
be characterized as hobby losses.
c. The losses do
not exceed $3,000 ($6,000 on a joint return).
d. No part of the
transactions was entered into for profit.
16) Janelle owned
machinery which she had acquired in 2014 at a cost of $100,000. During 2015,
the machinery was destroyed by fire. At that time it had an adjusted basis of
$86,000. The insurance proceeds awarded to Janelle amounted to $125,000, and
she immediately acquired a similar machine for $110,000.
What should Janelle report as ordinary income resulting from
the involuntary conversion for 2015?
$14,000
$15,000
$25,000
d. $39,000
17) Conner
purchased 300 shares of Zinco stock for $30,000 in 2010. On May 23, 2015,
Conner sold all the stock to his daughter Alice for $20,000, its then fair
market value. Conner realized no other gain or loss during 2015. On July 26,
2015, Alice sold the 300 shares of Zinco for $25,000.
a. What amount of the
loss from the sale of Zinco stock can Conner deduct in 2015?
b. What was Alice’s
recognized gain or loss on her sale?
18) For a cash
basis taxpayer, gain or loss on a year-end sale of listed stock arises on the
a. Trade date.
b. Settlement
date.
c. Date of
receipt of cash proceeds.
d. Date of
delivery of stock certificate.
19) Waylon exchanges
unimproved land with a $50,000 basis and marketable securities with a $10,000
basis for a 10-unit apartment building having a $150,000 FMV. The land and
marketable securities are held by Waylon as investments, and the apartment
building is held as an investment. The marketable securities have a $25,000
FMV. What is Waylon’s realized gain, recognized gain, and his basis in the
apartment building?
20) Ashton, a
college student, bought a truck in 2013 for $6,000. He used the truck 70% of
the time as a distributor for the local newspaper and 30% of the time for
personal use. The truck has a five-year recovery period, and he claimed
depreciation deductions of $840 in 2013 and $1,344 in 2014. Ashton sells the
truck on June 20, 2015 for $3,000.
a. What is the amount
of allowable depreciation in 2015?
b. What is Ashton’s
realized and recognized gain or loss and what is its character?
