Question 1

A taxpayer who exchanges property for an interest in a partnership never recognizes gain or loss on the exchange.

Accepted Answer

A) True 
 B)False  True

Question 2

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. D

Question 3

In March, a flood completely destroyed three delivery vans owned by Totle Inc. Totle's adjusted tax basis in the vans was $48,900. Totle received a $90,000 reimbursement from its property insurance company, and on September 8, it purchased one new delivery van for $70,000. Compute Totle's recognized gain on loss on the involuntary conversion and its tax basis in the new van.

Accepted Answer

A)  No recognized gain or loss; $48,900 basis in the van 
B)  $20,000 recognized gain; $70,000 basis in the van 
C)  $20,000 recognized gain; $48,900 basis in the van 
D)  None of these choices are correct 
A)  No recognized gain or loss; $48,900 basis in the van 
B)  $20,000 recognized gain; $70,000 basis in the van 
C)  $20,000 recognized gain; $48,900 basis in the van 
D)  None of these choices are correct C

Question 4

Acme Inc. and Beamer Company exchanged like-kind assets. Acme's asset had a $240,000 FMV and $117,300 adjusted tax basis, and Beamer's asset had a $225,000 FMV and a $168,200 adjusted tax basis. Beamer paid $15,000 cash to Acme as part of the exchange. Which of the following statements is true?

Accepted Answer

A)  Acme's realized gain is $122,700 and recognized gain is -0-. 
B)  Beamer's realized gain is $56,800 and recognized gain is $15,000. 
C)  Acme's basis in its newly acquired asset is $117,300. 
D)  Beamer's basis in its newly acquired asset is $168,200. 
A)  Acme's realized gain is $122,700 and recognized gain is -0-. 
B)  Beamer's realized gain is $56,800 and recognized gain is $15,000. 
C)  Acme's basis in its newly acquired asset is $117,300. 
D)  Beamer's basis in its newly acquired asset is $168,200.

Question 5

Which of the following statements about the inclusion of boot in a nontaxable exchange is false?

Accepted Answer

A)  The purpose of including boot in a nontaxable exchange is to equalize the adjusted tax bases of the properties exchanged. 
B)  The receipt of boot can trigger gain recognition but not loss recognition. 
C)  The party paying the boot includes the FMV of the boot in the tax basis of the property received. 
D)  None of these choices are false. 
A)  The purpose of including boot in a nontaxable exchange is to equalize the adjusted tax bases of the properties exchanged. 
B)  The receipt of boot can trigger gain recognition but not loss recognition. 
C)  The party paying the boot includes the FMV of the boot in the tax basis of the property received. 
D)  None of these choices are false.

Question 6

All types of business and investment real properties are like-kind.

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

Babex Inc. and OMG Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $\begin{array}{lrrr}
&\text {Babex}&\text {OMG}\
\text { FMV } & \$ 1,000,000 & \$ 825,000 \
\text { Adjusted tax basis } & 768,000 & 514,500 \
\text { Mortgage } & 175,000 & -0 -
\end{array}$
 Pursuant to the exchange, OMG assumed the mortgage on the Babex property. Compute Babex's gain recognized on the exchange and its tax basis in the property received from OMG.

Accepted Answer

A)  $175,000 gain recognized; $768,000 basis in OMG property. 
B)  No gain recognized; $768,000 basis in OMG property. 
C)  $175,000 gain recognized; $943,000 basis in OMG property. 
D)  None of these choices are correct. 
A)  $175,000 gain recognized; $768,000 basis in OMG property. 
B)  No gain recognized; $768,000 basis in OMG property. 
C)  $175,000 gain recognized; $943,000 basis in OMG property. 
D)  None of these choices are correct.

Question 9

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 10

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 11

Which of the following statements about boot included in a nontaxable exchange is false?

Accepted Answer

A)  The purpose of boot is to equalize the values of the exchanged properties. 
B)  The payment of boot triggers recognition of realized gain to the payer. 
C)  The receipt of boot triggers recognition of realized gain to the recipient. 
D)  The receipt of boot does not trigger recognition of realized loss to the recipient. 
A)  The purpose of boot is to equalize the values of the exchanged properties. 
B)  The payment of boot triggers recognition of realized gain to the payer. 
C)  The receipt of boot triggers recognition of realized gain to the recipient. 
D)  The receipt of boot does not trigger recognition of realized loss to the recipient.

Question 12

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

Question 13

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Accepted Answer

A) True 
 B)False

Question 14

Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. $\begin{array}{lcr} 
& \text { Johnson } & \text { C\&K } \
\text { FMV } & \$ 900,000 & \$ \quad 675,000 \
\text { Adjusted tax basis } & 593,000 & 462,000 \
\text { Mortgage } & 200,000 & -0-
\end{array}$ Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. Compute C&K's gain recognized on the exchange and its tax basis in the property received from Johnson.

Accepted Answer

A)  $200,000 gain recognized; $662,000 basis in Johnson property. 
B)  No gain recognized; $462,000 basis in Johnson property. 
C)  No gain recognized; $487,000 basis in Johnson property. 
D)  None of these choices are correct. 
A)  $200,000 gain recognized; $662,000 basis in Johnson property. 
B)  No gain recognized; $462,000 basis in Johnson property. 
C)  No gain recognized; $487,000 basis in Johnson property. 
D)  None of these choices are correct.

Question 15

Eliot Inc. transferred an old asset with a $53,100 adjusted tax basis plus $5,000 cash in exchange for a new asset worth $75,000. Which of the following statements is false?

Accepted Answer

A)  The old asset's FMV is $70,000. 
B)  If the exchange is nontaxable, Eliot's recognized gain is $5,000. 
C)  If the exchange is nontaxable, Eliot's tax basis in the new asset is $58,100. 
D)  None of these statements are false. 
A)  The old asset's FMV is $70,000. 
B)  If the exchange is nontaxable, Eliot's recognized gain is $5,000. 
C)  If the exchange is nontaxable, Eliot's tax basis in the new asset is $58,100. 
D)  None of these statements are false.

Question 16

Five years ago, Q&J Inc. transferred land with a $345,000 book and tax basis for a different parcel of land worth $472,000. Q&J included its $127,000 realized gain in book income, but the exchange was nontaxable. This year, Q&J sold the parcel of land received in the exchange for $533,000 cash. Which of the following statements is true?

Accepted Answer

A)  The nontaxable exchange had no effect on Q&J's deferred tax accounts. 
B)  The nontaxable exchange resulted in a deferred tax liability that reversed this year. 
C)  The nontaxable exchange resulted in a deferred tax asset that reversed this year. 
D)  The sale of the parcel of land had no effect on Q&J's deferred tax accounts. 
A)  The nontaxable exchange had no effect on Q&J's deferred tax accounts. 
B)  The nontaxable exchange resulted in a deferred tax liability that reversed this year. 
C)  The nontaxable exchange resulted in a deferred tax asset that reversed this year. 
D)  The sale of the parcel of land had no effect on Q&J's deferred tax accounts.

Question 17

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This exchange qualifies as a nontaxable like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 18

IPM Inc. and Zeta Company formed IPeta Inc. by transferring business assets in exchange for 1,000 shares of IPeta common stock. IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares. Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares. Which of the following statements is false?

Accepted Answer

A)  IPM's 600 shares of stock are worth $675,000. 
B)  Zeta's gain realized on the exchange is $392,000. 
C)  The exchange of stock for assets is nontaxable to IPeta. 
D)  None of these choices are false. 
A)  IPM's 600 shares of stock are worth $675,000. 
B)  Zeta's gain realized on the exchange is $392,000. 
C)  The exchange of stock for assets is nontaxable to IPeta. 
D)  None of these choices are false.

Question 19

Mr. and Mrs. Meredith own a sole proprietorship consisting of business assets with a $649,000 aggregated adjusted tax basis. According to an independent appraisal, the business is worth $2 million. The Merediths are planning to transfer the entire business to Molleri Inc. in exchange for 20,000 shares of Molleri stock. How much gain will the Merediths recognize on the exchange of business assets for stock and what basis will they take in the stock if:Molleri has 23,000 shares of outstanding stock immediately after the exchange?Molleri has 500,000 shares of outstanding stock immediately after the exchange?

Accepted Answer

The Merediths will own 87% of Molleri's

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

A taxpayer who exchanges property for an interest in a partnership never recognizes gain or loss on the exchange.

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

Acme Inc. and Beamer Company exchanged like-kind assets. Acme's asset had a $240,000 FMV and $117,300 adjusted tax basis, and Beamer's asset had a $225,000 FMV and a $168,200 adjusted tax basis. Beamer paid $15,000 cash to Acme as part of the exchange. Which of the following statements is true?

Which of the following statements about the inclusion of boot in a nontaxable exchange is false?

All types of business and investment real properties are like-kind.

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?

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

Which of the following statements about boot included in a nontaxable exchange is false?

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.

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Eliot Inc. transferred an old asset with a $53,100 adjusted tax basis plus $5,000 cash in exchange for a new asset worth $75,000. Which of the following statements is false?

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This exchange qualifies as a nontaxable like-kind exchange.

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

A taxpayer who exchanges property for an interest in a partnership never recognizes gain or loss on the exchange.

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

Acme Inc. and Beamer Company exchanged like-kind assets. Acme's asset had a $240,000 FMV and $117,300 adjusted tax basis, and Beamer's asset had a $225,000 FMV and a $168,200 adjusted tax basis. Beamer paid $15,000 cash to Acme as part of the exchange. Which of the following statements is true?

Which of the following statements about the inclusion of boot in a nontaxable exchange is false?

All types of business and investment real properties are like-kind.

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?

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

Which of the following statements about boot included in a nontaxable exchange is false?

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.

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.

Eliot Inc. transferred an old asset with a $53,100 adjusted tax basis plus $5,000 cash in exchange for a new asset worth $75,000. Which of the following statements is false?

Yelano Inc. exchanged an old forklift used in its business for a new forklift. This exchange qualifies as a nontaxable like-kind exchange.

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