Chapter13_HW_Solutions - Accounting 322 Tax Module Chapter...

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Accounting 322 Tax Module Chapter 13 Homework Problems Complete each problem and show your work in a reasonably neat fashion. Put your name on each page and staple or clip your pages together. 1.  In Year 1, Sandy bought a diamond necklace for her own use, at a cost of $10,000.  In  Year 4, when the fair market value was $12,000, Sandy and her husband gave the  necklace to her daughter, Flora.  No gift tax was due.  Flora sells the necklace for  $13,000 in Year 4.  What is Flora’s recognized gain?  What is Flora’s holding period in  years? Gain basis=Donor’s basis =$10,000 Loss Basis=Lower of Donor’s basis of FMV at time of gift=$10,000 Gain=$`13,000-$10,000=$3,000 Since the basis ended up being the donor’s basis, the donor’s holding period is “tacked on” and  the holding period is 3 years. 2.  Mr. Krabs purchased 100 shares of stock for $50 per share.  Ten years later, Mr. Krabs  died on February 1 and bequeathed the 100 shares of stock to a relative, Squidward,  when the stock had a market price of $100 per share.  One year later, on April 1, the  stock split 2 for 1.  Squidward gave 100 shares of the stock to another of Mr. Krab’s  relatives, Plankton, on June 1 that same year, when the market value of the stock was  $150 per share.  Plankton sold the shares later for $170 per share.  What was  Plankton’s basis in the 100 shares of stock? The basis of inherited property is the value of the property on the date of death (since no  alternate valuation date information is provided).  The basis of a gift to a done is the basis in the  hands of the donor when sold at a gain.  Squidward’s basis is 100 x $100 or $10,000 since he  receives the “step up” in basis at death.  After the stock split, there are 200 shares with a basis  of $50 each.  Plankton gets 100 shares and the gain basis (basis in hands of donor) is  100x$50=$5,000. 3.  Spongebob purchased 100 shares of CAKE common stock for $15,000 on December  15, 2007, and then when he saw the price go down, an additional 100 shares on  December, 30, 2007 for $13,000.  On January 3, 2008, Spongebob sold the shares  purchased on December 15 for $13,000.  What amount is deductable on Spongebob’s 
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Accounting 322 Tax Module Chapter 13 Homework Problems income tax return for 2007 and 2008?  What is SB’s basis in the shares purchased on  12/30 and not sold?
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