Accounting 3220 Chapter 5

QI:5-1
What problem may exist in determining the amount realized for an investor who exchanges common stock of a publicly traded corporation for a used​ building? How is the problem likely to be​ resolved?


QI:5-2
In 2001​, Ethel purchased a house for $50,000 to use as her personal residence. She paid $10,000 and borrowed $40,000 from the local savings and loan company. In 2005 she paid $19,000 to add a room to the house. In 2007 she paid $800 to have the house painted and $1,100 for​ built-in bookshelves. As of January 1 of the current​ year, she has reduced the $40,000 mortgage to $36,000. What is her basis for the​ house?
Her basis for the house is $ 70100      (10000+40000+19000+1100)


QI:5-3
Vincent pays​ $20,000 for equipment to use in his trade or business. He pays sales tax of​ $800 as a result of the purchase. Must the​ $800 sales tax be capitalized as part of the purchase​ price?


QI:5-9
A corporate taxpayer plans to build a​ $6 million office building during the next 18 months. How must the corporation treat the interest on debt paid or incurred during the production​ period?


QI:5-10
Andy owns an applicance store where he has merchandise such as refrigerators for sale.​ Roger, a​ bachelor, owns a​ refrigerator, which he uses in his apartment for personal use. For which individual is the refrigerator a capital​ asset?


QI:5-13

In

20022002​,

Florence purchased 30 acres of land. She has not used the land for business purposes or made any substantial improvements to the property. During the current​year, she subdivides the land into 15 lots and advertises the lots for sale. She sells four lots at a gain.

a. What is the character of the gain on the sale of the four​ lots?

b. Explain how the basis of each lot would be determined.

QI:5-15
Four years​ ago, Susan loaned​ $7,000 to her friend Joe. During the current​ year, the​ $7,000 loan is considered worthless. Explain how Susan should treat the worthless debt for tax purposes.


QI:5-25

​Kurt, 

a​ cash-basis taxpayer, sells the following marketable​ securities, which are capital assets during

20162016.

QI:5-26
How might the current treatment of capital losses discourage an individual investor from purchasing stock of a​ high-risk, start-up​ company?


QI:5-27
An individual taxpayer has realized a​ $40,000 loss on the sale of an asset that had a holding period of eight months. Explain why the taxpayer may be indifferent as to whether the asset is a capital asset.


QI:5-28
If Pam transfers an asset to Fred and the asset is subject to a liability that is assumed by​ Fred, how does​ Fred's assumption of the liability affect the amount realized by​Pam? How does​ Fred's assumption of the liability affect his basis for the​ property?


PI:5-34
Dexter receives a duplex as a gift from his uncle. The​ uncle's basis for the duplex and land is $170,000. At the time of the​ gift, the land and building have FMV s of $52,000 and $78,000​, respectively. No gift tax is paid by Dexter's uncle at the time of the gift.

Requirements

a.	To determine​ gain, what is Dexter'sDexter's basis for the​ land?
b.	To determine​ gain, what is Dexter'sDexter's basis for the​ building?
c.	Will the basis of the land and building be the same as in Parts a and b for purposes of determining a​ loss?

a) (170000*52000) / (52000+78000)
b) (170000*78000) / (52000+78000)
c) No since FMV(52000+78000) is Less Than the donor's basis (170000)
   - therefore Yes if xx Greater Than xx.