Exam_2_Practice_Summer_2010_Solutions - Tax 4001 Summer...

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Tax 4001 Summer 2010 Exam 2 Practice Questions Solution 1. For each of the following transactions, identify how much gain the taxpayer will recognize and the taxpayer’s basis in the new property. a. Maude exchanges computer equipment with a basis of $25,000 and a FMV of $45,000, for computer equipment with a FMV of $37,000 and a motorcycle with a FMV of $8,000. Maude’s Recognized Gain _____ $8,000 (motorcycle is boot property) Maude’s basis in new computer equipment ___ $25,000 (25,000 + 8,000 – 8,000) Maude’s basis in motorcycle _______ $8,000 (FMV) b.Cane Corporation’s warehouse is destroyed by a hurricane in September, 2009, when its basis is $130,000, and its FMV is $180,000. The insurance company reimburses Cane $180,000. In December, 2009, Cane Corporation purchases a new warehouse for $140,000. Cane’s Recognized Gain _______ $40,000 (the unreinvested proceeds) Cane’s Basis in new warehouse ____$130,000 2. White Corporation’s first disposition of a Section 1231 Asset occurred in 2005. Fill in the table below to indicate the character of White’s Net 1231 Gain/(losses) for the period 2005-2009. Year Sec 1231 Gains Sec 1231 Losses Ordinary Income (loss) Capital Gain (loss) 2005 $10,000 $8,000 $2,000 2006 $10,000 $15,000 ($5,000) 2007 $6,000 $5,000 $1,000 2008 $9,000 $3,000 $4,000 $2,000 2009 $2,000 $8,000 ($6,000)
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3. Taxpayer exchanges an apartment building with an adjusted basis of $47,000 and a FMV of $55,000, and boot (Green, Inc stock) with an adjusted basis of $9,000 and a FMV of $6,000 for a rental house with a FMV of $61,000 in a like-kind exchange. What is the recognized gain or loss and what is the taxpayer’s basis in the rental house? Taxpayer has a realized gain of $8,000 on apartment building. Zero is recognized. Taxpayer has a realized and recognized a loss on the boot property of $3,000. Basis in rental house = 47000 + 9,000 – 3,000 = $53,000. 4. Melody gives her niece, Joy, a machine to be used in her business with a FMV of $8,500 and an adjusted basis in Melody’s hands of $9,500. What is Joy’s basis for depreciation? Assuming Joy takes $3,000 of depreciation and then sells the machine for $4,000, how much is her recognized gain or loss? Joy’s depreciation basis = Melody’s adjusted basis = $9,500. Joy has a “gain” basis = 9,500 – 3,000 = 6,500 and a “loss” basis = 8,500 – 3,000 = 5,500. Therefore, Joy can recognize a $1,500 loss on the sale of the machine. 5. Kevin purchased 5,000 shares of Purple Corporation stock at $10/share, to be held for investment. Two years later he receives a 5% nontaxable common stock dividend. At the time, the common stock had a FMV of $12.50/share. What is the per/share basis of the Purple Corporation stock? If two months after receiving the stock dividend, Kevin sells 100 of the new shares he receives for $12.00/share, what is the amount and character of his recognized gain or loss? Kevin receives 250 shares.
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Exam_2_Practice_Summer_2010_Solutions - Tax 4001 Summer...

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