Question 1

Which of the following statements about boot included in a nontaxable exchange is false?

Accepted Answer

A)  The purpose of boot is to equalize the values of the exchanged properties. 
B)  The payment of boot triggers recognition of realized gain to the payer. 
C)  The receipt of boot triggers recognition of realized gain to the recipient. 
D)  The receipt of boot does not trigger recognition of realized loss to the recipient. 
A)  The purpose of boot is to equalize the values of the exchanged properties. 
B)  The payment of boot triggers recognition of realized gain to the payer. 
C)  The receipt of boot triggers recognition of realized gain to the recipient. 
D)  The receipt of boot does not trigger recognition of realized loss to the recipient. B

Question 2

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Accepted Answer

A) True 
 B)False  True

Question 3

Texark Inc., a calendar year taxpayer, reported $5,210,300 net income before tax on its financial statements prepared in accordance with GAAP. The corporation's records reveal the following information.
Depreciation expense per books was $713,700, and MACRS depreciation was $662,000. 
Texark exchanged old realty (-0- tax basis; $44,200 book basis) for new realty (FMV $50,000). Book gain was included in book income, although the exchange was nontaxable for tax purposes. 
Texark received a $100,000 insurance reimbursement for the destruction of machinery with a $29,000 tax basis and a $70,000 book basis. Texark spent $110,000 to replace the machinery before year-end.
Compute Texark's taxable income.

Accepted Answer

Book income $ 5,210,300 
Book depreciation in excess of tax 51,700 
Book gain on nontaxable exchange (5,800 )
Book gain on nontaxable involuntary conversion (30,000 )
Taxable income $ 5,226,200

Question 4

Five years ago, Q&J Inc. transferred land with a $345,000 book and tax basis for a different parcel of land worth $472,000. Q&J included its $127,000 realized gain in book income, but the exchange was nontaxable. This year, Q&J sold the parcel of land received in the exchange for $533,000 cash. 
-Compute Q&J's book and tax gain on sale.

Accepted Answer

A)  $188,000 book and tax gain 
B)  $188,000 book gain and $61,000 tax gain 
C)  $61,000 book and tax gain 
D)  None of the above 
A)  $188,000 book and tax gain 
B)  $188,000 book gain and $61,000 tax gain 
C)  $61,000 book and tax gain 
D)  None of the above

Question 5

Tauber Inc. and J&I Company exchanged like-kind assets. Tauber's asset had a $17,500 FMV and $3,000 adjusted tax basis, and J&I's asset had a $19,000 FMV and a $9,000 adjusted tax basis. Tauber paid $1,500 cash to J&I as part of the exchange. Which of the following statements is false?

Accepted Answer

A)  Tauber's realized gain is $14,500 and recognized gain is -0-. 
B)  J&I's realized gain is $10,000 and recognized gain is -0-. 
C)  Tauber's basis in its newly acquired asset is $4,500. 
D)  J&I's basis in its newly acquired asset is $9,000. 
A)  Tauber's realized gain is $14,500 and recognized gain is -0-. 
B)  J&I's realized gain is $10,000 and recognized gain is -0-. 
C)  Tauber's basis in its newly acquired asset is $4,500. 
D)  J&I's basis in its newly acquired asset is $9,000.

Question 6

IPM Inc. and Zeta Company formed IPeta Inc. by transferring business assets in exchange for 1,000 shares of IPeta common stock. IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares. Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares. 
-Determine IPM and Zeta's tax basis in their IPeta stock and IPeta's aggregate tax basis in the transferred assets.

Accepted Answer

A)  IPM's basis $283,000; Zeta's basis $450,000; IPeta's basis $733,000 
B)  IPM's basis $283,000; Zeta's basis $98,000; IPeta's basis $381,000 
C)  IPM's basis $675,000; Zeta's basis $450,000; IPeta's basis $1,125,000 
D)  None of the above 
A)  IPM's basis $283,000; Zeta's basis $450,000; IPeta's basis $733,000 
B)  IPM's basis $283,000; Zeta's basis $98,000; IPeta's basis $381,000 
C)  IPM's basis $675,000; Zeta's basis $450,000; IPeta's basis $1,125,000 
D)  None of the above

Question 7

Mrs Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for 4,200 shares of M&W stock. Immediately after the exchange, M&W had 7,800 shares of outstanding stock. 
-Compute M&W's recognized gain on its exchange of stock for property and determine M&W's tax basis in the property received from Mrs Brinkley.

Accepted Answer

A)  No gain recognized; $111,700 tax basis in property 
B)  No gain recognized; $340,200 tax basis in property 
C)  $340,200 gain recognized; $111,700 tax basis in property 
D)  $111,700 gain recognized; $111,700 tax basis in property 
A)  No gain recognized; $111,700 tax basis in property 
B)  No gain recognized; $340,200 tax basis in property 
C)  $340,200 gain recognized; $111,700 tax basis in property 
D)  $111,700 gain recognized; $111,700 tax basis in property

Question 8

Nontaxable exchanges typically cause a temporary difference between book income and taxable income.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about the inclusion of boot in a nontaxable exchange is false?

Accepted Answer

A)  The purpose of including boot in a nontaxable exchange is to equalize the adjusted tax bases of the properties exchanged. 
B)  The receipt of boot can trigger gain recognition but not loss recognition. 
C)  The party paying the boot includes the FMV of the boot in the tax basis of the property received. 
D)  None of the above is false. 
A)  The purpose of including boot in a nontaxable exchange is to equalize the adjusted tax bases of the properties exchanged. 
B)  The receipt of boot can trigger gain recognition but not loss recognition. 
C)  The party paying the boot includes the FMV of the boot in the tax basis of the property received. 
D)  None of the above is false.

Question 10

Vincent Company transferred business realty (FMV $2.3 million; adjusted tax basis $973,000) to Massur Inc. in exchange for Massur common stock. Which of the following statements is false?

Accepted Answer

A)  If Vincent does not recognize gain on its exchange of property for stock, Vincent's tax basis in its Massur stock is $973,000. 
B)  If Vincent recognizes gain on its exchange of property for stock, Vincent's tax basis in its Massur stock is $2.3 million. 
C)  If Vincent is not in control of Massur immediately after the exchange, both Vincent and Massur must recognize a $1,327,000 gain. 
D)  If Vincent is in control of Massur immediately after the exchange, Massur's tax basis in the transferred realty is $973,000. 
A)  If Vincent does not recognize gain on its exchange of property for stock, Vincent's tax basis in its Massur stock is $973,000. 
B)  If Vincent recognizes gain on its exchange of property for stock, Vincent's tax basis in its Massur stock is $2.3 million. 
C)  If Vincent is not in control of Massur immediately after the exchange, both Vincent and Massur must recognize a $1,327,000 gain. 
D)  If Vincent is in control of Massur immediately after the exchange, Massur's tax basis in the transferred realty is $973,000.

Question 11

Signo Inc.'s current year income statement includes a $21,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Signo has a $21,000 favorable permanent book/tax difference.

Accepted Answer

A) True 
 B)False

Question 12

In April, vandals completely destroyed outdoor signage owned by Renfru Inc. Renfru's adjusted tax basis in the signage was $31,300. Renfru received a $50,000 reimbursement from its property insurance company, and on August 8, it paid $60,000 to replace the signage. Compute Renfru's recognized gain on loss on the involuntary conversion and its tax basis in the new signage.

Accepted Answer

A)  No recognized gain or loss; $50,000 basis in the signage 
B)  No recognized gain or loss; $60,000 basis in the signage 
C)  $18,700 recognized gain; $60,000 basis in the signage 
D)  None of the above 
A)  No recognized gain or loss; $50,000 basis in the signage 
B)  No recognized gain or loss; $60,000 basis in the signage 
C)  $18,700 recognized gain; $60,000 basis in the signage 
D)  None of the above

Question 13

Berly Company transferred an old asset with a $12,300 adjusted tax basis in exchange for a new asset worth $20,000. Which of the following statements is false?

Accepted Answer

A)  The old asset's FMV is $20,000. 
B)  If the exchange is nontaxable, Berly's tax basis in the new asset is $12,300. 
C)  If the exchange is taxable, Berly's recognized gain is $7,700. 
D)  None of the statements is false. 
A)  The old asset's FMV is $20,000. 
B)  If the exchange is nontaxable, Berly's tax basis in the new asset is $12,300. 
C)  If the exchange is taxable, Berly's recognized gain is $7,700. 
D)  None of the statements is false.

Question 14

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash. Which of the following statements is false?

Accepted Answer

A)  If the exchange is taxable, Itak recognizes a $6,700 gain. 
B)  If the exchange is nontaxable, Itak recognizes a $3,000 gain. 
C)  If the exchange is nontaxable, Itak's tax basis in the new asset is $44,300. 
D)  None of the statements is false. 
A)  If the exchange is taxable, Itak recognizes a $6,700 gain. 
B)  If the exchange is nontaxable, Itak recognizes a $3,000 gain. 
C)  If the exchange is nontaxable, Itak's tax basis in the new asset is $44,300. 
D)  None of the statements is false.

Question 15

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Accepted Answer

A) True 
 B)False

Question 16

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange). The assets were like-kind properties. Oxono reported the gain as revenue on its financial statements. Which of the following is true?

Accepted Answer

A)  The exchange resulted in a favorable temporary book/tax difference. 
B)  The exchange resulted in a favorable permanent book/tax difference. 
C)  The exchange resulted in an unfavorable temporary book/tax difference. 
D)  The exchange resulted in an unfavorable permanent book/tax difference. 
A)  The exchange resulted in a favorable temporary book/tax difference. 
B)  The exchange resulted in a favorable permanent book/tax difference. 
C)  The exchange resulted in an unfavorable temporary book/tax difference. 
D)  The exchange resulted in an unfavorable permanent book/tax difference.

Question 17

Mrs Volter exchanged residential real estate for a commercial office building. The residential real estate was subject to a $92,800 mortgage, which was assumed by the other party to the exchange. Mrs Volter must treat the relief of the mortgage as $92,800 boot received.

Accepted Answer

A) True 
 B)False

Question 18

Perry Inc. and Dally Company entered into an exchange of real property. Here is the information for the properties to be exchanged.
Pursuant to the exchange, Perry assumed the mortgage on the Dally property, and Dally assumed the mortgage on the Perry property. 
-Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally.

Accepted Answer

A)  No gain recognized; $410,000 basis in the Dally property. 
B)  No gain recognized; $440,000 basis in the Dally property. 
C)  $100,000 gain recognized; $410,000 basis in the Dally property. 
D)  None of the choices are correct. 
A)  No gain recognized; $410,000 basis in the Dally property. 
B)  No gain recognized; $440,000 basis in the Dally property. 
C)  $100,000 gain recognized; $410,000 basis in the Dally property. 
D)  None of the choices are correct.

Question 19

Loonis Inc. and Rhea Company formed LooNR Inc. by transferring business assets in exchange for 1,000 shares of LooNR common stock. Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares. Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares. 
-Determine Loonis and Rhea's tax basis in their LooNR stock and LooNR's aggregate tax basis in the transferred assets.

Accepted Answer

A)  Loonis' basis is $444,000; Rhea's basis is $75,000; LooNR's basis is $1 million. 
B)  Loonis' basis is $444,000; Rhea's basis is $180,000; LooNR's basis is $1 million. 
C)  Loonis' basis is $444,000; Rhea's basis is $180,000; LooNR's basis is $624,000. 
D)  None of the above 
A)  Loonis' basis is $444,000; Rhea's basis is $75,000; LooNR's basis is $1 million. 
B)  Loonis' basis is $444,000; Rhea's basis is $180,000; LooNR's basis is $1 million. 
C)  Loonis' basis is $444,000; Rhea's basis is $180,000; LooNR's basis is $624,000. 
D)  None of the above

Question 20

Reiter Inc. exchanged an old forklift for new office furniture. This exchange qualifies as a nontaxable like-kind exchange.

Accepted Answer

A) True 
 B)False

Which of the following statements about boot included in a nontaxable exchange is false?

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Tauber Inc. and J&I Company exchanged like-kind assets. Tauber's asset had a $17,500 FMV and $3,000 adjusted tax basis, and J&I's asset had a $19,000 FMV and a $9,000 adjusted tax basis. Tauber paid $1,500 cash to J&I as part of the exchange. Which of the following statements is false?

Nontaxable exchanges typically cause a temporary difference between book income and taxable income.

Which of the following statements about the inclusion of boot in a nontaxable exchange is false?

Vincent Company transferred business realty (FMV $2.3 million; adjusted tax basis $973,000) to Massur Inc. in exchange for Massur common stock. Which of the following statements is false?

Signo Inc.'s current year income statement includes a $21,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Signo has a $21,000 favorable permanent book/tax difference.

Berly Company transferred an old asset with a $12,300 adjusted tax basis in exchange for a new asset worth $20,000. Which of the following statements is false?

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash. Which of the following statements is false?

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange). The assets were like-kind properties. Oxono reported the gain as revenue on its financial statements. Which of the following is true?

Mrs Volter exchanged residential real estate for a commercial office building. The residential real estate was subject to a $92,800 mortgage, which was assumed by the other party to the exchange. Mrs Volter must treat the relief of the mortgage as $92,800 boot received.

Reiter Inc. exchanged an old forklift for new office furniture. This exchange qualifies as a nontaxable like-kind exchange.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes as Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income from Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Sole Proprietorships

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 9: Nontaxable Exchanges

Which of the following statements about boot included in a nontaxable exchange is false?

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Tauber Inc. and J&I Company exchanged like-kind assets. Tauber's asset had a $17,500 FMV and $3,000 adjusted tax basis, and J&I's asset had a $19,000 FMV and a $9,000 adjusted tax basis. Tauber paid $1,500 cash to J&I as part of the exchange. Which of the following statements is false?

Nontaxable exchanges typically cause a temporary difference between book income and taxable income.

Which of the following statements about the inclusion of boot in a nontaxable exchange is false?

Vincent Company transferred business realty (FMV $2.3 million; adjusted tax basis $973,000) to Massur Inc. in exchange for Massur common stock. Which of the following statements is false?

Signo Inc.'s current year income statement includes a $21,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Signo has a $21,000 favorable permanent book/tax difference.

Berly Company transferred an old asset with a $12,300 adjusted tax basis in exchange for a new asset worth $20,000. Which of the following statements is false?

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash. Which of the following statements is false?

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange). The assets were like-kind properties. Oxono reported the gain as revenue on its financial statements. Which of the following is true?

Mrs Volter exchanged residential real estate for a commercial office building. The residential real estate was subject to a $92,800 mortgage, which was assumed by the other party to the exchange. Mrs Volter must treat the relief of the mortgage as $92,800 boot received.

Reiter Inc. exchanged an old forklift for new office furniture. This exchange qualifies as a nontaxable like-kind exchange.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes as Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income from Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Sole Proprietorships

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters