Question 1

Qualifying property received in a nontaxable exchange has a cost basis for tax purposes.

Accepted Answer

A) True 
 B)False

Question 2

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.

Question 3

A fire destroyed equipment used by BLP Inc. in its manufacturing business. BLP's adjusted tax basis in the equipment was $24,000. Three weeks after the fire, BLP paid $40,000 for replacement equipment. Which of the following statements is false?

Accepted Answer

A)  If the destroyed equipment was uninsured, BLP recognizes a $24,000 ordinary loss and takes a $40,000 basis in the new equipment. 
B)  If BLP received a $20,000 insurance reimbursement, it recognizes a $4,000 ordinary loss and takes a $40,000 basis in the new equipment. 
C)  If BLP received a $30,000 insurance reimbursement, it recognizes no gain and takes a $34,000 basis in the new equipment. 
D)  If BLP received a $42,500 insurance reimbursement, it recognizes no gain and takes a $24,000 basis in the new equipment. 
A)  If the destroyed equipment was uninsured, BLP recognizes a $24,000 ordinary loss and takes a $40,000 basis in the new equipment. 
B)  If BLP received a $20,000 insurance reimbursement, it recognizes a $4,000 ordinary loss and takes a $40,000 basis in the new equipment. 
C)  If BLP received a $30,000 insurance reimbursement, it recognizes no gain and takes a $34,000 basis in the new equipment. 
D)  If BLP received a $42,500 insurance reimbursement, it recognizes no gain and takes a $24,000 basis in the new equipment.

Question 4

In a like-kind exchange in which both properties are subject to a mortgage, both parties to the exchange are treated as receiving boot equal to the relief of their respective mortgage.

Accepted Answer

A) True 
 B)False

Question 5

On July 2, 2011, a tornado destroyed an asset owned by Leigh Inc., a calendar year taxpayer. Leigh's adjusted tax basis in the asset was $22,700, and the reimbursement from its property insurance company was $35,000. If Leigh wants to defer recognizing its $12,300 realized gain, it must replace the asset no later than December 31, 2012.

Accepted Answer

A) True 
 B)False

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

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This like-kind exchange is nontaxable.

Accepted Answer

A) True 
 B)False

Question 8

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Accepted Answer

A) True 
 B)False

Question 9

Tax neutrality for asset exchanges is the exception rather than the rule.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Rydell Company exchanged business equipment (initial cost $55,250; accumulated depreciation $25,450) for like-kind equipment worth $44,000 and $2,000 cash. As a result, Rydell must recognize:

Accepted Answer

A)  $2,000 ordinary gain 
B)  $2,000 Section 1231 gain 
C)  No gain or loss 
D)  None of the above 
A)  $2,000 ordinary gain 
B)  $2,000 Section 1231 gain 
C)  No gain or loss 
D)  None of the above

Question 12

The wash sale rule can result in the nonrecognition of both gains and losses.

Accepted Answer

A) True 
 B)False

Question 13

If a taxpayer elected to defer a $13,000 gain realized on an involuntary conversion, the tax basis of the taxpayer's replacement property equals the cost of the property less $13,000.

Accepted Answer

A) True 
 B)False

Question 14

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. Which of the following statements is true?

Accepted Answer

A)  The nontaxable exchange had no effect on Q&J's deferred tax accounts. 
B)  The nontaxable exchange resulted in a deferred tax liability that reversed this year. 
C)  The nontaxable exchange resulted in a deferred tax asset that reversed this year. 
D)  The sale of the parcel of land had no effect on Q&J's deferred tax accounts. 
A)  The nontaxable exchange had no effect on Q&J's deferred tax accounts. 
B)  The nontaxable exchange resulted in a deferred tax liability that reversed this year. 
C)  The nontaxable exchange resulted in a deferred tax asset that reversed this year. 
D)  The sale of the parcel of land had no effect on Q&J's deferred tax accounts.

Question 15

Ms. Ellis sold 889 shares of publicly traded Omer stock (tax basis $161,400) for $125,000 cash on July 2. She paid $136,200 cash to purchase 900 Omer shares on August 8. Compute Ms. Ellis' loss recognized on the July 2 sale and determine her tax basis in the 1,000 shares.

Accepted Answer

A)  $36,400 loss recognized; $136,200 basis 
B)  No loss recognized; $136,200 basis 
C)  No loss recognized; $76,200 basis 
D)  $36,400 loss recognized $125,000 basis 
A)  $36,400 loss recognized; $136,200 basis 
B)  No loss recognized; $136,200 basis 
C)  No loss recognized; $76,200 basis 
D)  $36,400 loss recognized $125,000 basis

Question 16

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

Question 17

G&G Inc. transferred an old asset with a $110,300 adjusted tax basis plus $20,000 cash in exchange for a new asset worth $150,000. Which of the following statements is false?

Accepted Answer

A)  The old asset's FMV is $150,000. 
B)  If the exchange is nontaxable, G&G's recognized gain is -0-. 
C)  If the exchange is nontaxable, G&G's tax basis in the new asset is $130,300. 
D)  None of the statements is false. 
A)  The old asset's FMV is $150,000. 
B)  If the exchange is nontaxable, G&G's recognized gain is -0-. 
C)  If the exchange is nontaxable, G&G's tax basis in the new asset is $130,300. 
D)  None of the statements is false.

Qualifying property received in a nontaxable exchange has a cost basis for tax purposes.

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

A fire destroyed equipment used by BLP Inc. in its manufacturing business. BLP's adjusted tax basis in the equipment was $24,000. Three weeks after the fire, BLP paid $40,000 for replacement equipment. Which of the following statements is false?

In a like-kind exchange in which both properties are subject to a mortgage, both parties to the exchange are treated as receiving boot equal to the relief of their respective mortgage.

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This like-kind exchange is nontaxable.

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Tax neutrality for asset exchanges is the exception rather than the rule.

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

Rydell Company exchanged business equipment (initial cost $55,250; accumulated depreciation $25,450) for like-kind equipment worth $44,000 and $2,000 cash. As a result, Rydell must recognize:

The wash sale rule can result in the nonrecognition of both gains and losses.

If a taxpayer elected to defer a $13,000 gain realized on an involuntary conversion, the tax basis of the taxpayer's replacement property equals the cost of the property less $13,000.

Ms. Ellis sold 889 shares of publicly traded Omer stock (tax basis $161,400) for $125,000 cash on July 2. She paid $136,200 cash to purchase 900 Omer shares on August 8. Compute Ms. Ellis' loss recognized on the July 2 sale and determine her tax basis in the 1,000 shares.

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

G&G Inc. transferred an old asset with a $110,300 adjusted tax basis plus $20,000 cash in exchange for a new asset worth $150,000. Which of the following statements is false?

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, Partnerships, Llcs, and S Corporations

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

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Exam 9: Nontaxable Exchanges

Qualifying property received in a nontaxable exchange has a cost basis for tax purposes.

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

A fire destroyed equipment used by BLP Inc. in its manufacturing business. BLP's adjusted tax basis in the equipment was $24,000. Three weeks after the fire, BLP paid $40,000 for replacement equipment. Which of the following statements is false?

In a like-kind exchange in which both properties are subject to a mortgage, both parties to the exchange are treated as receiving boot equal to the relief of their respective mortgage.

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This like-kind exchange is nontaxable.

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Tax neutrality for asset exchanges is the exception rather than the rule.

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

Rydell Company exchanged business equipment (initial cost $55,250; accumulated depreciation $25,450) for like-kind equipment worth $44,000 and $2,000 cash. As a result, Rydell must recognize:

The wash sale rule can result in the nonrecognition of both gains and losses.

If a taxpayer elected to defer a $13,000 gain realized on an involuntary conversion, the tax basis of the taxpayer's replacement property equals the cost of the property less $13,000.

Ms. Ellis sold 889 shares of publicly traded Omer stock (tax basis $161,400) for $125,000 cash on July 2. She paid $136,200 cash to purchase 900 Omer shares on August 8. Compute Ms. Ellis' loss recognized on the July 2 sale and determine her tax basis in the 1,000 shares.

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

G&G Inc. transferred an old asset with a $110,300 adjusted tax basis plus $20,000 cash in exchange for a new asset worth $150,000. Which of the following statements is false?

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, Partnerships, Llcs, and S Corporations

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