CHAPTER 14–PROPERTY TRANSACTIONS

| November 9, 2018

67.
Which
of the following statements is false?

A.
A realized gain that is never recognized results
in the temporary recovery of more than the taxpayer’s cost or other basis for
tax purposes.

B.
A realized gain on which recognition is postponed
results in the temporary recovery of more than the taxpayer’s cost or other
basis for tax purposes.

C.
A realized loss that is never recognized results
in the permanent recovery of less than the taxpayer’s cost or other basis for
tax purposes.

D. A realized
loss on which recognition is postponed results in the temporary recovery of
less than the taxpayer’s cost or other basis for tax purposes.

E.
All of the above.

68.
Sarah is an executive at Robin Yogurt. Because she
loves the yogurt so much, in the current year she decides to buy a yogurt
machine from Robin for $9,300. The machine cost the company $9,000 (the
wholesale price), and it has a fair market value of $12,500 (price at which
sold at retail). Only executives are permitted to buy yogurt machines at a
discount. What is Sarah’s adjusted basis for the yogurt machine and how much
must she include in her gross income?

A.
$9,300
basis, $3,500 gross income.
B.
$9,300 basis, $3,200 gross income.
C.
$12,500 basis, $3,500 gross income.
D.
$12,500 basis, $3,200 gross income.
E.
None of the above.

9

72.
Over the past 25 years, Alfred has purchased 380
shares of Green, Inc., common stock. His first purchase was in 1987 when he
acquired 30 shares for $20 a share. In 1989, Alfred bought 150 shares at $10 a
share. In 2008, Alfred acquired 200 shares at $50 a share. Alfred intends to
sell 125 shares at $60 per share in the current year. If Alfred’s objective is
to minimize gain, what is his recognized gain?

A.
$1,250.

B.
$3,520.
C.
$5,950.
D.
$6,250.
E.
None of the above.

73.
Mona purchased a business from Judah for
$1,000,000. Judah’s records and an appraiser provided her with the following
information regarding the assets purchased:

Adjusted Basis

FMV

Land

$195,000

$270,000

Building

310,000

450,000

Equipment

95,000

180,000

What is Mona’s adjusted basis for the land,
building, and equipment?

A.
Land
$270,000, building $450,000, equipment $180,000.
B.
Land $195,000, building $575,000, equipment
$230,000.
C.
Land $195,000, building $310,000, equipment
$95,000.
D.
Land $270,000, building $521,429, equipment
$208,571.
E.
None of the above.

74.
Nontaxable
stock dividends result in:

A.
A
higher cost per share for all shares than before the stock dividend.
B.
A lower cost per share for all shares than before
the stock dividend.
C.
An increase in the total cost of the old and new
stock combined.
D.
A decrease in the total cost of the old and new
stock combined.
E.
None of the above.

75.
Kevin purchased 5,000 shares of Purple Corporation
stock at $10 per share. Two years later, he receives a 5% common stock
dividend. At that time, the common stock of Purple Corporation had a fair
market value of $12.50 per share. What is the basis of the Purple Corporation
stock, the per share basis, and gain recognized upon receipt of the common
stock dividend?

A. $50,000
basis in stock, $10 basis per share for the original stock and $0 basis per
share for the dividend shares, $0 recognized gain.

B.
$50,000 basis in stock, $9.52 basis per share, $0
recognized gain.
C.
$53,125 basis in stock, $10 basis per share for
the original stock and $12.50 basis per share for the dividend shares, $3,125
recognized gain.

D.
$53,125 basis in stock, $10.12 basis per share,
$3,125 recognized gain.
E.
None of the above.

76.
Amy received nontaxable stock rights on February
3, 2010. She allocated $8,000 of the $30,000 basis for the associated stock to
the stock rights. The stock rights are exercised on October 2, 2010. The exercise
price for the stock is $25,000. What is the taxpayer’s basis for the acquired
stock?

A.
$0.

B.
$25,000.
C.
$33,000.
D.
$55,000.
E.
None of the above.

10

77.
On July 7, 2010, Brad received nontaxable stock
rights with a fair market value of $4,000. His adjusted basis in the stock is
$20,000. Which of the following is correct?

A.
If the fair market value of the stock is $25,000,
Brad must allocate part of the stock basis to the stock rights.

B.
If the fair market value of the stock is $30,000,
Brad does not have to allocate part of the stock basis to the stock rights.

C.
If the fair market value of the stock is $27,000,
Brad does not have to allocate part of the stock basis to the stock rights, but
he may elect to do so.

D.
Only a. and b. are correct.
E.
a., b., and c. are correct.

78.
Carol received nontaxable stock rights on May 14,
2010. She allocated $6,000 of the $40,000 basis of the associated stock to the
stock rights. The stock rights expire on September 14, 2010. What is Carol’s
recognized loss on the expiration of the stock rights?

A.
$0.

B.
$6,000.
C.
$34,000.
D.
$40,000.
E.
None of the above.

79.
In 2006, Harold purchased a classic car that he
planned to restore for $12,000. However, Harold is too busy to work on the car
and he gives it to his daughter Julia in 2010. At this time, the fair market
value of the car has declined to $10,000. Harold paid no gift tax on the transaction.
Julia completes some of the restoration herself with out-of-pocket costs of
$5,000. She later sells the car for $30,000. What is Julia’s recognized gain or
loss on the sale of the car?

A.
$0.

B.
$13,000.
C.
$15,000.
D.
$18,000.
E.
None of the above.

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