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ACCT 505 FEDERAL TAX FINAL
EXAM
Federal Taxes and Decisions
Final Exam – Professor Abner
TRUE-FALSE QUESTIONS—CHAPTER 10
1. Terry Trumbull purchased a tract of land. In order to have city water, he had to pay the water company
$5,000 to extend the water line to his property. The $5,000 cost is an addition to the basis of the land.
TRUE
2. When property that is subject to an existing debt is purchased, the basis of the property is the amount of
cash paid initially plus the unpaid debt to which the property is subject. TRUE
3. The basis for nonbusiness property changed to business use is the greater of the adjusted basis of the
property or its fair market value on the date it is converted to business use. FALSE
4. During 2011, Carl Crofts received a gift of property having a fair market value of $25,000 at the time
of the gift. The donor’s adjusted basis in the property at the time of the gift was $21,000. The donor paid a
gift tax of $700 on the property. Carl’s basis in the property is $21,700. FALSE
5. In 2011, Tom Turner received a gift of property that had a fair market value of $10,000 at the time of
the gift. The donor’s adjusted basis in the property at the time of the gift was $12,000. Tom’s basis for
computing depreciation is $12,000. TRUE
MULTIPLE CHOICE QUESTIONS—CHAPTER 10
36. Leonard Lambert’s commercial building, which had an adjusted basis of $500,000, was partially
destroyed by fire. The fair market value was $800,000 just before the fi re and $600,000 immediately
after. Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty loss. What is
Leonard’s basis in the building before any repairs are made?
a. $300,000
b. $350,000
c. $450,000
d. $500,000
e. $600,000
37. Lem Lumberjack sells 100 shares (basis of $5,000) of Redwood Corporation common stock on March
8, 2011, for $4,000. On March 29, 2011, Lem purchases 50 shares of Redwood Corporation common
stock for $2,500. Lem’s recognized loss on the sale is:
a. $1,000
b. $500
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c. $1,500
d. $0
38. In 2011, Allen Anders sold an asset which cost $70,000. Allen incorrectly claimed $40,000
depreciation over a five-year period. He should have claimed $50,000 depreciation. What was the
adjusted basis when sold?
a. $0
b. $20,000
c. $30,000
d. $50,000
e. $70,000
39. Which of the following items is not a reduction to the basis of an asset?
a. Depreciation
b. Assessments for maintenance of sidewalks
c. Cash rebate from manufacturer
d. Casualty losses
40. In 2011, Bob Brown’s aunt Barbara gave him a house. At the time of the gift, the house had a fair
market value of $193,000, the taxable gift was $180,000, and his aunt’s adjusted basis was $73,000. His
aunt paid a gift tax of $30,000 on the house. What is Bob’s basis in the house for purposes of determining
gain?
a. $73,000
b. $93,000
c. $180,000
d. $193,000
41. In May 2011, Automatic, Inc. sold land with a basis to Automatic of $100,000, to Jack Jones, its 60%
shareholder, for $80,000. In July, Jack sold the land to an unrelated party for $110,000. What is the
amount of Jack’s recognized gain?
a. $0
b. $10,000
c. $20,000
d. $30,000
CHAPTER 10
80. On April 18, 2011, Jim Jenkins sold 300 shares of Redwood Corporation common stock for $8,400.
Jim acquired the stock in 2007 at a cost of $10,000. On May 9, 2011, he repurchased 150 shares of
Redwood Corporation common stock for $3,600 and held them until August 25, 2011, when he sold them
for $6,000. How should Jim report the above transactions for 2011?
Jim’s realized loss is $1,600 ($8,400 - $10,000); but only one-half of the loss is allowed which is $800.
There was a wash sale for 150 shares because identical shares were purchased within 30 days of the
sale. The basis of the 150 new shares is $4,400 ($3,600 + $800 disallowed loss). Jim’s gain on the
August 25th sale is $1,600 ($6,000 - $4,000) and it is a long-term gain since the holding period of the
old stock is included.
ACCT 505 FEDERAL TAX FINAL
EXAM
Federal Taxes and Decisions
Final Exam – Professor Abner
TRUE-FALSE QUESTIONS—CHAPTER 10
1. Terry Trumbull purchased a tract of land. In order to have city water, he had to pay the water company
$5,000 to extend the water line to his property. The $5,000 cost is an addition to the basis of the land.
TRUE
2. When property that is subject to an existing debt is purchased, the basis of the property is the amount of
cash paid initially plus the unpaid debt to which the property is subject. TRUE
3. The basis for nonbusiness property changed to business use is the greater of the adjusted basis of the
property or its fair market value on the date it is converted to business use. FALSE
4. During 2011, Carl Crofts received a gift of property having a fair market value of $25,000 at the time
of the gift. The donor’s adjusted basis in the property at the time of the gift was $21,000. The donor paid a
gift tax of $700 on the property. Carl’s basis in the property is $21,700. FALSE
5. In 2011, Tom Turner received a gift of property that had a fair market value of $10,000 at the time of
the gift. The donor’s adjusted basis in the property at the time of the gift was $12,000. Tom’s basis for
computing depreciation is $12,000. TRUE
MULTIPLE CHOICE QUESTIONS—CHAPTER 10
36. Leonard Lambert’s commercial building, which had an adjusted basis of $500,000, was partially
destroyed by fire. The fair market value was $800,000 just before the fi re and $600,000 immediately
after. Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty loss. What is
Leonard’s basis in the building before any repairs are made?
a. $300,000
b. $350,000
c. $450,000
d. $500,000
e. $600,000
37. Lem Lumberjack sells 100 shares (basis of $5,000) of Redwood Corporation common stock on March
8, 2011, for $4,000. On March 29, 2011, Lem purchases 50 shares of Redwood Corporation common
stock for $2,500. Lem’s recognized loss on the sale is:
a. $1,000
b. $500
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c. $1,500
d. $0
38. In 2011, Allen Anders sold an asset which cost $70,000. Allen incorrectly claimed $40,000
depreciation over a five-year period. He should have claimed $50,000 depreciation. What was the
adjusted basis when sold?
a. $0
b. $20,000
c. $30,000
d. $50,000
e. $70,000
39. Which of the following items is not a reduction to the basis of an asset?
a. Depreciation
b. Assessments for maintenance of sidewalks
c. Cash rebate from manufacturer
d. Casualty losses
40. In 2011, Bob Brown’s aunt Barbara gave him a house. At the time of the gift, the house had a fair
market value of $193,000, the taxable gift was $180,000, and his aunt’s adjusted basis was $73,000. His
aunt paid a gift tax of $30,000 on the house. What is Bob’s basis in the house for purposes of determining
gain?
a. $73,000
b. $93,000
c. $180,000
d. $193,000
41. In May 2011, Automatic, Inc. sold land with a basis to Automatic of $100,000, to Jack Jones, its 60%
shareholder, for $80,000. In July, Jack sold the land to an unrelated party for $110,000. What is the
amount of Jack’s recognized gain?
a. $0
b. $10,000
c. $20,000
d. $30,000
CHAPTER 10
80. On April 18, 2011, Jim Jenkins sold 300 shares of Redwood Corporation common stock for $8,400.
Jim acquired the stock in 2007 at a cost of $10,000. On May 9, 2011, he repurchased 150 shares of
Redwood Corporation common stock for $3,600 and held them until August 25, 2011, when he sold them
for $6,000. How should Jim report the above transactions for 2011?
Jim’s realized loss is $1,600 ($8,400 - $10,000); but only one-half of the loss is allowed which is $800.
There was a wash sale for 150 shares because identical shares were purchased within 30 days of the
sale. The basis of the 150 new shares is $4,400 ($3,600 + $800 disallowed loss). Jim’s gain on the
August 25th sale is $1,600 ($6,000 - $4,000) and it is a long-term gain since the holding period of the
old stock is included.
