Exam 9: Acquisitions of Property

Tillman is building a warehouse for use in his business.The construction costs include the following: Direct labor \ 35,000 Direct materials 20,000 Architect fees 5,000 Interest on construction loan 3,000 Depreciation of equipment used in construction 1,500 Indirect Administrative costs during construction 2,000 What is Tillman's basis in the warehouse?

When a stock dividend is nontaxable,part of the basis of the original stock must be allocated to the new stock received as a dividend.

Determine the proper classification(s)of a house owned and used by John as his principal residence. I. Personal use property. $\quad$$\quad$$\quad$ IV. Intangible property. II. Business use property. $\quad$$\quad$$\quad$ V. Real estate. III. Tangible property. $\quad$$\quad$$\quad$$\quad$ VI. Personal property.

John purchases all of the common stock of Clarke Corporation for $280,000.The assets of the corporation are: Inventory \ 25,000 \ 50,000 Equipment 60,000 40,000 Supplies 20,000 20,000 Building 80,000 95,000 Land \ 195,000 \ 225,000 What is John's basis in the common stock he acquired?

Sonya inherits 1,000 shares of Big Red Airline Corporation stock from the estate of her Uncle Tony.Tony died on August 4,2013.The stock's value on August 4,2013,is $2,000.Tony purchased the stock for $3,000 several years ago.Sonya sells the 1,000 shares for $2,300 on December 8,2013.What is Sonya's holding period of the stock?

For each of the following situations,identify the property's adjusted basis and briefly explain how you determined the adjusted basis amount. a.Mei-ling purchased 150 shares of MAPCO stock for $5,400 in 2000.On February 28,2013,Mei-ling purchased another lot of 150 shares of identical stock for $3,750.Mei-ling sells the original 150 shares of MAPCO stock for $3,300 on March 15,2013.What is Mei-ling's basis in the 150 shares she purchased February 28,2013? b.Ralph gives Linda 500 shares of Money Maker common stock.The stock cost Ralph $30,000 several years earlier.The stock is worth $50,000 on the date it is given to Linda,and Ralph pays $1,500 of gift tax on the transfer.What is Linda's basis in the stock if she sells it for $20,000? c.Assume the same facts as in part b,except that the fair market value of the stock on the date of the gift is $25,000. d.Leon receives a van as a gift from his father.His father's basis in the van is $30,000.The fair market value at the date of the gift is $20,000.A gift tax of $2,000 is paid on the gift.Geroge uses the van in his pizza delivery service for three years,at which time he sells it for $8,000.During the three years he used the van in his business,Geroge deducts $10,000 in depreciation on the van. e.Bonita owns a house that she used as a residence until this year.She paid $150,000 for the house on November 4,1992.On April 4,2013,Bonita purchases a new residence and converts the former residence into office space to use in her real estate business.The former residence is worth $180,000 on April 4,2013.

Tony died on April 5,2013.As part of his will,he leaves land that he paid $6,000 for in 1993 to his son Philip.On April 5,2013,the land is worth $11,000.However,due to local real estate conditions,the land continues to decline in value.On July 28 it is worth only $10,000; it declines further to $9,000 on October 5 and plunges to $7,000 on December 18. I.In the absence of any special elections,Philip's basis in the land is $6,000. II.If the executor distributes the land to Philip on July 28,Philip's basis in the land will be $10,000.

Match each statement with the correct term below. -Carryover basis

Marjorie starts a new consulting business out of her home.She converts her personal computer,which cost $3,400,to business use when it is worth $1,200.Which of the following is correct? I.The initial basis for determining a gain on the sale of the computer is $1,200. II.The basis for depreciation purposes is $1,200.

Determine the proper classification(s)of the asset discussed in the following scenario: Judge Marshall purchased a new gold-trimmed gavel to decorate his living room. I. Personal use property. $\quad$$\quad$$\quad$ IV. Intangible property. II. Business use property. $\quad$$\quad$$\quad$ V. Real estate. III. Tangible property. $\quad$$\quad$$\quad$$\quad$ VI. Personal property.

Larry gives Linda 300 shares of stock he had purchased several years ago for $8,000.On the date of the gift,the stock has a fair market value of $6,000.Linda sells the 300 shares for $5,500 one month after the gift,Linda realizes a

Janet is the business manager for Greenville Auto Mart.She buys a new car from the dealership for $35,000.The basis of the car to the dealership was $30,000.The car lists for $42,00,but the dealer would sell the car for $40,000.What is Janet's basis in the new car?

Lydia purchased a sapphire bracelet for $3,000 while vacationing in Hong Kong during 2001.Lydia gives the bracelet to her daughter Amy when she graduates from college in 2013.The bracelet is appraised at $8,000 on that date.In October 2013,Amy sells the bracelet for $9,000.How is Amy's holding period for the bracelet determined?

Match each statement with the correct term below. -Indirect purchase

Oscar buys a 10% interest in Britanny Corporation paying $92,000 cash on January 1,2012.During 2012,Britanny Corporation reports a loss of $30,000 and pays cash dividends to shareholders of $10,000.For 2013,Britanny Corporation has a loss of $60,000 and pays cash dividends of $20,000.If Britanny Company is organized as an S Corporation,Oscar's basis in the Britanny Corporation stock at the end of 2013 is:

Match each statement with the correct term below. -Primary valuation date

Nanci purchases all of the assets of Michael's Security Service for $200,000.The assets are as follows: Inventory \ 25,000 \ 50,000 Equipment 60,000 40,000 Supplies 20,000 20,000 Building 80,000 95,000 Land \ 195,000 \ 225,000 What is Nanci's basis in the equipment?

Makemore Company purchases a factory for $800,000.The purchase price is properly allocated 90% to the building and 10% to the land.In the first year,Makemore adds a storage shed to the building at a cost of $8,000.The utility company pays Makemore $1,500 for an easement to run utility lines across the land.A total depreciation of $45,000 is deducted over the 3 years.Determine the adjusted basis of the building and the land as of the end of year 3:

Sarah gave her granddaughter,Alice,some Eli Lilly Co.stock last year when its fair market value was $25,000.Gift taxes of $4,000 were paid on this transfer.Sarah acquired the stock in 2000 at a cost of $35,000.Alice sold the Eli Lilly stock this year for $32,000.What amount of gain (loss)will Alice recognize from her sale of the stock?

Mary pays $25,000 and secures a mortgage note for $75,000 to purchase a vacation home.She pays $200 to her attorney for reviewing the purchase agreement and $1,500 in points to the mortgage company.Mary's initial basis in the vacation home is