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Tax accounting and law questions
For each question on the midterm exam, unless the question expressly provides to the contrary, you should assume that:
1.
all events occurred in ‘the current taxable year;’
2.
all persons are United States citizens;
3.
there is no tax avoidance purpose for any transaction, and that with respect to any mortgage on any property, there was a bona fide business purpose for incurring or assuming the debt;
4.
whenever a party receives encumbered property, the party assumed the mortgage, even if not specifically stated;
5.
there is no special election made unless the facts specifically state that there is an election made and in effect;
6.
in all cases, that there is only one class of stock issued and outstanding in any corporation, and that class is common voting stock;
7.
with respect to each partnership question, the partnership has no hot assets, has no debts or other liabilities, and does not have a Section 754 election in effect;
8.
with respect to each partnership question, each partnership is a general partnership; and
9.
with respect to each partnership question, there are no special allocation provisions contained in any partnership agreement.
Choose the letter for the choice that best answers the question or completes the sentence.
Questions
1. Jack owns 60 percent of Corporation. Corporation had acquired land known as the Parcel in January of 2000 for $68,000 and held the Parcel for investment purposes. During the current taxable year, Corporation sold the Parcel to Jack for $65,000 which amount was equal to the fair market value of the Parcel. Shortly after receiving the Parcel, Jack, never having made any gifts before, gave the Parcel to his friend Tom from college when the property was worth $70,000. Tom sold the Parcel two years later to Sue, a person not related to Corporation, Jack, Sue, or Tom, for $75,000. How much gain or loss is realized and recognized as a result of these three transfers?
a. Corporation realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Jack realizes a gain of $8,000 and recognizes a gain of 5,000 on the transfer to Tom; Tom realizes a gain of $5,000 and recognizes a gain of $2,000 on the transfer to Sue.
b. Corporation realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Jack realizes a gain of $5,000 and recognizes a gain of 5,000 o the transfer to Tom; Tom realizes gain of $5,000 and recognizes a gain of $2,000 on the transfer to Sue.
c. Corporation realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Jack does not realize or recognize any gain or loss on the transfer to Tom; Tom realizes a gain of $10,000 and recognizes a gain of $10,000 on the transfer to Sue.
d. Corporation realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Jack realizes a gain of $5,000 and recognizes a gain of $5,000 on the transfer to Tom; Tom realizes a gain of $5,000 and recognizes a gain of $5,000 on the transfer to Sue.
2. Corporation had the following income and expenses during the current taxable year:
Income from operations
$250,000
Expenses from operations $120,000
Dividends received (from a 70 percent-owned corporation)) $ 80,000
Cash charitable contributions $25,000
How much is Corporation’s charitable contribution deduction for the current taxable year?
a. $15,000.
b. $21,000.
c. $25,000.
d. $30,000.
3. On the last day of the year, XYZ Corporation made a nonliquidating distribution to Jane, its sole shareholder, of $110,000 in cash. The corporation’s earnings and profits were $100,000 on the last day of the year. How much was the total dividend income received by the shareholder as a result of the distribution made by XYZ Corporation?
a. 0.
b. $100,000 dividend.
c. $110,000 dividend.
d.
None of the above.
4. Tom and Jenny formed TJ Inc., a corporation, in 2011. Tom received 70 shares of the voting common stock, the only class of stock of the corporation, in exchange for property, and Jenny received 30 shares that were issued in exchange for her accounting services. In 2013, Tom transferred additional property to TJ Inc. The property had an adjusted basis to Tom of $60,000 and a fair market value of $70,000 on the date of the transfer. On the same day, and in exchange for the property he transferred to TJ Inc., Tom received cash of $15,000 and an additional 55 shares of stock worth $55,000. How much gain was recognized by Tom as a result of this transaction?
a. 0.
b. $10,000.
c. $15,000.
d. $25,000 .
5. Debra transferred property to her solely owned corporation, DA Inc. The property had an adjusted basis to Debra of $60,000 and a fair market value of $100,000 on the date of the transfer and the corporation assumed an $80,000 liability on the property. On the same day, and in exchange for the property she transferred to DA Inc., Debra received a payment of $10,000 and 10 additional shares of SDA Inc.’s only class of stock. How much gain was recognized by Debra as a result of this transaction?
a. 0.b. $10,000.
c. $20,000.
d. $30,000.
e. $40,000.
6. Sue transferred a building to her newly formed corporation, SUECO, Inc. The building had an adjusted basis to Sue of $75,000 and a fair market value of $150,000 on the date of the transfer. The building was encumbered by a mortgage of $100,000, which SUECO Inc. assumed. On the same day, and in exchange for the building she transferred to SUECO Inc., Sue received 100 percent of SUECO’s only class of stock. What is Sue’s total basis in the stock she received from SUECO?
a. $25,000.
b. $50,000.
c. $75,000.
d. $100,000
7. Sam created MNO Inc. several years ago and has owned all 10 outstanding shares of MNO Inc. since the creation of MNO Inc. The fair market value of those shares is now $50,000. Sam’s friend, Kal, owns a building having a fair market value of $450,000 and an adjusted basis to Kal of $100,000. The building is encumbered by a $130,000 mortgage. Earlier this month, Sam and Kal discussed Sam’s becoming involved in the business of MNO Inc., and as a result of these discussions, Kal transferred the building to MNO Inc. and in exchange for the building, MNO Inc. transferred to Kal 90 shares of authorized but not previously issued stock of MNO Inc. How much gain does Kal realize and recognize as a result of these transfers?
a. Realized gain of 0 and recognized gain of 0.
b. Realized gain or $350,000, none of which is recognized.
c. Realized gain of $350,000 and recognized gain of $340,000.
d. Realized gain of $350,000 and recognized gain of $30,000.
8. Tom owned all of the outstanding stock of NEWCO3 Corporation. Tom transferred a building, cash, and publicly traded stock to NEWCO3 Corporation. The adjusted basis and the fair market value of the assets transferred to NEWCO3 Corporation, and the amount remaining on the mortgage on the building transferred, were as follows:
Basis Value Amount
Building $20,000 $55,000
Mortgage on building $45,000
Cash $5,000 $5,000
Publicly traded stock $15,000 $12,000
In exchange for the assets transferred to NEWCO3 Corporation, Tom received additional stock of NEWCO3 Corporation. How much gain did Tom recognize as a result of this transaction?
a. 0.
b. $5,000.
c. $25,000.
d. $27,000.
e. $45,000.
Fact Pattern for Questions 9 and 10: Sandra owned an equipment rental business in her sole name for four years. In January of 2013, Sandra transferred the equipment to ABC Rental Corporation, a newly formed corporation. Sandra received all of the stock of ABC Rental Corporation in exchange for the equipment. At the time of the transfer of the equipment to ABC Rental Corporation, Sandra’s adjusted basis in the equipment was $50,000, the fair market value of the equipment was $150,000, the equipment was subject to a security agreement and note assumed by the corporation in the amount of $70,000, and there was depreciation recapture potential of $12,000. Sandra received stock of ABC Rental Corporation worth $80,000.
9. How much gain did Sandra recognize as a result of the transaction, and what was the character of the gain?
a. Sandra recognized $12,000 of gain, all of which was ordinary income.
b. Sandra recognized $20,000 of gain, at least $12,000 of which was ordinary income.
c. Sandra recognized $30,000 of gain, at least $12,000 of which was ordinary income.
d. Sandra recognized $100,000 of gain, all of which was ordinary income.
10. As a result of the transaction in question 9, what is the corporation’s basis in the equipment?
a. $50,000.
b. $70,000.
c. $150,000.
d. $170,000.
11. NEWCO Inc. had current earnings and profits of $150,000 when it made a nonliquidating distribution to an individual shareholder of land that NEWCO Inc. held for use in its business. On the date the land was distributed, NEWCO Inc.’s adjusted basis in the land was $120,000, the fair market value of the land was $160,000, and the land was encumbered by a $140,000 mortgage, which liability was assumed by the shareholder. After the distribution, how much are NEWCO Inc.’s earning and profits?
a. $130,000.
b. $150,000.
c. $160,000.
d. $170,000.
12. Big Corporation distributed land to its sole shareholder, Little Corporation, in a liquidating distribution. At the time of the distribution, the land had a fair market value of $240,000 and Big Corporation’s adjusted basis in the land was $200,000. The land was encumbered by a $230,000 mortgage. How much gain did Big Corporation recognize as a result of the distribution?
a. 0.b. $10,000.
c. $30,000.
d. $40,000.
13. For the current taxable year, Corporation’s gross income from operations was $1,000,000 and its expenses from operations were $1,500,000. Corporation also received a $600,000 dividend from a 10 percent-owned corporation. How much is Corporation’s taxable income for the current taxable year?
a. 0.b. $70,000.
c. ($320,000.)
d. $420,000.
14. A tract of land was distributed by MNO Inc. to its sole shareholder, Martha, as a dividend. At the time of the distribution, MNO Inc.’s adjusted basis in the land was $40,000, the fair market value of the land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of the following statements is accurate?
a. MNO Inc.’s earnings and profits must be increased by $40,000 , the amount of the unrecognized gain, and decreased by $40,000 (the adjusted basis of the land), and increased by $55,000 (the amount of the liability).
b. The net adjustment to MNO Inc’s earnings and profits is $40,000, the amount of the recognized gain.
c. The distributing corporation’s realized gain of $40,000 is recognized to the extent of the $15,000.
d. None of the above statements is accurate.
15. Medium Inc. had one class of stock outstanding. The one class of stock was owned 50 shares by Linda, 30 shares by Linda’s mother, and 20 shares by Linda’s grandmother. On December 31, 2012, Medium Inc. redeemed 20 of Linda’s 50 shares, and in exchange for the stock, Medium Inc. distributed to Linda a building that had an adjusted basis to Medium Inc. of $10,000 and a fair market value of $50,000. Assume that Medium Inc.’s current earnings and profits were $200,000, there were no accumulated earnings and profits, and Linda’s total basis in her stock before the redemption was $20,000. How much is Linda’s basis in her remaining stock after the redemption, and what is her basis in the building?
a. Stock basis: $10,000; building basis: $10,000.
b. Stock basis: $10,000; building basis: $50,000.
c. Stock basis: $20,000; building basis: $10,000.
d. Stock basis: $20,000; building basis: $50,000.
e. None of the above.
16. MJJM Inc. has four equal shareholders who are unrelated. Each shareholder owns 300 shares of the common stock of MJJM Inc. representing all of the stock of MJJM Inc. During the taxable year, as part of a single transaction, MJJM Inc. redeemed stock from three of the shareholders. Specifically, MJJM Inc. redeemed 150 shares from Michael, 75 shares from Joseph, and 40 shares from John. Who will receive exchange treatment as a result of the redemption?
a. Michael and Joseph, as the transaction was not essentially equivalent to a dividend.
b. Joseph only, because the redemption was substantially disproportionate as to Joseph.
c. Michael only, because the redemption was substantially disproportionate as to Michael.
d. No one, and each of Michael, John, and Joseph will receive dividend treatment.
Fact Pattern for Questions 17 and 18. Happy Inc. is a calendar year corporation. Happy Inc. had no accumulated earnings and profits, but had $100,000 of current earnings and profits in 2012. On December 31, 2012, Happy Inc. distributed a total of $160,000 to its two equal shareholders, Betty and Bob. On the date of the cash distribution, Betty’s basis in her Happy Inc. stock was $10,000 and Bob’s basis in his Happy Inc. stock was $30,000.
17. How much does Betty include in her gross income for the current taxable year with respect to the distribution to her?
a. $50,000 dividend income and $10 capital gain.
b. $80,000 dividend income and 0 capital gain.
c. $0 dividend income and $70,000 capital gain.
d. $50,000 dividend income and $20,000 capital gain.
18. What is Bob’s adjusted basis in his EFG Inc. stock after the distribution?
a. 0.b. $5,000.c. $15,000.
d. none of the above.
19. XYZ, Corp. owned 85% of ABC Corporation. XYZ Corp. received a liquidating distribution from ABC Corporation as part of the complete liquidation of ABC Corporation. XYZ Corp.’s basis for its ABC Corporation stock was $10,000. In exchange for its stock, XYZ Corp. received a payment of $15,000 and real property that had an adjusted basis to ABC Corporation of $10,000, a fair market value of $25,000, and that was encumbered by a $12,000 mortgage which XYZ Corp. assumed. How much gain or loss did XYZ Corp. recognize as a result of this transaction and what is XYZ Corp.’s basis in the real property?
a. $3,000 gain recognized, and basis in real property of $40,000.
b. $18,000 gain recognized, and basis in real property of $25,000.
c. $0 gain recognized, and basis in real property of $25,000.
d. $0 gain recognized, and basis in real property of $10,000.
e. $18,000 gain recognized, and basis in real property of $35,000.
20. Jack owns 60 percent of Corporation. Corporation had acquired land known as the Parcel in January of 2000 for $68,000 and held the Parcel for investment purposes. During the current taxable year, Corporation sold the Parcel to Jack for $65,000 which amount was equal to the fair market value of the Parcel. Shortly after receiving the Parcel, Jack, never having made any gifts before, gave the Parcel to his friend Tom from college when the property was worth $70,000. Tom sold the Parcel two years later to Sue, a person not related to Corporation, Jack, Sue, or Tom, for $60,000. How much gain or loss is realized and recognized as a result of these three transfers?
a. Corporation realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Jack realizes a gain of $8,000 and recognizes a gain of 5,000 on the transfer to Tom; Tom realizes and recognizes a loss of $8,000 on the transfer to Sue.
b. Corporation realizes a loss of $3,000 and recognizes a loss of 3,000 on the sale; Jack does not realize or recognize a gain or loss on the transfer to Tom; Tom realizes loss of $8,000 and recognizes a loss of $8,000 on the transfer to Sue.
c. Corporation realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Jack does not realize or recognize any gain or loss on the transfer to Tom; Tom realizes and recognizes a loss of $5,000 on the transfer to Sue.
d. Corporation realizes a loss of $3,000 and recognizes a loss of 0 on the sale; Jack realizes a gain of $5,000 and recognizes a gain of $5,000 on the transfer to Tom; Tom realizes and recognizes a loss of $10,000 on the transfer to Sue.
21. Beth, who died in January 2012, was survived by her husband, Ben. Beth and Ben were married in 1996. Beth’s federal gross estate was equal to $6,000,000 on the date of her death. When Beth died, Beth’s assets included an undeveloped parcel of real estate in Jacksonville in the names of “Beth and Ben, as joint tenants with right of survivorship.” The fair market value of the land on the date of Beth’s death was $750,000. Ben provided all of the consideration for the purchase of the land, paying $200,000 for it in 2000. Alternate valuation is not available to Beth’s estate as all assets owned by Beth will pass, either under Beth’s last will and testament or by operation of law, to Ben. What is Ben’s basis in the real estate after Beth’s death?
a. $200,000.
b. $375,000.
c. $475,000.
d. $750,000.
22. A capital asset forming part of a decedent’s gross estate takes as its basis
a. the fair market value of the asset as determined for federal estate tax purposes.
b. the higher of the decedent’s basis in the asset or the fair market value of the asset as determined for federal estate tax purposes.
c. the lower of the decedent’s basis in the asset or the fair market value of the asset as determined for federal estate tax purposes.
d. the decedent’s basis in the asset.
23. The federal gift tax return (Form 709) is generally due
a. on the same day as the individual income tax return for a calendar year taxpayer.
b. on October 15 of the year after the year the gift is made.
c. nine months after the date of death.
d. none of the above.
24. Which of the following transactions does not constitute a completed gift for federal gift tax purposes?
a. An outright gift of $100,000 to a United States citizen spouse.
b. A gratuitous transfer of $1,000,000 to an irrevocable trust, with a life estate to the grantor’s sister, and the remainder to a grandchild.
c. A year-end bonus of $15,000 to the vice-president of finance from the majority shareholder.
d. All are completed gifts for federal gift tax purposes.
25. In 2012, Arlene made a gift of stock (basis of $813,000; fair market value of $413,000) to her mother, Elizabeth. As a result of the transfer, Arlene paid a gift tax of $60,000. Elizabeth’s income tax basis in the stock is:
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$413,000 basis for gain and loss if Elizabeth sells the property. |
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$443,000 basis for gain and loss if Elizabeth sells the property. |
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$813,000 basis if Elizabeth sells it for gain and $413,000 basis if Elizabeth sells it at a loss. |
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$873,000 basis for gain and loss if Elizabeth sells the property. |
26. At the time of his death in January 2013, Dick owned land with his mother, Lisa, as tenants in common. Dick and Lisa purchased the property in 2010 with each paying $150,000 of the $300,000 purchase prince. The fair market value of the entire land was $600,000 on the date of Dick’s death and $600,000 on the date that was six months after Dick’s death. Dick’s mother was the sole beneficiary under Dick’s will. Dick’s gross estate for federal estate tax purposes was $1,000,000 on the date of his death. What is Dick’s mother’s total basis in the real estate once she has title to the entire parcel? Assume that the fair market value of the property is still $600,000 on the day that Lisa receives title to the entire property.
a. $150,000.
b. $300,000.
c. $450,000.
d. $500,000.
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27. At the time of his death in January 2013, Dick owned real estate in the name of Dick and his sister Ellen, as joint tenants with right of survivorship. Dick and Ellen purchased the property in 2010 with each paying $150,000 of the $300,000 purchase prince. The fair market value of the entire land was $600,000 on the date of Dick’s death and $600,000 on the date that was six months after Dick’s death. Dick’s mother was his sole beneficiary under his will. The property owned by Dick and Ellen has not been sold within six months after Nick’s death. Dick’s gross estate for federal estate tax purposes was $1,000,000 on the date of his death. What is Ellen’s total basis in the real estate after Dick’s death?
a. $150,000. b. $300,000. c. $450,000. d. $500,000. |
28. If an election is available and is made to use alternate valuation for federal estate tax purposes, then if a parcel of real estate owned by the decedent is distributed within six months after the decedent’s death, the parcel of real estate is valued for federal estate tax purposes as of which date?
a. The date of the decedent’s death.
b. The date that is six months after the decedent’s of death.
c. The date of sale of the property.
d. The date the property is distributed to the beneficiaries.
29. Leslie, a widow, died on October 31, 2012. Leslie had never made any taxable gifts during her lifetime. On her death, she owned the following property: A vacation beach house that had a basis to Leslie of $3,000,000 and a fair market value on the date of Leslie’s death of $2,000,000, a vacant lot that she owned with her sister Melissa, as tenants in common. At Leslie’s death, her basis in her interest in the lot was $2,000,000, and the fair market value of her interest in the lot was $2,000,000. Leslie owned publicly traded stock with a basis of $1,500,000 and a fair market value of $1,000,000 that was held in a transfer on death account, her sister Melissa being the beneficiary. (Assume all assets have the same value on the alternate valuation date as on the date of death). What is the amount of Leslie’s gross estate for federal estate tax purposes?
a. 0
b. $4,000,000.
c. $5,000,000.
d. $6,500,000.
30. With respect to Leslie’s estate as set forth in question 29, a Federal Estate Tax Return
1. is due nine months after the date of Leslie’s death.
2. is not required to be filed.
3. is due on the same date as her final income tax return.
4. none of the above.
31. Assume for 2013 that Don made one transfer involving his grandson as follows: Don opened a joint checking account with his grandson, with right of survivorship, for his grandson’s college expenses. Don made an initial deposit of $100,000. During 2013, grandfather wrote checks on the account to the university for grandson’s tuition of $15,000 and grandson’s living expenses of $20,000. What is the amount of the taxable gift for federal gift tax purposes?
a. 0.
b. $6,000.
c. $20,000.
d. $35,000.
32. On January 2, 2012, Douglas and Jane created DJ Corporation. Douglas contributed to DJ Corporation assets worth $100,000 that had an adjusted basis to Douglas of $14,000. The contributed assets were subject to a liability of $16,000. In exchange for his contribution to DJ Corporation, Douglas received 80 percent of the shares of DJ Corporation. DJ Corporation filed a timely and proper S election effective as of January 2, 2012. Douglas also guaranteed a corporate loan made by The Bank in the amount of $6,000. What is Douglas’ adjusted basis in the stock he received from DJ Corporation?
a. $14,000.
b. $16,000.
c. $22,000.
d. $106,000.
33. Refer to the facts of question 32. For 2012, DJ Corporation had an operating loss of $44,000. Without regard to any at risk or passive activity loss limitation, what is the amount of SJ Corporation’s loss that Douglas may deduct on his individual income tax return for 2012?
a. $14,000.b. $16,000.c. $22,000.
d. $35,200
34. Which of the following trusts is eligible to be an S corporation shareholder?
a. An electing small business trust.
b. A revocable inter vivos grantor trust, during the grantor’s life.
c. A qualified subchapter S trust.
d. All of the above.
35. Edward is a 50 percent partner in EFGH Partners, a general partnership. Edward’s adjusted basis in his partnership interest is $36,000. During the current taxable year, Edward received a non-liquidating distribution of land from EFGH Partners that had an adjusted basis to the partnership of $46,000 and a fair market value of $90,000 on the date of distribution. What is Edward’s basis in the land received in the non-liquidating distribution?
a. 0.
b. $36,000.
c. $46,000.
d. $90,000.
36. On which of the following grounds may an S corporation lose its S status?
a. The corporation issues a second class of common stock that is nonvoting common stock.
b. The corporation has a resident alien shareholder.
c. The number of unrelated shareholders is less than 100.
d. None of the above.
37. A shareholder’s adjusted basis in the shareholder’s stock in an S corporation is used to make determinations with respect to which of the following?
a. the extent to which a distribution made by the corporation to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a given year, subject to any other limitations that may apply.
c. the shareholder’s realized gain or loss upon the sale or exchange of the stock.
d. all of the above.
38. In the current year, Sue received a liquidating distribution of real estate from UTSRQ Partnership, a general partnership. The real estate had an adjusted basis to the partnership of $35,000 and a fair market value of $90,000 on the date of the distribution. Sue’s adjusted basis in her 20 percent interest in UTSRQ Partnership was $50,000. How much gain or loss did Sue recognize on receipt of the distribution and what is her basis in the real estate?
a. 0 gain or loss recognized and a $50,000 basis in the real estate.
b. ($15,000) loss recognized and a $35,000 basis in the real estate.
c. 0 gain or loss recognized and a $35,000 basis in the real estate.
d. $40,000 gain recognized and a $90,000 basis in real estate.
e. $15,000 gain recognized and a $50,000 basis in real estate.
39. On January 1 of the current taxable year, Sam and Barbara form an equal partnership. Sam makes a cash contribution of $60,000 and a contribution of property with an adjusted basis to him of $140,000 and a fair market value of $160,000 in exchange for his interest in the partnership. Barbara contributes property with an adjusted basis to her of $120,000 and a fair market value of $200,000 in exchange for her partnership interest. Which of the following statements is accurate regarding the income tax consequences of this transaction?
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Sam’s adjusted basis in his partnership interest is $200,000. |
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The partnership’s adjusted basis in the noncash property contributed by Sam is $160,000. |
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Barbara recognized a gain of $80,000 with respect to her contribution of property. |
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Barbara’s adjusted basis in her partnership interest is $200,000. |
40. Sam, Sue, and Shelley formed a partnership. Sam received a 50 percent interest in the partnership in exchange for land with an adjusted basis to him of $30,000 and a fair market value of $50,000. Sue received a 25 percent interest in the partnership in exchange for $25,000 of cash. Shelley received a 25 percent interest in the partnership in exchange for $25,000 of cash. Three years after the date of contribution, the land contributed by Sam was sold by the partnership to an unrelated third party for $90,000. How much gain was required to be allocated to Sam as a result of the sale by the partnership?
a. $20,000.
b. $30,000.
c. $40,000.
d. $60,000.
41. If inventory that was contributed to a partnership in exchange for a partnership interest is sold by the partnership , how will the character of the income or loss be determined?
a. The character of any income or loss in any case will be ordinary income.
b. The character of any income or loss will be ordinary if the contributed property is sold by the partnership within five years after the date of contribution even if the asset is a capital asset in the hands of the partnership.
c. The character of any income or loss will be based on the character of the asset in the hands of the partnership regardless of when the contributed property is sold by the partnership.
d. The character of any income or loss will be ordinary to the extent of the contributing partner’s built-in gain or loss in the property at the time of the contribution regardless of when the contributed property is sold, and any balance will based on the character of the asset in the hands of the partnership.
42. Barbara and Bill formed an equal partnership, B&B, a general partnership, on January 1, 2012. Barbara contributed $200,000 in exchange for her one-half interest. Bill contributed land worth $300,000 that had an adjusted basis to him of $50,000 and that was subject to a liability of $100,000 in exchange for his one-half interest. Which of the following statements is accurate with respect to this transaction?
a. None of Barbara, Bill, or B&B recognized any gain or loss.
b. Bill recognized gain of $50,000 , but Barbara and B&B did not recognize any gain or loss.
c. B&B recognized gain or $100,000 , but Barbara and Bill did not recognize any gain or loss.
d. Bill and B&B each recognized $50,000 of gain, but Barbara did not recognize any gain or loss.
43. Barbara and Bill formed an equal partnership, B&B, a general partnership, on January 1, 2012. Barbara contributed $200,000 in exchange for her one-half interest. Bill contributed land worth $300,000 that had an adjusted basis to him of $50,000 and that was subject to a liability of $100,000 in exchange for his one-half interest. Which of the following statements is accurate with respect to this transaction?
a. Bill’s adjusted basis in his partnership interest after the transaction is $50,000.
b. Bill’s adjusted basis in his partnership interest after the transaction is $100,000.
c. Bill’s adjusted basis in his partnership interest after the transaction is 0.
d. Bill’s adjusted basis in his partnership interest after the transaction is $200,000.
44. Barbara and Bill formed an equal partnership, B&B, a general partnership, on January 1, 2012. Barbara contributed $200,000 in exchange for her one-half interest. Bill contributed land worth $300,000 that had an adjusted basis to him of $50,000 and that was subject to a liability of $100,000 in exchange for his one-half interest. Which of the following statements is accurate with respect to this transaction?
a. Barbara’s adjusted basis in her partnership interest after the transaction is $0.
b. Barbara’s adjusted basis in her partnership interest after the transaction is $150,000.
c. Barbara’s adjusted basis in her partnership interest after the transaction is $200,000.
d. Barbara’s adjusted basis in her partnership interest after the transaction is $250,000.
45. Jim, one of two equal partners of the JJ Partnership, a general partnership, contributed business property with an adjusted basis to him of $15,000 and a fair market value of $10,000 to the JJ Partnership. Jim’s capital account was credited with $10,000. The property later was sold for $8,000. As a result of this sale, how much gain or loss must Jim report on his personal income tax return?
a. $2,000 loss.
b. $5,000 loss.
c. $6,000 loss.
d. $7,000 loss.
46. Ronald and Roy formed an equal partnership, R&R Partnership, a general partnership, on January 2, 2012. Ronald contributed $100,000 in exchange for his one-half interest in R&R partnership. Roy contributed land worth $100,000 and with an adjusted basis to Roy of $30,000 in exchange for his one-half interest in the partnership. Roy is a real estate developer, and at the time of the contribution, the land was inventory in his hands. The land is a capital asset in the hands of R&R Partnership. If R&R Partnership sells the land in 2018 to an unrelated taxpayer for $180,000,how much gain will be recognized by R&R Partnership and what will be the character of the gain?
a. $80,000, all of which gain will be ordinary income
b. $150,000, all of which gain will be capital gain.
c. $150,000, all of which gain will be ordinary income.
d. $150,000, consisting of $80,000 capital gain and $70,000 ordinary income.
47. At the beginning of 2012, Margaret’s adjusted basis in her 50 percent interest in MP Partnership, a general partnership, was $10,000. During 2012, Margaret did not make any additional contributions to MP Partnership, and Margaret’s share of MP Partnership liabilities did not change. During 2012, MP Partnership distributed $5,000 to Margaret, and MP Partnership had the following items of partnership income, deduction, gain and loss for 2012:
Separately stated taxable income $30,000
Tax-exempt interest $10,000
Capital loss ($20,000)
What is Margaret’s adjusted basis in her partnership interest in MP Partnership at the end of 2012?
a. 0.
b. $10,000.
c. $15,000.
d. $25,000.
48.
Which of the following statements concerning property qualifying for like-kind exchange treatment is incorrect?
a. The property must be held for productive use in a trade or business or for investment.
b. The transfer of partnership interests qualify for like-kind exchange treatment.
c. The exchange of inventory for a business automobile does not qualify for like-kind exchange treatment.
d. The exchange of unimproved real property for improved real property qualifies for like-kind exchange treatment.
49.
Assume that all of the following property is used in a trade or business and has been held in excess of one year. Which property will not qualify as Section 1231 property upon its disposition by sale or exchange?
a. Property includible in inventory
b. Business property condemned for public use
c. Property held for production of rent and royalties
d. Depreciable property used in a trade or business
50. John purchased his home in 1995 for $600,000, consisting of $400,000 cash plus $200,000 he borrowed from The Bank. The Bank took back a $200,000 mortgage on the property. In 2005, when John’s home was worth $850,000, Tom refinanced his home and got a $650,000 mortgage from The Savings and Loan Bank. The Savings and Loan Bank paid off The Bank mortgage and took back a $650,000 mortgage on the property. John used $150,000 of the refinance money to build an extension on the home. John’s adjusted basis in the his home is
a. $600,000
b. $850,000
c. $650,000
d. $1,250,000
e. none of the above
