ACCT 330 CH 5 EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026

ACCT 330 CH 5 EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026 All recognized gains and losses must eventually be classified either as capital or ordinary. - Answers True In 2013, five different capital gain tax rates could apply to long-term capital assets sold by noncorporate taxpayers. - Answers True A taxpayer sells an asset with a basis of $25,000 to an unrelated party for $28,000. The taxpayer has a realized gain of $3,000. - Answers True Gains and losses are recognized when property is disposed of by gift or bequest. - Answers True On January 1, 2013, Brad purchased 100 shares of stock at $4,000. By December 31, 2013, the stock had declined in value to $2,200, but Brad still held the shares. For 2013, Brad has recognized a $1,800 loss for tax purposes. - Answers FALSE Rick sells stock of Ty Corporation, which has an adjusted basis of $20,000, for $22,000. He pays a sales commission of $500. In computing his gain or loss, the amount realized by Rick is $1,500. - Answers False The initial adjusted basis of property depends upon how the property is acquired. - Answers True Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred. - Answers True A taxpayer purchased an asset for $50,000 several years ago. He is now planning to sell it. Under the recovery of basis doctrine the taxpayer will not recognize any gain or pay any related taxes unless he sells the asset for more than $50,000. - Answers True All realized gains and losses are recognized for tax purposes. - Answers False Losses are generally deductible if incurred in carrying on a trade or business or incurred in an activity engaged in for profit. - Answers True If Houston Printing Co. purchases a new printing press during the current year for $30,000, pays sales taxes of $2,000, and pays $1,000 for installation, the cost basis for the printing press is $33,000. - Answers True Funds borrowed and used to pay for an asset are not included in the cost until the borrowed funds are repaid. - Answers False Interest incurred during the development and manufacture of a machine must be capitalized. - Answers True Capitalization of interest is required if debt is incurred to construct real property. - Answers True If stock sold or exchanged is not specifically identified, the FIFO (first-in, first-out) method of identification must be used. - Answers True An uncle gifts a parcel of land to his niece, and he has to pay gift taxes. The land has appreciated substantially since he purchased it 20 year ago. A portion of gift taxes paid by the uncle will increase the niece's basis of the land. - Answers True With regard to taxable gifts after 1976, no gift tax is added to the basis of the property if the donor's basis is greater than the FMV of the property. - Answers True Unless the alternate valuation date is elected, the basis of property received from a decedent is generally the property's fair market value at the date of decedent's death. - Answers True For purposes of calculating depreciation, property converted from personal use to business use will take on a basis equal to the lower of its FMV or its adjusted basis on the date of the conversion. - Answers True In a basket purchase, the total cost is apportioned among the assets purchased according to the relative fair market value of the assets. - Answers True If the stock received as a nontaxable stock dividend is not the same type as the stock owned prior to the dividend, the allocation of basis is based on relative fair market values of the stock. - Answers True Section 1221 of the Code includes a comprehensive list of assets properly classified as capital assets. - Answers False Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business. - Answers True A building used in a trade or business is a capital asset. - Answers False Normally, a security dealer reports ordinary income on the sale of securities unless it is specifically identified as a security being held for investment. - Answers True Bad debt losses from nonbusiness debts are deductible only as short-term capital losses regardless of when the debt occurred. - Answers True A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless. - Answers True If a capital asset held for one year or more is sold at a gain, the gain is classified as long-term capital gain. - Answers False Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses. - Answers True Adjusted net capital gain is taxed at 15% for taxpayers with marginal tax rates of 15% or higher, but less than 39.6%. - Answers False Generally, gains resulting from the sale of collectibles such as antiques, stamps, or artwork are taxed at a maximum rate of 25%. - Answers False If the taxpayer's net long-term capital losses exceed the net short-term capital gains, the excess may be offset against ordinary income up to $3,000 per year. Any excess losses over $3,000 may be carried over indefinitely. - Answers True When a taxpayer has NSTCL and NLTCG, the loss is offset against NLTCG from the 28% group, then NLTCG from the 25% group, and finally against NLTCG from the 15% or 20% group. - Answers True Taxpayers who own mutual funds recognize their share of capital gains even if no distributions are received. - Answers True Unlike an individual taxpayer, the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates, but it does apply the 15% tax rate to adjusted net capital gain. - Answers False Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years. - Answers True Stock purchased on December 15, 2012, which becomes worthless in March 2013 produces a STCL since the holding period is one year or less. - Answers False Gain on sale of a patent by an inventor generally is ordinary income. - Answers False The gain or loss on an asset purchased on March 31, 2012, and sold on March 31, 2013, is classified as short-term. - Answers True If property received as a gift has a basis of the fair market value of the property on the date of the gift, the donee's holding period starts on the day after the date of the gift. - Answers True The holding period of property received from a decedent is based on the actual time the property is held by the decedent. - Answers False Because of the locked-in effect, high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets. - Answers True Antonio owns land held for investment with a basis of $28,000. The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000. What is Antonio's realized gain? - Answers B) $20,000 Will exchanges a building with a FMV of $80,000, a basis of $35,000, and subject to a liability of $30,000 for land with a FMV of $50,000 owned by Jane. The amount realized by Will is - Answers D) $80,000. Richard exchanges a building with a FMV of $75,000, a basis of $35,000, and subject to a liability of $25,000 for land with a FMV of $50,000 owned by Bill. What is the amount of Richard's realized gain? - Answers D) $40,000 Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV) of stock owned by Hayden. Hayden takes the land subject to the liability. Jack incurs $500 of selling expenses. What is the amount of Jack's realized gain on the exchange? - Answers C) $6,500 gain Michelle purchased her home for $150,000, and subsequently added a garage costing $25,000 and a new porch costing $5,000. Repairs to the home's plumbing cost $1,000. The adjusted basis in the home is - Answers C) $180,000. Which one of the following does not affect the adjusted basis of a house held as rental property? - Answers C) painting of more than 50% of the rooms in the home Jordan paid $30,000 for equipment two years ago and has claimed total depreciation deductions of $15,600 for the two years. The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000. What is Jordan's adjusted basis in the equipment at the end of the two-year period? - Answers C) $21,400 Allison buys equipment and pays cash of $50,000, signs a note of $10,000 and assumes a liability on the property for $3,000. Also, Allison pays an installation cost of $500 and a delivery cost of $800. Allison's basis in the asset is - Answers D) $64,300. Kathleen received land as a gift from her grandfather. At the time of the gift, the land had a FMV of $105,000 and an adjusted basis of $85,000 to Kathleen's grandfather. The grandfather did not have any gift taxes due. One year later, Kathleen sold the land for $110,000. What was her gain or (loss) on this transaction? - Answers D) $25,000 Kathleen received land as a gift from her grandfather. At the time of the gift, the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather. One year later, Kathleen sold the land for $80,000. What was her gain or (loss) on this transaction? - Answers B) ( $5,000) Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000. Sarah later sold the property for $22,000 resulting in a recognized gain of - Answers C) $6,000. In the current year, Andrew received a gift of property from his uncle. At the time of the gift, the property had a FMV of $114,000 and an adjusted basis to his uncle of $70,000. After deducting the annual exclusion, the amount of the gift was $100,000. Andrew's uncle paid a gift tax on the property of $24,000. What is the amount of Andrew's basis in the property? - Answers B) $80,560 During the current year, Don's aunt Natalie gave him a house. At the time of the gift, the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000. After deducting the annual exclusion, the amount of the gift was $130,000. His aunt paid a gift tax of $20,000 on the house. What is Don's basis in the house for purposes of determining gain? - Answers C) $134,692 David gave property with a basis of $1,330 to Hannah when the property had a FMV of $1,000 and paid gift taxes of $80. If Hannah later sells the property for $1,400, Hannah's basis (to determine gain) in the property immediately before the sale is - Answers C) $1,330. Joycelyn gave a diamond necklace to her granddaughter Emma. Joycelyn had purchased the necklace in 1980 for $15,000. The FMV of the necklace at the time of the gift was $44,000. After deducting the annual exclusion, the amount of the gift was $30,000. Gift taxes of $10,000 were paid. What is Emma's adjusted basis in the necklace? - Answers B) $24,667 Monte inherited 1,000 shares of Corporation Zero stock from his father who died on March 4 of the current year. His father paid $30 per share for the stock on September 2, 2005. The FMV of the stock on the date of death was $50 per share. On September 4 this year, the FMV of the stock was $55 per share. The executor did not elect the alternate valuation date. Monte sold the stock for $65 per share on December 3. What is the amount and nature of any gain or loss? - Answers C) $ 15,000 LTCG Melody inherited 1,000 shares of Corporation Zappa stock from her mother who died on March 4 of the current year. Her mother paid $30 per share for the stock on September 2, 2005. The FMV of the stock on the date of death was $65 per share. On September 4 of the current year, the FMV of the stock was $70 per share. Melody sold the stock for $85 per share on December 3. The estate qualified for, and the executor elected, the alternate valuation method for these and other assets in the estate. An estate tax return was filed. What was Melody's basis in the stock on the date of the sale? - Answers C) $ 70,000 Douglas and Julie are a married couple who live in Louisiana, a community property state. They jointly own property with an adjusted basis of $140,000. On December 2 of this year, Julie died when the property had a fair market value of $160,000. Douglas's basis in the property after Julie's death is - Answers D) $160,000. Terrell and Michelle are married and living in New York, which is a not a community property state. They jointly own property with an adjusted basis of $240,000. On December 2 of this year, Michelle died when the property had a fair market value of $260,000. Terrell's basis in the property after Michelle's death is - Answers C) $250,000.