Question 1

The tax basis in property received in a like-kind exchange in which no gain or loss is recognized is a:

Accepted Answer

A) FMV basis 
B) Cost basis 
C) Substituted basis 
D) Carryover basis 
A) FMV basis 
B) Cost basis 
C) Substituted basis 
D) Carryover basis C

Question 2

In April,vandals completely destroyed outdoor signage owned by Renfru Inc.Renfru's adjusted tax basis in the signage was $31,300.Renfru received a $50,000 reimbursement from its property insurance company,and on August 8,it paid $60,000 to replace the signage.Compute Renfru's recognized gain on loss on the involuntary conversion and its tax basis in the new signage.

Accepted Answer

A) No recognized gain or loss; $50,000 basis in the signage 
B) No recognized gain or loss; $60,000 basis in the signage 
C) $18,700 recognized gain; $60,000 basis in the signage 
D) None of the above 
A) No recognized gain or loss; $50,000 basis in the signage 
B) No recognized gain or loss; $60,000 basis in the signage 
C) $18,700 recognized gain; $60,000 basis in the signage 
D) None of the above D

Question 3

Mrs.Cooley exchanged 400 shares of stock for corporate bonds.If the stock and bonds were issued by the same corporation,they are like-kind properties,and the exchange is nontaxable.

Accepted Answer

A) True 
 B)False  False

Question 4

Mrs.Volter exchanged residential real estate for a commercial office building.The residential real estate was subject to a $92,800 mortgage,which was assumed by the other party to the exchange.Mrs.Volter must treat the relief of the mortgage as $92,800 boot received.

Accepted Answer

A) True 
 B)False

Question 5

Vandals destroyed a business asset owned by L&L Company.L&L's adjusted tax basis in the asset was $60,800,and the reimbursement from its property insurance company was $90,000.L&L must pay at least $60,800 for a replacement asset in order to defer gain recognition on the involuntary conversion.

Accepted Answer

A) True 
 B)False

Question 6

On July 2,2019,a tornado destroyed an asset owned by Leigh Inc.,a calendar year taxpayer.Leigh's adjusted tax basis in the asset was $22,700,and the reimbursement from its property insurance company was $35,000.If Leigh wants to defer recognizing its $12,300 realized gain,it must replace the asset no later than December 31,2020.

Accepted Answer

A) True 
 B)False

Question 7

Vincent Company transferred business realty (FMV $2.3 million; adjusted tax basis $973,000)to Massur Inc.in exchange for Massur common stock.Which of the following statements is false?

Accepted Answer

A) If Vincent does not recognize gain on its exchange of property for stock,Vincent's tax basis in its Massur stock is $973,000. 
B) If Vincent recognizes gain on its exchange of property for stock,Vincent's tax basis in its Massur stock is $2.3 million. 
C) If Vincent is not in control of Massur immediately after the exchange,both Vincent and Massur must recognize a $1,327,000 gain. 
D) If Vincent is in control of Massur immediately after the exchange,Massur's tax basis in the transferred realty is $973,000. 
A) If Vincent does not recognize gain on its exchange of property for stock,Vincent's tax basis in its Massur stock is $973,000. 
B) If Vincent recognizes gain on its exchange of property for stock,Vincent's tax basis in its Massur stock is $2.3 million. 
C) If Vincent is not in control of Massur immediately after the exchange,both Vincent and Massur must recognize a $1,327,000 gain. 
D) If Vincent is in control of Massur immediately after the exchange,Massur's tax basis in the transferred realty is $973,000.

Question 8

Qualifying property received in a nontaxable exchange has a cost basis for tax purposes.

Accepted Answer

A) True 
 B)False

Question 9

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Accepted Answer

A) True 
 B)False

Question 10

Loonis Inc.and Rhea Company formed LooNR Inc.by transferring business assets in exchange for 1,000 shares of LooNR common stock.Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares.Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares.Compute Loonis and Rhea's realized and recognized gain on the exchange.

Accepted Answer

A) Loonis realized and recognized $376,000 gain.Rhea realized and recognized $105,000 gain. 
B) Loonis realized $376,000 gain and recognized no gain.Rhea realized and recognized $105,000 gain. 
C) Loonis realized $376,000 gain and recognized no gain.Rhea realized $105,000 gain and recognized no gain. 
D) There is not enough information to compute realized and recognized gain. 
A) Loonis realized and recognized $376,000 gain.Rhea realized and recognized $105,000 gain. 
B) Loonis realized $376,000 gain and recognized no gain.Rhea realized and recognized $105,000 gain. 
C) Loonis realized $376,000 gain and recognized no gain.Rhea realized $105,000 gain and recognized no gain. 
D) There is not enough information to compute realized and recognized gain.

Question 11

Loonis Inc.and Rhea Company formed LooNR Inc.by transferring business assets in exchange for 1,000 shares of LooNR common stock.Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares.Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares.Which of the following statements is true?

Accepted Answer

A) The FMV of Rhea's 180 shares is $180,000. 
B) Rhea's exchange of assets for stock is taxable because Rhea is not in control of LooNR immediately after the exchange. 
C) LooNR recognizes a $105,000 gain on the exchange of its stock for Rhea's assets. 
D) None of the above is true. 
A) The FMV of Rhea's 180 shares is $180,000. 
B) Rhea's exchange of assets for stock is taxable because Rhea is not in control of LooNR immediately after the exchange. 
C) LooNR recognizes a $105,000 gain on the exchange of its stock for Rhea's assets. 
D) None of the above is true.

Question 12

Gain realized on a property exchange that is not recognized is actually deferred rather than nontaxable.

Accepted Answer

A) True 
 B)False

Question 13

Mr.Slake sold 1,580 shares of publicly traded DDL stock (tax basis $49,240)for $40,000 cash on February 13.He paid $43,000 cash to purchase 1,600 DDL shares on March 2.Compute Mr.Slake's loss recognized on the February 13 sale and determine his tax basis in the 1,600 shares.

Accepted Answer

A) No loss recognized; $40,000 basis 
B) $9,240 loss recognized; $43,000 basis 
C) No loss recognized; $52,240 basis 
D) No loss recognized; $49,240 basis 
A) No loss recognized; $40,000 basis 
B) $9,240 loss recognized; $43,000 basis 
C) No loss recognized; $52,240 basis 
D) No loss recognized; $49,240 basis

Question 14

Which of the following statements about like-kind exchanges is false?

Accepted Answer

A) Like-kind property must be held for either business or investment use. 
B) Businesses cannot engage in like-kind exchanges of inventory. 
C) Businesses cannot engage in like-kind exchanges of intangible assets. 
D) Business cannot exchange undeveloped land for developed real estate. 
A) Like-kind property must be held for either business or investment use. 
B) Businesses cannot engage in like-kind exchanges of inventory. 
C) Businesses cannot engage in like-kind exchanges of intangible assets. 
D) Business cannot exchange undeveloped land for developed real estate.

Question 15

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Accepted Answer

A) True 
 B)False

Question 16

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange).The assets were like-kind properties.Oxono reported the gain as revenue on its financial statements.Which of the following is true?

Accepted Answer

A) The exchange resulted in a favorable temporary book/tax difference. 
B) The exchange resulted in a favorable permanent book/tax difference. 
C) The exchange resulted in an unfavorable temporary book/tax difference. 
D) The exchange resulted in an unfavorable permanent book/tax difference. 
A) The exchange resulted in a favorable temporary book/tax difference. 
B) The exchange resulted in a favorable permanent book/tax difference. 
C) The exchange resulted in an unfavorable temporary book/tax difference. 
D) The exchange resulted in an unfavorable permanent book/tax difference.

Question 17

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash.Which of the following statements is false?

Accepted Answer

A) If the exchange is taxable,Itak recognizes a $6,700 gain. 
B) If the exchange is nontaxable,Itak recognizes a $3,000 gain. 
C) If the exchange is nontaxable,Itak's tax basis in the new asset is $44,300. 
D) None of the statements is false. 
A) If the exchange is taxable,Itak recognizes a $6,700 gain. 
B) If the exchange is nontaxable,Itak recognizes a $3,000 gain. 
C) If the exchange is nontaxable,Itak's tax basis in the new asset is $44,300. 
D) None of the statements is false.

Question 18

Mr.and Mrs.Eyre own residential rental property that they would like to dispose of in a nontaxable exchange.Which of the following would not qualify as like-kind property?

Accepted Answer

A) Commercial office building 
B) Undeveloped land 
C) Warehouse used to store transportation equipment 
D) All of the above qualify as like-kind property. 
A) Commercial office building 
B) Undeveloped land 
C) Warehouse used to store transportation equipment 
D) All of the above qualify as like-kind property.

Question 19

Perry Inc.and Dally Company entered into an exchange of real property.Here is the information for the properties to be exchanged.   Pursuant to the exchange,Perry assumed the mortgage on the Dally property,and Dally assumed the mortgage on the Perry property.Compute Perry's gain recognized on the exchange and its tax basis in the property received from Dally.

Accepted Answer

A) No gain recognized; $410,000 basis in the Dally property. 
B) No gain recognized; $440,000 basis in the Dally property. 
C) $100,000 gain recognized; $410,000 basis in the Dally property. 
D) None of the choices are correct. 
A) No gain recognized; $410,000 basis in the Dally property. 
B) No gain recognized; $440,000 basis in the Dally property. 
C) $100,000 gain recognized; $410,000 basis in the Dally property. 
D) None of the choices are correct.

Question 20

Muro Inc.exchanged an old inventory item for a new asset.If the new asset is also an inventory item,the exchange is nontaxable.

Accepted Answer

A) True 
 B)False

The tax basis in property received in a like-kind exchange in which no gain or loss is recognized is a:

Mrs.Cooley exchanged 400 shares of stock for corporate bonds.If the stock and bonds were issued by the same corporation,they are like-kind properties,and the exchange is nontaxable.

Mrs.Volter exchanged residential real estate for a commercial office building.The residential real estate was subject to a $92,800 mortgage,which was assumed by the other party to the exchange.Mrs.Volter must treat the relief of the mortgage as $92,800 boot received.

Vandals destroyed a business asset owned by L&L Company.L&L's adjusted tax basis in the asset was $60,800,and the reimbursement from its property insurance company was $90,000.L&L must pay at least $60,800 for a replacement asset in order to defer gain recognition on the involuntary conversion.

Vincent Company transferred business realty (FMV $2.3 million; adjusted tax basis $973,000)to Massur Inc.in exchange for Massur common stock.Which of the following statements is false?

Qualifying property received in a nontaxable exchange has a cost basis for tax purposes.

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Gain realized on a property exchange that is not recognized is actually deferred rather than nontaxable.

Mr.Slake sold 1,580 shares of publicly traded DDL stock (tax basis $49,240)for $40,000 cash on February 13.He paid $43,000 cash to purchase 1,600 DDL shares on March 2.Compute Mr.Slake's loss recognized on the February 13 sale and determine his tax basis in the 1,600 shares.

Which of the following statements about like-kind exchanges is false?

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange).The assets were like-kind properties.Oxono reported the gain as revenue on its financial statements.Which of the following is true?

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash.Which of the following statements is false?

Mr.and Mrs.Eyre own residential rental property that they would like to dispose of in a nontaxable exchange.Which of the following would not qualify as like-kind property?

Muro Inc.exchanged an old inventory item for a new asset.If the new asset is also an inventory item,the exchange is nontaxable.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 9: Nontaxable Exchanges

The tax basis in property received in a like-kind exchange in which no gain or loss is recognized is a:

Mrs.Cooley exchanged 400 shares of stock for corporate bonds.If the stock and bonds were issued by the same corporation,they are like-kind properties,and the exchange is nontaxable.

Mrs.Volter exchanged residential real estate for a commercial office building.The residential real estate was subject to a $92,800 mortgage,which was assumed by the other party to the exchange.Mrs.Volter must treat the relief of the mortgage as $92,800 boot received.

Vandals destroyed a business asset owned by L&L Company.L&L's adjusted tax basis in the asset was $60,800,and the reimbursement from its property insurance company was $90,000.L&L must pay at least $60,800 for a replacement asset in order to defer gain recognition on the involuntary conversion.

Vincent Company transferred business realty (FMV $2.3 million; adjusted tax basis $973,000)to Massur Inc.in exchange for Massur common stock.Which of the following statements is false?

Qualifying property received in a nontaxable exchange has a cost basis for tax purposes.

A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.

Gain realized on a property exchange that is not recognized is actually deferred rather than nontaxable.

Mr.Slake sold 1,580 shares of publicly traded DDL stock (tax basis $49,240)for $40,000 cash on February 13.He paid $43,000 cash to purchase 1,600 DDL shares on March 2.Compute Mr.Slake's loss recognized on the February 13 sale and determine his tax basis in the 1,600 shares.

Which of the following statements about like-kind exchanges is false?

A taxpayer who realizes a loss on the exchange of like-kind property can elect to recognize the loss.

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange).The assets were like-kind properties.Oxono reported the gain as revenue on its financial statements.Which of the following is true?

Itak Company transferred an old asset with a $44,300 adjusted tax basis in exchange for a new asset worth $48,000 and $3,000 cash.Which of the following statements is false?

Mr.and Mrs.Eyre own residential rental property that they would like to dispose of in a nontaxable exchange.Which of the following would not qualify as like-kind property?

Muro Inc.exchanged an old inventory item for a new asset.If the new asset is also an inventory item,the exchange is nontaxable.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters