Question 1

Rationale for nonrecognition of property transactions exists because of which concept(s)of taxation?
I.Wherewithal-to-Pay Concept.
II.Constructive receipt Doctrine.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 2

Norm acquired office equipment for his business at a cost of $10,000.After two years of use,Norm exchanges the equipment for different equipment with a fair market value of $7,000.MACRS depreciation on the original equipment was $4,753 The exchange qualifies as a like-kind exchange.Immediately after the exchange Norm sells the new equipment for $7,000 cash.What is the amount and character of the gain recognized?

Accepted Answer

A) No gain or loss. 
B) $1,753 Section 1231 gain. 
C) $1,753 Section 1245 ordinary income. 
D) $4,753 Section 1231 gain. 
E) $4,753 section 1245 ordinary income, and $3,000 Section 1231 loss.

Question 3

Which of the following qualify as a like-kind exchange?
-Computer for delivery truck.

Accepted Answer

A) qualifies as a like-kind exchange 
B) does not qualify as a like-kind exchange

Question 4

Match each statement with the correct term below.
-Like-kind property

Accepted Answer

A) Losses are never deferred. 
B) Can be within the same NAICS Code. 
C) Not considered like-kind property. 
D) A taxpayer can have only one at a time. 
E) The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies.

Question 5

Which of the following qualify as a like-kind exchange?
-Farm land for an office building and its land.

Accepted Answer

A) qualifies as a like-kind exchange 
B) does not qualify as a like-kind exchange

Question 6

Classification of a nonrecognition transaction as a continuation of an investment requires a qualified replacement asset.

Accepted Answer

A) True 
 B)False

Question 7

Belinda exchanges investment real estate with Russell.Belinda's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Belinda enough in cash to balance the exchange.What is Belinda's basis in the new land?

Accepted Answer

A) $20,000 
B) $150,000 
C) $280,000 
D) $320,000

Question 8

Jason and Mark exchange equipment each use in their business.In the trade,Jason receives Mark's equipment that is worth $20,000.Mark also assumes the $10,000 loan Jason had on the equipment.Jason purchased his equipment for $25,000 and had taken $12,000 of depreciation on the equipment up to the date of the exchange.Mark's adjusted basis in his equipment is $16,000 on the date of the exchange.
a.What is Jason's realized gain on the exchange?
b.What are the amount and the character of the gain Jason must recognize on the exchange?
c.What is Jason's basis in the equipment acquired in the exchange?

Accepted Answer

The answer of Jason and Mark exchange equipment each use...

Question 9

Drake and Cynthia sell their home for $475,000,incurring selling expenses of $20,000.They had purchased the residence in 1998 for $105,000 and made capital improvements totaling $25,000.They buy a new residence for $210,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?

Accepted Answer

The answer of Drake and Cynthia sell their home for...

Question 10

A fire destroyed Josh's Scuba Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000.Josh received $550,000 from the insurance company and used the cash to go to HawaiI.I.Josh has a realized gain of $100,000.
II)Josh has a recognized gain of $50,000.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 11

Natural Power Corporation owns a warehouse with an adjusted basis of $195,000 and an appraised fair market value of $185,000.The city of Springfield condemns the property for a new airport.The condemnation award is $185,000.Natural Power invests the $185,000 in a new warehouse on the other side of the city.What is the gain or loss that Natural Power Corporation must recognize due to the transactions?

Accepted Answer

A) No gain or loss 
B) $10,000 gain 
C) $10,000 loss 
D) $185,000 gain

Question 12

Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business.He purchased the machine 3 years ago for $22,000 and has taken depreciation of $9,000 on the machine.In the exchange,Norman also receives $3,000 of cash.As a result of the exchange,
I.Norman's basis in the acquired machine is $10,000.
II.Norman recognizes a loss of $3,000 on the exchange.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 13

Which of the following can be income deferral transactions?
I.Sale of municipal bonds.
II.Involuntary conversions of property.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 14

Commonalties of nonrecognition transactions include that
I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay.
II.tax attributes carryover from the original asset to the replacement asset.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 15

A fire destroyed Jimmy's Teeshirt Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000 before the fire.Jimmy received $550,000 from the insurance company and opened a new Teeshirt Shop with the proceeds.
I.Jimmy has a realized gain of $50,000.
II.Jimmy has a recognized gain of $50,000.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 16

Which of the following qualify as a like-kind exchange?
-Coke-Cola bonds for General Foods bonds.

Accepted Answer

A) qualifies as a like-kind exchange 
B) does not qualify as a like-kind exchange

Question 17

Dominic and Lois sell their home for $775,000,incurring selling expenses of $40,000.They had purchased the residence in 1990 for $185,000 and made capital improvements totaling $45,000.They buy a new residence for $310,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?

Accepted Answer

The answer of Dominic and Lois sell their home for...

Question 18

Rosilyn trades her old business-use luxury car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use economy car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company.Bob assumes Rosilyn's loan balance.What is Rosilyn's amount realized on the transaction?

Accepted Answer

A) $3,000 
B) $9,000 
C) $12,000 
D) $13,000 
E) $14,000

Question 19

Karen owns a commercial office building with a fair market value of $140,000.She purchased the building as an investment for $102,000 in 2003.She has claimed $18,000 in depreciation deductions.Karen trades the building for an apartment complex.The apartment complex has a value of $140,000,and the exchange qualifies for like-kind deferral treatment.What is Karen's basis in the apartment complex?

Accepted Answer

A) $- 0 - 
B) $ 58,000 
C) $ 84,000 
D) $140,000 
E) $198,000

Question 20

Lindsey exchanges investment real estate parcels with Donna.Her adjusted basis in the property is $400,000,and it is encumbered by a mortgage liability of $200,000.Donna assumes the mortgage.Donna's property is appraised at $1,000,000 and is subject to a $100,000 liability.Lindsey assumes the liability.If no cash is exchanged,what is the amount of gain recognized by Lindsey?

Accepted Answer

A) $- 0 - 
B) $100,000 
C) $200,000 
D) $500,000 
E) $900,000

Exam 12: Non-Recognition Transactions

Rationale for nonrecognition of property transactions exists because of which concept(s) of taxation? I.Wherewithal-to-Pay Concept. II.Constructive receipt Doctrine.

Which of the following qualify as a like-kind exchange? -Computer for delivery truck.

Match each statement with the correct term below. -Like-kind property

Which of the following qualify as a like-kind exchange? -Farm land for an office building and its land.

Classification of a nonrecognition transaction as a continuation of an investment requires a qualified replacement asset.

A fire destroyed Josh's Scuba Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000.Josh received $550,000 from the insurance company and used the cash to go to HawaiI.I.Josh has a realized gain of $100,000. II) Josh has a recognized gain of $50,000.

Which of the following can be income deferral transactions? I.Sale of municipal bonds. II.Involuntary conversions of property.

Commonalties of nonrecognition transactions include that I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay. II.tax attributes carryover from the original asset to the replacement asset.

Which of the following qualify as a like-kind exchange? -Coke-Cola bonds for General Foods bonds.

Exam 12: Non-Recognition Transactions

Rationale for nonrecognition of property transactions exists because of which concept(s) of taxation? I.Wherewithal-to-Pay Concept. II.Constructive receipt Doctrine. ​

Which of the following qualify as a like-kind exchange? -Computer for delivery truck.

Match each statement with the correct term below. -Like-kind property

Which of the following qualify as a like-kind exchange? -Farm land for an office building and its land.

Classification of a nonrecognition transaction as a continuation of an investment requires a qualified replacement asset.

A fire destroyed Josh's Scuba Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000.Josh received $550,000 from the insurance company and used the cash to go to HawaiI.I.Josh has a realized gain of $100,000. II) Josh has a recognized gain of $50,000. ​

Which of the following can be income deferral transactions? I.Sale of municipal bonds. II.Involuntary conversions of property. ​

Commonalties of nonrecognition transactions include that I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay. II.tax attributes carryover from the original asset to the replacement asset. ​

Which of the following qualify as a like-kind exchange? -Coke-Cola bonds for General Foods bonds.

Rationale for nonrecognition of property transactions exists because of which concept(s) of taxation? I.Wherewithal-to-Pay Concept. II.Constructive receipt Doctrine.

A fire destroyed Josh's Scuba Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000.Josh received $550,000 from the insurance company and used the cash to go to HawaiI.I.Josh has a realized gain of $100,000. II) Josh has a recognized gain of $50,000.

Which of the following can be income deferral transactions? I.Sale of municipal bonds. II.Involuntary conversions of property.

Commonalties of nonrecognition transactions include that I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay. II.tax attributes carryover from the original asset to the replacement asset.