ACC_4301_Solutions_to_Problems_(Chapter_14)

# ACC_4301_Solutions_to_Problems_(Chapter_14) - PROBLEMS 29....

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PROBLEMS 29. Cost \$200,000 Add: Paving and sidewalks (\$7,000 + \$8,000) \$15,000 Elevator (\$20,000 – \$13,000) 7,000 22,000 Subtotal \$222,000 Deduct: Depreciation deductions claimed \$ 4,500 Casualty insurance proceeds 13,500 Casualty loss allowed 5,500 (23,500) Adjusted basis \$198,500 Amount realized (\$290,000 – \$17,400) \$272,600 Less: Adjusted basis (198,500) Realized gain \$ 74,100 pp. 14-4 to 14-6, Example 5, and Concept Summary 14-2 30. a. Original basis of land \$ 50,000 Original basis of house 200,000 Less: Depreciation (30,900) Adjusted basis of house and land \$219,100 Original basis of tennis court \$ 5,000 Less: Depreciation (1,300) Adjusted basis of tennis court \$ 3,700 Amount realized \$400,000 Less: Adjusted basis (\$219,100 + \$3,700) (222,800) Realized gain \$177,200 b. Amount realized [\$400,000 (cash) + \$75,000 (mortgage)] \$475,000 Less: Adjusted basis (222,800) Realized gain \$252,200 c. Same answer as in part b. above. pp. 14-3 to 14-5 31. a. IARN, IABP b. IARN, IABP c. IARN, IABP d. IARN, IABP e. IARN by \$1,000, IABP by \$1,000 f. IABP g. DARN pp. 14-3 and 14-4

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a. Gayla must report on her income tax return the greater of the depreciation allowed of \$20,000 (\$24,000 × 10/12) or allowable of \$24,000. The depreciation allowed is the amount actually deducted, whereas the depreciation allowable is the amount that should have been deducted under the depreciation convention. Gayla should amend her 2009 income tax return and deduct the correct amount of depreciation (\$24,000). b. Adjusted basis on January 1, 2009 \$375,000 Less: Depreciation allowable (24,000) Adjusted basis on December 31, 2009 \$351,000 and January 1, 2010 pp. 14-4 and 14-5 33. a. Amount realized \$32,500 Less: Adjusted basis (45,000) Realized loss (\$12,500) Recognized loss \$ –0– Realized losses on the sale or exchange of personal use assets are not deductible. p. 14-8 b. Same result as in part a. above. c. Melanie’s realized loss is \$0. Since the form of the transaction is a theft, the realized loss is the lesser of the adjusted basis or the fair market value of the asset, reduced by the insurance proceeds that she received (see Chapter 7). Therefore, the opportunity for the theft loss deduction on personal use property is not present in this case because the insurance proceeds received of \$32,500 equal the fair market value of \$32,500. p. 14-6 34. a. The \$50,000 distribution is labeled a return of capital because Dove has no earnings and profits. Butch reduces the basis of his stock by \$50,000 to \$20,000 (\$70,000 adjusted basis – \$50,000 return of capital distribution). b. As in a., the \$140,000 distribution is treated as a return of capital because Dove has no earnings and profits. Butch has a capital gain calculated as follows: Amount realized \$140,000 Less: Adjusted basis (70,000) Realized gain \$ 70,000 Recognized gain \$ 70,000 The basis for his stock is reduced to \$0. c.
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## This note was uploaded on 02/19/2010 for the course ACC 3300 taught by Professor Lae during the Spring '10 term at Alabama A&M University.

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ACC_4301_Solutions_to_Problems_(Chapter_14) - PROBLEMS 29....

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