Micro Corp., a calendar-year accrual-basis corporation, purchased a five-year, 8%, $100,000 taxable corporate bond for $108,530 on July 1, 2010, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro's 2010 tax return, the bond premium amortization for 2010 should be

Micro Corp., a calendar-year accrual-basis corporation, purchased a five-year, 8%, $100,000 taxable corporate bond for $108,530 on July 1, 2010, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro's 2010 tax return, the bond premium amortization for 2010 should be

I. Computed under the constant yield to maturity method.

II. Treated as an offset to the interest income on the bond.

a) I only.
b) II only.
c) Both I and II.
d) Neither I nor II.


Answer: c) Both I and II.

Ryan, age fifty-seven, is single with no dependents. In January 2010, Ryan's principal residence was sold for the net amount of $400,000 after all selling expenses. Ryan bought the house in 1997 and occupied it until sold. On the date of sale, the house had a basis of $180,000. Ryan does not intend to buy another residence. What is the maximum exclusion of gain on sale of the residence that may be claimed in Ryan's 2010 income tax return?

Ryan, age fifty-seven, is single with no dependents. In January 2010, Ryan's principal residence was sold for the net amount of $400,000 after all selling expenses. Ryan bought the house in 1997 and occupied it until sold. On the date of sale, the house had a basis of $180,000. Ryan does not intend to buy another residence. What is the maximum exclusion of gain on sale of the residence that may be claimed in Ryan's 2010 income tax return?

a) $250,000
b) $220,000
c) $125,000
d) $0


Answer: b) $220,000

Al and Beth owned their home jointly and had occupied it as their principal residence since acquiring the home in 1993. In June 2010, the Orans bought a condo for $190,000 to be used as their principal residence. What amount of gain must the Orans recognize on their 2010 joint return from the sale of their residence?

Al and Beth owned their home jointly and had occupied it as their principal residence since acquiring the home in 1993. In June 2010, the Orans bought a condo for $190,000 to be used as their principal residence. What amount of gain must the Orans recognize on their 2010 joint return from the sale of their residence?

a) $ 90,000
b) $150,000
c) $340,000
d) $400,000


Answer: a) $ 90,000

In March 2010, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in 1991. Davis added a bathroom for $5,000 in 2006. What amount of gain is recognized from the sale of the former residence on Davis' 2010 tax return?

In March 2010, Davis, who is single, purchased a new residence for $200,000. During that same month he sold his former residence for $380,000 and paid the realtor a $20,000 commission. The former residence, his first home, had cost $65,000 in 1991. Davis added a bathroom for $5,000 in 2006. What amount of gain is recognized from the sale of the former residence on Davis' 2010 tax return?

a) $160,000
b) $ 90,000
c) $ 40,000
d) $0


Answer: c) $ 40,000

An office building owned by Elmer Bass was condemned by the state on January 2, 2009. Bass received the condemnation award on March 1, 2010. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Bass to acquire qualified replacement property?

An office building owned by Elmer Bass was condemned by the state on January 2, 2009. Bass received the condemnation award on March 1, 2010. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Bass to acquire qualified replacement property?

a) August 1, 2011.
b) January 2, 2012.
c) March 1, 2013.
d) December 31, 2013.


Answer: d) December 31, 2013.

On October 1, 2010, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2010?

On October 1, 2010, Donald Anderson exchanged an apartment building having an adjusted basis of $375,000 and subject to a mortgage of $100,000 for $25,000 cash and another apartment building with a fair market value of $550,000 and subject to a mortgage of $125,000. The property transfers were made subject to the outstanding mortgages. What amount of gain should Anderson recognize in his tax return for 2010?

a) $0
b) $ 25,000
c) $125,000
d) $175,000


Answer: b) $ 25,000

On July 1, 2010, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received from Wilson $30,000 cash and other investment real property having a fair market value of $250,000. Wilson assumed the mortgage. What is Riley's recognized gain in 2010 on the exchange?

On July 1, 2010, Riley exchanged investment real property, with an adjusted basis of $160,000 and subject to a mortgage of $70,000, and received from Wilson $30,000 cash and other investment real property having a fair market value of $250,000. Wilson assumed the mortgage. What is Riley's recognized gain in 2010 on the exchange?

a) $ 30,000
b) $ 70,000
c) $ 90,000
d) $100,000


Answer: d) $100,000

Pat Leif owned an apartment house that he bought in 1997. Depreciation was taken on a straight-line basis. In 2010, when Pat's adjusted basis for this property was $200,000, he traded it for an office building having a fair market value of $600,000. The apartment house has 100 dwelling units, while the office building has 40 units rented to business enterprises. The properties are not located in the same city. What is Pat's reportable gain on this exchange?

Pat Leif owned an apartment house that he bought in 1997. Depreciation was taken on a straight-line basis. In 2010, when Pat's adjusted basis for this property was $200,000, he traded it for an office building having a fair market value of $600,000. The apartment house has 100 dwelling units, while the office building has 40 units rented to business enterprises. The properties are not located in the same city. What is Pat's reportable gain on this exchange?

a) $400,000 Section 1250 gain.
b) $400,000 Section 1231 gain.
c) $400,000 long-term capital gain.
d) $0.


Answer: d) $0.

In a "like-kind" exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of

In a "like-kind" exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of

a) Convertible debentures.
b) Convertible preferred stock.
c) Partnership interests.
d) Rental real estate located in different states.


Answer: d) Rental real estate located in different states.

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2009, and an additional 100 shares for $13,000 on December 30, 2009. On January 3, 2010, Smith sold the shares purchased on December 15, 2009, for $13,000. What amount of loss from the sale of Core stock is deductible on Smith's 2009 and 2010 income tax returns?

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, 2009, and an additional 100 shares for $13,000 on December 30, 2009. On January 3, 2010, Smith sold the shares purchased on December 15, 2009, for $13,000. What amount of loss from the sale of Core stock is deductible on Smith's 2009 and 2010 income tax returns?

2009
2010

a) $0
$0
b) $0
$2,000
c) $1,000
$1,000
d) $2,000
$0


Answer: a) $0
$0

Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, 2009, and an additional fifty shares of Maples Inc. common stock for $4,000 on December 24, 2009. On January 8, 2010, Miller sold the 100 shares purchased on July 10, 2009, for $7,000. What is the amount of Miller's recognized loss for 2010 and what is the basis for her remaining fifty shares of Maples Inc. stock?

Miller, an individual calendar-year taxpayer, purchased 100 shares of Maples Inc. common stock for $10,000 on July 10, 2009, and an additional fifty shares of Maples Inc. common stock for $4,000 on December 24, 2009. On January 8, 2010, Miller sold the 100 shares purchased on July 10, 2009, for $7,000. What is the amount of Miller's recognized loss for 2010 and what is the basis for her remaining fifty shares of Maples Inc. stock?

a) $3,000 recognized loss; $4,000 basis for her remaining stock.
b) $1,500 recognized loss; $5,500 basis for her remaining stock.
c) $1,500 recognized loss; $4,000 basis for her remaining stock.
d) $0 recognized loss; $7,000 basis for her remaining stock.


Answer: b) $1,500 recognized loss; $5,500 basis for her remaining stock.

Al Eng owns 50% of the outstanding stock of Rego Corp. During 2010, Rego sold a trailer to Eng for $10,000, the trailer's fair value. The trailer had an adjusted tax basis of $12,000, and had been owned by Rego and used in its business for three years. In its 2010 income tax return, what is the allowable loss that Rego can claim on the sale of this trailer?

Al Eng owns 50% of the outstanding stock of Rego Corp. During 2010, Rego sold a trailer to Eng for $10,000, the trailer's fair value. The trailer had an adjusted tax basis of $12,000, and had been owned by Rego and used in its business for three years. In its 2010 income tax return, what is the allowable loss that Rego can claim on the sale of this trailer?

a) $0
b) $2,000 capital loss.
c) $2,000 Section 1231 loss.
d) $2,000 Section 1245 loss.


Answer: c) $2,000 Section 1231 loss.

On May 1, 2010, Daniel Wright owned stock (held for investment) purchased two years earlier at a cost of $10,000 and having a fair market value of $7,000. On this date he sold the stock to his son, William, for $7,000. William sold the stock for $6,000 to an unrelated person on July 1, 2010. How should William report the stock sale on his 2010 tax return?

On May 1, 2010, Daniel Wright owned stock (held for investment) purchased two years earlier at a cost of $10,000 and having a fair market value of $7,000. On this date he sold the stock to his son, William, for $7,000. William sold the stock for $6,000 to an unrelated person on July 1, 2010. How should William report the stock sale on his 2010 tax return?

a) As a short-term capital loss of $1,000.
b) As a long-term capital loss of $1,000.
c) As a short-term capital loss of $4,000.
d) As a long-term capital loss of $4,000.


Answer: a) As a short-term capital loss of $1,000.

Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?

Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes?

a) Mother-in-law and daughter-in-law.
b) Uncle and nephew.
c) Brother and sister.
d) Ancestors, lineal descendants, and all in-laws.


Answer: c) Brother and sister.

In 2010, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in 2007. Subsequently in 2010, Martin sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Martin report on his 2010 income tax return?

In 2010, Fay sold 100 shares of Gym Co. stock to her son, Martin, for $11,000. Fay had paid $15,000 for the stock in 2007. Subsequently in 2010, Martin sold the stock to an unrelated third party for $16,000. What amount of gain from the sale of the stock to the third party should Martin report on his 2010 income tax return?

a) $0
b) $1,000
c) $4,000
d) $5,000


Answer: b) $1,000

Conner purchased 300 shares of Zinco stock for $30,000 in 2006. On May 23, 2010, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other gain or loss during 2010. On July 26, 2010, Alice sold the 300 shares of Zinco for $25,000.

Conner purchased 300 shares of Zinco stock for $30,000 in 2006. On May 23, 2010, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other gain or loss during 2010. On July 26, 2010, Alice sold the 300 shares of Zinco for $25,000.

What amount of the loss from the sale of Zinco stock can Conner deduct in 2010?

a) $0
b) $3,000
c) $5,000
d) $10,000


Answer: a) $0

What was Alice's recognized gain or loss on her sale?

a) $0.
b) $5,000 long-term gain.
c) $5,000 short-term loss.
d) $5,000 long-term loss.


Answer: a) $0.

Laura's father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2010. Albert's basis for the Liba stock was $4,000. At the date of this gift, the fair market value of the Liba stock was $3,000.

Laura's father, Albert, gave Laura a gift of 500 shares of Liba Corporation common stock in 2010. Albert's basis for the Liba stock was $4,000. At the date of this gift, the fair market value of the Liba stock was $3,000.

If Laura sells the 500 shares of Liba stock in 2010 for $5,000, her basis is

a) $5,000
b) $4,000
c) $3,000
d) $0


Answer: b) $4,000

If Laura sells the 500 shares of Liba stock in 2010 for $2,000, her basis is

a) $4,000
b) $3,000
c) $2,000
d) $0


Answer: b) $3,000

If Laura sells the 500 shares of Liba stock in 2010 for $3,500, what is the reportable gain or loss in 2010?

a) $3,500 gain.
b) $500 gain.
c) $500 loss.
d) $0.


Answer: d) $0.

On April 1, 2010, George Hart, Jr. acquired a 25% interest in the Wilson, Hart and Company partnership by gift from his father. The partnership interest had been acquired by a $50,000 cash investment by Hart, Sr. on July 1, 2004. The tax basis of Hart, Sr.'s partnership interest was $60,000 at the time of the gift. Hart, Jr. sold the 25% partnership interest for $85,000 on December 17, 2010. What type and amount of capital gain should Hart, Jr. report on his 2010 tax return?

On April 1, 2010, George Hart, Jr. acquired a 25% interest in the Wilson, Hart and Company partnership by gift from his father. The partnership interest had been acquired by a $50,000 cash investment by Hart, Sr. on July 1, 2004. The tax basis of Hart, Sr.'s partnership interest was $60,000 at the time of the gift. Hart, Jr. sold the 25% partnership interest for $85,000 on December 17, 2010. What type and amount of capital gain should Hart, Jr. report on his 2010 tax return?

a) A long-term capital gain of $25,000.
b) A short-term capital gain of $25,000.
c) A long-term capital gain of $35,000.
d) A short-term capital gain of $35,000.


Answer: a) A long-term capital gain of $25,000.

In 2007 Iris King bought shares of stock as an invest-ment, at a cost of $10,000. During 2009, when the fair market value was $8,000, Iris gave the stock to her daughter, Ruth.

In 2007 Iris King bought shares of stock as an invest-ment, at a cost of $10,000. During 2009, when the fair market value was $8,000, Iris gave the stock to her daughter, Ruth.

If Ruth sells the shares of stock in 2010 for $7,000, Ruth's recognized loss would be

a) $3,000
b) $2,000
c) $1,000
d) $0


Answer: c) $1,000

Ruth's holding period of the stock for purposes of determining her loss

a) Started in 2007.
b) Started in 2009.
c) Started in 2010.
d) Is irrelevant because Ruth received the stock for no consideration of money or money's worth.


Answer: b) Started in 2009.

Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of Thompson's gain on the disposition?

Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of Thompson's gain on the disposition?

a) $0
b) $1,100
c) $1,300
d) $2,500


Answer: c) $1,300