Acc 324 Week 6 - 1

1.
(TCO 6) Chuck purchases land for $250,000. He incurs legal fees of $2,000 associated with the
purchase. He subsequently incurs additional legal fees of $16,000 in having the land rezoned from
agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $600,000.
What is Chuck's basis for the land and the improvements? (Points : 2)
$250,000
$850,000
$852,000
$868,000
None of the above
2. (TCO 6) Nate is a real estate salesman. His employer, a real estate developer, permits him to purchase
a lot for $75,000. The employer's adjusted basis for the lot is $45,000, and its normal selling price is
$90,000. What is Nate's recognized gain and his basis for the lot? (Points : 2)
$0 (recognized gain), $75,000 (basis)
$0 (recognized gain), $90,000 (basis)
$15,000 (recognized gain), $75,000 (basis)
3. (TCO 6) Which of the following is correct? (Points : 2)
The gain basis for property received by gift is the lesser of the donor's basis or the fair market
value on the date of the gift.
The loss basis for property received by gift is the same as the donor's basis.
The gain basis for inherited property is the same as the decedent's basis.
The loss basis for inherited property is the lesser of the decedent's basis or the fair market value
on the date of the decedent's death.
None of the above
4. (TCO 6) Martha gives 100 shares of Green, Inc. stock to her niece, Jennifer. Martha's adjusted basis
for the stock is $3,000 and the fair market value is $7,000. Four months after the gift, Jennifer is killed in
an automobile accident. Martha inherits the stock, which then is worth $9,000. What is the adjusted basis
of the inherited stock to Martha? (Points : 2)
$3,000
$7,000
$9,000
$10,000
None of the above

5. (TCO 6) Kay inherits stock that had a basis to the decedent of $42,000 and a fair market value of
$34,000 on August 4, 2010, the date of the decedent's death. The executor distributes the stock to Kay
on November 12, 2010, at which time the fair market value is $32,500. The fair market value on February
4, 2011 is $32,000. In filing the estate tax return, the executor elects the alternate valuation date. Kay
sells the stock on June 10, 2011 for $33,000. What is her recognized gain or loss? (Points : 2)
$0
$1,000
$500
$1,000
None of the above
6. (TCO 6) If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion),
makes the appropriate election, and the amount reinvested in replacement property is less than the
amount realized, then realized gain is: (Points : 2)
recognized to the extent of the deficiency.
recognized to the extent of realized gain.
recognized to the extent of the amount reinvested.
permanently not subject to taxation.
None of the above
7. (TCO 11) A taxpayer exchanges a rental house at the beach with an adjusted basis of $180,000 and a
fair market value of $160,000 for a rental house at the mountains with a fair market value of $148,000
and cash of $12,000. What is the recognized gain or loss? (Points : 2)
$0
$12,000
$148,000
($20,000)
None of the above
8. (TCO 11) Joyce, a farmer, has the following events occur during the tax year. Which of the events
qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary
conversion)? (Points : 2)
Her farm tractor is hauled to the city dump because it is worn out.
She burns her barn because it is infested with termites.
Her personal residence, adjusted basis of $100,000, is condemned to make way for an interstate
highway. She recovers condemnation proceeds of $175,000.
She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her
dairy herd due to a reduction in milk prices.
None of the above
9. (TCO 11) During 2010, Ted and Judy, a married couple, decided to sell their residence, which had a
basis of $162,000. They had owned and occupied the residence for 11 years. To make it more attractive
to prospective buyers, they had it painted in April at a cost of $5,000 and paid for the work immediately.
They sold the house in May for $395,000. Broker's commissions and other selling expenses amounted to
$24,000. They purchased a new residence in June for $350,000. What is the realized gain? (Points : 2)
$395,000
$209,000
$204,000
$0
None of the above
10. (TCO 11) Tammy, who is single, sells her personal residence (adjusted basis of $130,000) for
$290,000. She has owned and lived in the residence for three years. Her selling expenses are $18,000.
Three weeks prior to the sale, Tammy paid a carpenter and a painter $1,000 to make some repairs and
paint the two bathrooms. Her recognized gain is: (Points : 2)
$142,000.
$0.
$141,000.
$139,000.
None of the above

Acc 324 Week 6 - 1

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1.

None of the above

$0 (recognized gain), $75,000 (basis)

$0 (recognized gain), $90,000 (basis)

$15,000 (recognized gain), $75,000 (basis)

$15,000 (recognized gain), $90,000 (basis)

$30,000 (recognized gain), $105,000 (basis)

3. (TCO 6) Which of the following is correct? (Points : 2)

None of the above

None of the above

None of the above

recognized to the extent of the deficiency.

recognized to the extent of realized gain.

recognized to the extent of the amount reinvested.

permanently not subject to taxation.

None of the above

None of the above

She burns her barn because it is infested with termites.

None of the above

None of the above

None of the above

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