saint leo ACC421 exam 7 (Graded)

Question 1 Milton purchases land and a factory building for his business for $300 000 with $100 000 being allocated to the land. During the first year Milton deducts cost recovery of $4 922. Milton’s adjusted basis for the building at the end of the first year is $195 078 ($200 000 – $4 922). 1) True 2) False Question 2 Dena owns 500 acres of farm land in southeastern Maryland. Her adjusted basis for the land is $480 000 and there is a $400 000 mortgage on the land. She exchanges the land for an office building owned by Chris in Newark New Jersey. The building has a fair market value of $900 000. Chris assumes Dena’s mortgage on the land. What is the amount of Dena’s recognized gain or loss on the exchange? 1) $0 2) $400 000 3) $500 000 4) $820 000 5) None of the above Question 3 In a nontaxable exchange the replacement property is assigned a carryover basis if there is a realized gain but receives a new basis if there is a realized loss. 1) True 2) False Question 4 On February 1 Karin purchases real estate for $375 000. The annual property taxes of $5 000 are payable on December 31. Realizing that she will pay the property taxes for the entire year Karin remits $374 575 to the seller at closing. Karin’s adjusted basis for the real estate is: 1) $374 583. 2) $375 000. 3) $375 417. 4) $379 583. 5) None of the above. Question 5 If the buyer assumes the seller’s liability on the property acquired the seller’s amount realized is decreased by the amount of the liability assumed. 1) True 2) False Question 6 The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer. 1) True 2) False Question 7 In a nontaxable exchange recognition is postponed. In a taxfree transaction nonrecognition is permanent. 1) True 2) False Question 8 To qualify as a like-kind exchange real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years. 1) True 2) False Question 9 Leonore exchanges 5 000 shares of Pelican Inc. stock for 2 000 shares of Blue Heron Inc. stock. Leonore’s adjusted basis for the Pelican stock is $300 000 and the fair market value of the Blue Heron stock is $350 000. Leonore’s recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300 000. 1) True 2) False Question 10 Under the taxpayer-use test for a § 1033 involuntary conversion the taxpayer has less flexibility in qualifying replacement property than under the functional-use test. 1) True 2) False Question 11 If the alternate valuation date is elected by the executor of the estate the basis of all of the property included in the decedent’s estate becomes the fair market value 6 months after the decedent’s death. 1) True 2) False Question 12 On October 1 Paula exchanged an apartment building (adjusted basis of $375 000 and subject to a mortgage of $125 000) for another apartment building owned by Nick (fair market value of $550 000 and subject to a mortgage of $125 000). The property transfers were made subject to the mortgages. What amount of gain should Paula recognize? 1) $0 2) $25 000 3) $125 000 4) $175 000 5) None of the above Question 13 Yolanda buys a house in the mountains for $450 000 which she uses as her personal vacation home. She builds an additional room on the house for $40 000. She sells the property for $560 000 and pays $28 000 in commissions and $4 000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house? 1) $0 2) $38 000 3) $70 000 4) $110 000 5) None of the above Question 14 Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses. 1) True 2) False Question 15 Maud exchanges a rental house at the beach with an adjusted basis of $225 000 and a fair market value of $200 000 for a rental house at the mountains with a fair market value of $180 000 and cash of $20 000. What is the recognized gain or loss? 1) $0 2) $20 000 3) ($20 000) 4) ($25 000) 5) None of the above