Question 1

A realization of gain or loss occurs

Accepted Answer

A) When the seller has an unqualified right to collect the purchase price 
B) When the seller receives cash or cash equivalents in payment of the purchase price 
C) When possession of the burdens and benefits of ownership are transferred to the buyer 
D) Under any circumstance listed above, depending in part on the accounting method used by the taxpayer

Question 2

When a sole proprietorship is sold, the gain or loss is generally capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 3

C replaced the car that she had used exclusively for her business with a new model.The older car cost $20,000, and its basis after allowable depreciation had been $15,500 at the time C converted it to personal use.This year C sold the older car for $9,000.What loss on the sale may she claim as a deduction?

Accepted Answer

A) $0 
B) $6,500 
C) $11,000 
D) C's loss is indeterminable from the given information.

Question 4

The cost basis of a given property does not include liabilities payable to the seller by the buyer because no cash changes hands.

Accepted Answer

A) True 
 B)False

Question 5

B sold 300 shares of corporate stock for $2,500 on March 15, 2012.B had a basis in the shares of $5,500.On February 27, 2012, B had purchased 150 shares of identical stock for $1,300.How much are B's gain or (loss) recognized and her basis in the new shares, respectively, from these transactions?

Accepted Answer

A) ($1,500) and $4,050 
B) ($1,500) and $2,800 
C) ($250) and $2,800 
D) $0 and $5,550

Question 6

The general rule to determine the basis of property acquired by gift is that the donee's basis is equal to the donor's basis plus any gift taxes paid.

Accepted Answer

A) True 
 B)False

Question 7

The adjusted basis to the recipient of property bequeathed by a decedent generally is which of the following?

Accepted Answer

A) Fair market value on the valuation date of the decedent's estate 
B) Adjusted basis to the decedent on the valuation date of his or her estate 
C) Fair market value on the valuation date of the decedent's estate, less estate taxes paid on the transfer 
D) Adjusted basis to the decedent on the valuation date of his or her estate, plus estate taxes paid on the transfer

Question 8

H sold a parcel of real estate worth $45,000 to his favorite qualified charity for $30,000, subject to a $10,000 note that is assumed by the charity.H had a tax basis in the unimproved parcel of $36,000.What are the amounts of H's charitable contribution and his gain or loss recognized, respectively, on the sale?

Accepted Answer

A) $0 and $0 
B) $5,000 and $8,000 
C) $15,000 and $8,000 
D) $15,000 and $16,000

Question 9

Which of the following transactions is not a taxable disposition of property?

Accepted Answer

A) Voluntary transfer of mortgaged property to creditors in satisfaction of a debt 
B) Loss of property in a foreclosure sale 
C) Transfer of physical property in lieu of cash payments to retire a note 
D) Grant of a lien against property to secure a loan

Question 10

If an installment sale agreement involving a $15,000 note calls for no interest, interest must be imputed both to the buyer as interest expense and to the seller as interest income.

Accepted Answer

A) True 
 B)False

Question 11

M sold a family heirloom to her nephew last year for $1,200 plus an $1,800 note payable to M at $100 per month plus interest.The silver place settings had been purchased by M 30 years earlier for $1,600, and were worth $6,000 at the time of the sale/gift.How much gain does M realize?

Accepted Answer

A) $0 
B) $1,400 
C) $3,000 
D) $4,400

Question 12

Which of the following transactions is a taxable event? (Assume that the condition of being substantially identical is determined in terms of rate of return and fair market value.)

Accepted Answer

A) Conversion of bonds into stock under a conversion privilege contained in the bond instrument 
B) Exchange of substantially identical bonds of state or municipal governments 
C) Exchange of substantially identical stocks of publicly held corporations 
D) Conversion of stock into some other stock of the same corporation pursuant to a right granted under the stock certificate

Question 13

F traded in a business automobile worth $4,500 subject to $2,000 of outstanding debt, for a new automobile worth $10,500.F signed a note for $8,000, and no cash changed hands.What is F's amount realized on this trade?

Accepted Answer

A) $2,000 
B) $4,500 
C) $10,500 
D) Indeterminable from the facts given

Question 14

In which transaction did the donor/seller not recognize a gain?

Accepted Answer

A) A gave his car to his brother, who took over the 12 months of payments remaining due; the indebtedness represented by the remaining payments exceeded A's basis in the car at the time of the transfer. 
B) B sold a boat with a basis of $40,000 and fair market value of $60,000 to her nephew for $50,000. 
C) C sold a cabin with a basis of $45,000 and fair market value of $50,000 to his niece for $50,000. 
D) D gave her sister securities with a basis and fair market value of $25,000 in exchange for $10,000 in cash and a five-year, $15,000 note at 10 percent interest.

Question 15

E received 50 acres of undeveloped land as a gift from her grandmother this year.The land had cost $20,000 15 years ago, but was appraised at $50,000 on the date of the gift.E's grandmother paid gift taxes of $12,000 on this $36,000 taxable gift ($50,000 fair value - $14,000 annual gift tax exclusion).What is E's basis in the land?

Accepted Answer

A) $20,000 
B) $30,000 
C) $32,000 
D) $36,000

Question 16

W owned and operated a printing shop as a sole proprietorship for two decades before selling it to Z.Which statement is true?

Accepted Answer

A) W should report the total amount realized, less his total adjusted basis in the business, as a capital gain or loss. 
B) W should report the total amount realized, less his total adjusted basis in the business, as an addition to or a deduction from net income. 
C) W should proportionally allocate the total sales price to each category of property represented among the assets of the business in order to determine the amount of gain or loss for each category. 
D) W and Z should agree on a value for each category of property from which W can subtract the respective adjusted bases in order to determine the amount of gain or loss for each category.

Question 17

Last year, E received 50 acres of undeveloped land as a gift from her grandmother.The land had cost $20,000 15 years ago, but was appraised at $50,000 on the date of the gift.E's grandmother paid gift taxes of $12,000 on this $36,000 taxable gift ($50,000 fair value - $14,000 annual gift tax exclusion).If E sells the land this year for $55,000 (net of selling expenses), what is her gain on the sale?

Accepted Answer

A) $5,000 
B) $19,000 
C) $23,000 
D) $25,000

Question 18

The alternate valuation date for an estate is nine months after a decedent's death.

Accepted Answer

A) True 
 B)False

Question 19

A deferred gain resulting from a nontaxable exchange of property represents an increase in basis.

Accepted Answer

A) True 
 B)False

Question 20

H sold a parcel of real estate worth $45,000 to his favorite qualified charity for $30,000.H had a tax basis in the unimproved parcel of $36,000.What are the amounts of H's charitable contribution and his gain or loss recognized, respectively, on this sale?

Accepted Answer

A) $0 and $0 
B) $15,000 and ($6,000) 
C) $15,000 and $0 
D) $15,000 and $6,000

Exam 14: Property Transactions: Basis Determination and Recognition of Gain or Loss

A realization of gain or loss occurs

When a sole proprietorship is sold, the gain or loss is generally capital gain or loss.

The cost basis of a given property does not include liabilities payable to the seller by the buyer because no cash changes hands.

B sold 300 shares of corporate stock for $2,500 on March 15, 2012.B had a basis in the shares of $5,500.On February 27, 2012, B had purchased 150 shares of identical stock for $1,300.How much are B's gain or (loss) recognized and her basis in the new shares, respectively, from these transactions?

The general rule to determine the basis of property acquired by gift is that the donee's basis is equal to the donor's basis plus any gift taxes paid.

The adjusted basis to the recipient of property bequeathed by a decedent generally is which of the following?

Which of the following transactions is not a taxable disposition of property?

If an installment sale agreement involving a $15,000 note calls for no interest, interest must be imputed both to the buyer as interest expense and to the seller as interest income.

M sold a family heirloom to her nephew last year for $1,200 plus an $1,800 note payable to M at $100 per month plus interest.The silver place settings had been purchased by M 30 years earlier for $1,600, and were worth $6,000 at the time of the sale/gift.How much gain does M realize?

Which of the following transactions is a taxable event? (Assume that the condition of being substantially identical is determined in terms of rate of return and fair market value.)

F traded in a business automobile worth $4,500 subject to $2,000 of outstanding debt, for a new automobile worth $10,500.F signed a note for $8,000, and no cash changed hands.What is F's amount realized on this trade?

In which transaction did the donor/seller not recognize a gain?

W owned and operated a printing shop as a sole proprietorship for two decades before selling it to Z.Which statement is true?

The alternate valuation date for an estate is nine months after a decedent's death.

A deferred gain resulting from a nontaxable exchange of property represents an increase in basis.

H sold a parcel of real estate worth $45,000 to his favorite qualified charity for $30,000.H had a tax basis in the unimproved parcel of $36,000.What are the amounts of H's charitable contribution and his gain or loss recognized, respectively, on this sale?