ACCT 323 7980 INCOME TAX I (Spring 2016)
1) Estelle owns a pickup truck costing $16,000 that she uses in her personal activities. The truck
had a $10,000 FMV when it was transferred to Estelle’s business, which she operates as a sole
What is Estelle’s basis in the truck for calculating depreciation?
What is Estelle’s realized gain or loss on the truck if she sells it for $5,000 after claiming
depreciation of $4,500?
2) Bill files as head of household in 2015. He had taxable income of $90,000, including the sale
of stock he held for investment for two years for a $20,000 gain. Bill sold no other assets during
the year, and he did not have any capital loss carryovers.
What is Bill’s 2015 tax liability?
What would Bill’s 2015 tax liability be if he had held the stock for 10 months?
3) Bernice purchased land and a building for use in connection
associated with this purchase were:
Cash down payment
Mortgage on property
Title and transfer taxes
Charges for hookup of gas, water, and sewer lines
Seller-owed back property taxes paid by Bernice
What is Bernice’s tax basis for the land and building?
with her business. The costs
4) Jasmine received a parcel of land as a gift from her Uncle Eustace. At the time of the gift, the
land had a fair market value of $83,000 and an adjusted basis of $23,000. This was the only gift
that Jasmine received from Eustace during 2015. If Eustace paid a gift tax of $15,000 on the
transfer of the gift to Jasmine, what tax basis will Jasmine have for the land?
5) For tax purposes, which of the following costs must be included in inventory of a
Payroll taxes for factory employees
Research and experimental costs
Repairs to factory equipment
Factory utility costs
6) Klondike Construction Company is building a highway under a three-year construction
contract. Klondike will receive $11,200,000 for building five miles of highway. Klondike
estimates that it will incur $10,000,000 of costs before the contract is completed. At the end of
year one, Klondike had incurred $3,000,000 of contract costs.
How much income from the contract must Klondike report for year one?
Assume Klondike incurs an additional $5,000,000 of costs during the second year. How
much income should be reported for that year?
c. If Klondike incurs another $2,500,000 of costs in the third and final year of the contract,
how much income must Klondike report for the third year.
d. Will Klondike receive or pay look-back interest? Explain.
7) Denise married Glenn on January 10, 2015. Glenn sold his personal residence on October
25, 2014, and excluded the entire gain of $175,000. They had originally planned to live in the
house that Denise had received as a gift from her parents in 2005, but they decided instead to
purchase a larger house, and Denise sold her house 60 days after their wedding and realized a
a. If Denise and Glenn file a joint return, how much of the $370,000 gain may be excluded
b. If Denise files as married filing separately, how much of the $370,000 gain may be
excluded from income?
8) Jordan owns a building used in his business with an adjusted basis of $340,000 and a
$750,000 FMV. He exchanges the building for a building owned by Dexter, whose building has
a FMV of $950,000 but is subject to a $200,000 liability. Jordan assumes the liability and uses
the building in his business. What is Jordan’s
basis in the building received from Dexter?
9) Lloyd gifted property to Louise. Lloyd’s basis in the property was $1,200. The fair market
value at the time of the gift was $1,400. Louise sold the property for $2,500. What was the
amount of Louise’s gain on the disposition?
10) An office building owned by Elroy was condemned by the state on January 2, 2012.
Elroy received the condemnation award on March 1, 2013. In order to qualify for non-
recognition of gain on this involuntary conversion, what is the last date for Elroy to
acquire qualified replacement property?
August 1, 2014.
January 2, 2015.
March 1, 2016.
d. December 31, 2016.
11) On July 1, 2015, Jennifer sold an antique for $12,000 that she had bought for her personal
use in 2010 at a cost of $15,000. In her 2015 tax return, Jennifer should treat the sale of the
antique as a transaction resulting in
A nondeductible loss.
12) Ronald, a calendar-year taxpayer, purchased used furniture and fixtures for use in his
business and placed the property in service on November 1, 2015. The furniture and fixtures cost
$56,000 and represented Ronald’s only acquisition of depreciable property during the year.
Ronald did not elect to expense any part of the cost of the property under Sec. 179. What is the
amount of Ronald’s depreciation deduction for the furniture and fixtures under the Modified
Accelerated Cost Recovery System (MACRS) for 2015?
Under the modified accelerated cost recovery system (MACRS) of depreciation for
property placed in service after 1986, which of the following is correct”
Used tangible depreciable property is excluded from the computation.
Salvage value is ignored for purposes of computing the MACRS deduction.
No type of straight-line depreciation is allowable.
The recovery period for depreciable realty must be at least 27.5 years.
14) Brad Johnson owned a parcel of investment real estate that had an adjusted basis of $25,000
and a fair market value of $40,000. During 2015, Johnson exchanged his investment real estate
for the items of property listed below.
Land to be held for investment (fair market value)
A small sailboat to be held for personal use (fair market value)
What is Johnson’s recognized gain and basis in his new investment real estate?
15) An individual’s losses on transactions entered into for personal purposes are
deductible only if
The losses qualify as casualty or theft losses.
The losses can be characterized as hobby losses.
The losses do not exceed $3,000 ($6,000 on a joint return).
No part of the transactions was entered into for profit.
16) Janelle owned machinery which she had acquired in 2014 at a cost of $100,000. During
2015, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The
insurance proceeds awarded to Janelle amounted to $125,000, and she immediately acquired a
similar machine for $110,000.
What should Janelle report as ordinary income resulting from the involuntary conversion for
17) Conner purchased 300 shares of Zinco stock for $30,000 in 2010. On May 23, 2015, Conner
sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no
other gain or loss during 2015. On July 26, 2015, Alice sold the 300 shares of Zinco for $25,000.
a. What amount of the loss from the sale of Zinco stock can Conner deduct in 2015?
b. What was Alice’s recognized gain or loss on her sale?
18) For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the
Date of receipt of cash proceeds.
Date of delivery of stock certificate.
19) Waylon exchanges unimproved land with a $50,000 basis and marketable securities with a
$10,000 basis for a 10-unit apartment building having a $150,000 FMV. The land and
marketable securities are held by Waylon as investments, and the apartment building is held as
an investment. The marketable securities have a $25,000 FMV. What is Waylon’s realized gain,
recognized gain, and his basis in the apartment building?
20) Ashton, a college student, bought a truck in 2013 for $6,000. He used the truck 70% of the
time as a distributor for the local newspaper and 30% of the time for personal use. The truck has
a five-year recovery period, and he claimed depreciation deductions of $840 in 2013 and $1,344
in 2014. Ashton sells the truck on June 20, 2015 for $3,000.
a. What is the amount of allowable depreciation in 2015?b. What is Ashton’s realized and recognized gain or loss and what is its character?
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