CHAPTER 14–PROPERTY TRANSACTIONS

| November 9, 2018

57.
Steve purchased his home for $500,000. As a sole
proprietor, he operates a certified public accounting practice in his home. For
this business, he uses one room exclusively and regularly as a home office. In
Year 1, $3,042 of depreciation expense on the home office was deducted on his
income tax return. In Year 2, Steve sustained losses in his business;
therefore, no depreciation was taken on the home office. Had he been allowed to
deduct depreciation expense, his depreciation expense would have been $3,175.
What is the adjusted basis in the home?

A.
$493,783.

B.
$496,825.
C.
$496,958.
D.
$500,000.
E.
None of the above.

58.
Sandra’s automobile, which is used exclusively in
her trade or business, was damaged in an accident. The adjusted basis prior to
the accident was $11,000. The fair market value before the accident was $10,000
and the fair market value after the accident is $6,000. Insurance proceeds of
$3,200 are received. What is Sandra’s adjusted basis for the automobile after
the casualty?

A.
$0.

B.
$7,000.
C.
$7,800.
D.
$10,200.
E.
None of the above.

7

62.
Tony’s factory building was destroyed in a fire
(adjusted basis of $90,000; fair market value of $140,000). Of the insurance
proceeds of $128,000 he receives, Tony uses $88,000 to purchase additional
inventory and invests the remaining $40,000 in short-term certificates of
deposit. What is Tony’s recognized gain or loss?

A.
$0.

B.
$12,000 loss.
C.
$38,000 gain.
D.
$40,000 gain.
E.
None of the above.

63.
Elvis owns all of the stock of Shadow Corporation.
The accumulated earnings and profits of Shadow Corporation at the end of the
year are a deficit of $110,000. The current earnings and profits are $0. Elvis’
basis for his stock is $295,000. He receives a distribution of $300,000 on the last
day of the tax year. How much gain should Elvis report?

A.
$0.

B.
$5,000.
C.
$295,000.
D.
$300,000.
E.
None of the above.

64.
Karen owns City of Richmond bonds with a face
value of $10,000. She purchased the bonds on January 1, 2010, for $11,000. The
maturity date is December 31, 2019. The annual interest rate is 8%. What is the
amount of taxable interest income that Karen should report for 2010, and the
adjusted basis for the bonds at the end of 2010, assuming straight-line
amortization is appropriate?

A.
$0
and $11,000.
B.
$0 and $10,900.
C.
$100 and $11,000.
D.
$100 and $10,900.
E.
None of the above.

65.
Milton owns a bond (face value of $25,000) for
which he paid $28,000. Which of the following statements is correct?

A.
If
the bond is taxable, Milton must amortize the $3,000 premium over its remaining
life.
B.
The adjusted basis of the taxable bond remains at
$28,000, as the amortized amount is deducted as interest.

C.
If the bond is tax-exempt, Milton can elect to
amortize the $3,000 premium over the remaining life of the bond.

D. The
adjusted basis of the tax-exempt bond remains at $28,000, as the amortized
amount cannot be deducted as interest.

E.
None of the above is correct.

66.
Which
of the following is correct?

A.
Realized
gains are always recognized and realized losses are never recognized.
B.
Realized gains and realized losses on the sale of
personal use assets are not recognized.
C.
Realized gains and realized losses on the sale of
personal use assets are recognized.
D.
Only a. and b. are correct.
E.
None of the above.

8

67.
Kimmy sells her personal use automobile for
$19,000. She purchased the car three years ago for $35,000. What is Kimmy’s
recognized gain or loss?

A.
$0.

B.
$19,000.
C.
($16,000).
D.
($35,000).
E.
None of the above.

68.
Noelle owns an automobile which she uses for
personal use. Her adjusted basis is $40,000 (i.e., the original cost). The car
is worth $24,000. Which of the following statements is correct?

A.
If
Noelle sells the car for $24,000, her realized loss of $16,000 is not
recognized.
B.
If Noelle exchanges the car for another car worth
$24,000, her realized loss of $16,000 is not recognized.

C.
If the car is stolen and it is uninsured, Noelle
may be able to recognize part of her realized loss of $24,000.

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

69.
Which
of the following statements is correct?

A.
Realized
gains on the sale of personal use assets are taxable.
B.
Realized losses on the sale of personal use assets
are disallowed.
C.
If a personal use asset is sold at a realized gain
and another personal use asset is sold at a realized loss, the gain is taxable
and the loss is disallowed.

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

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