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Unformatted text preview: Chapter I5 Property Transactions - Capital Gains and Losses Discussion Questions I5-1 It may be difficult to determine the fair market value (FMV) of the used building received by the investor. The problem is likely to be resolved by using the FMV of the property given (the publicly-traded stock) to measure the amount realized. p. I5-3. I5-2 cost of the house $60,000 cost of the room added to the house 10,000 cost of built-in bookshelves 800 basis for the house p. I5-4. $70,800 I5-3 Yes, sales tax paid or accrued in connection with the acquisition of property is included as part of the property's cost. p. I5-5. I5-4 Amount realized $8,000 Minus: basis (50 shares x $90)* (4,500 ) LTCG $3,500 *FIFO method is used. pp. I5-5 and I5-6. I5-5 a. David's holding period starts on August 5 of the current year (the date of the gift) if David uses the FMV at the date of the gift to determine his basis. b. His holding period starts on January 15, 1987, if he uses his grandfather's basis. pp. I5-27 and I5-28. I5-6 a. The value of the taxable estate would be $80,000 less and the estate tax is reduced by electing to use the alternate valuation date. b. Jim's basis for the property would be $80,000 higher, and he might have a smaller gain or larger loss when he sells or exchanges the land. c. The savings in estate tax is $29,600 (37% x $80,000). If the property is subsequently sold at a gain, the tax savings will be $22,400 (28% x $80,000), thus the alternate valuation date should be elected. Another factor to consider is whether Jim plans to sell the property in the near future since the income tax savings would not occur until Jim sells or exchanges the property while the estate tax savings are realized currently. p. I5-8. I5-7 $150 ($82,500/550 shares). pp. I5-10 and I5-11. I5-1 I5-8 Basis of stock Total number of Basis for each owned before shares owned after = share owned stock dividend stock dividend after dividend $38,880 divided by X = $18 X = 2,160 shares Total number of shares after stock dividend 2,160 Total number of shares before stock dividend 2,000 Increase in shares due to stock dividend 160 Percentage dividend distributed (160 divided by 2,000) = 8 % pp. I5-10 and I5-11. I5-9 The interest must be capitalized. p. I5-5. I5-10 For Andy, the refrigerator is inventory and not a capital asset. Roger's refrigerator is a capital asset since it is not included in the list of properties that are not capital assets. pp. I5-12 and I5-13. I5-11 The purchase and sale of future contracts was an integral part of the company's business. p. I5-13. I5-12 The dealer must clearly identify that the security is held for investment. This act of identification must occur before the close of the day on which the security is acquired and the security must not be held primarily for sale to customers in the ordinary course of the dealer's trade or business at any time after the day of purchase. p. I5-14....
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This note was uploaded on 07/16/2011 for the course ACCOUNTING 203 taught by Professor Jones during the Spring '11 term at Kaplan University.
- Spring '11