tax c239 ch 19 advanced tax questions 26-40

31) Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange? A) $500 B) $400 C) $350 D) $250

A) $500

30) Which of the following requirements do not have to be met in a section 351 transaction? A) Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred. B) In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers. C) Only property transferred to a corporation is eligible for deferral. D) All transfers of property to a corporation must be made simultaneously to qualify for deferral.

A) Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred.

28) Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange? A) Selling expenses incurred by the buyer. B) Acquisition cost of the buyer. C) Capital improvements made to the property by the buyer. D) Depreciation of the property by the buyer.

A. Selling expenses incurred by the buyer reduce the amount realized in the exchange. Explanation: Selling expenses incurred by the buyer reduce the amount realized in the exchange.

34) Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in cash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange? A) $1,200 B) $1,100 C) $850 D) $750

B) $1,100 Explanation: $850 fair market value of the stock received plus $350 cash received less $100 selling expenses.

38) Tristan transfers property with a tax basis of $900 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $900 and $200 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange? A) $1,200 B) $1,100 C) $1,000 D) $900

B) $1,100 Explanation: The corporation's basis in the property equals Tristan's tax basis of $900 (a carryover basis) plus gain recognized by Tristan of $200 (the lesser of the gain realized or the boot received). If the corporation sells the property for $1,200, it will recognize a gain of $100, an amount equal to the gain deferred on the transfer.

32) Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange? A) $150 B) $200 C) $250 D) $300

B) $200

40) Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the exchange? A) $5,000 B) $4,000 C) $3,000 D) $2,000

B) $4,000 Explanation: The shareholder's tax basis equals her tax basis in the property transferred of $5,000 (a substituted basis) less boot received of $500 less the $500 liability assumed by the corporation. If Ashley sells the stock for $2,000, a $2,000 loss will be recognized, an amount equal to the loss deferred of $2,000

37) Casey transfers property with a tax basis of $2,000 and a fair market value of $5,000 to a corporation in exchange for stock with a fair market value of $4,000 and $400 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $600 on the property transferred. Casey also incurred selling expenses of $300. What is the amount realized by Casey in the exchange? A) $5,000 B) $4,700 C) $4,600 D) $4,200

B) $4,700 Explanation: $4,000 fair market value of the stock received plus $400 cash received plus $600 mortgage assumed less $300 selling expenses.

29) Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange? A) Gain or loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code. B) Gain or loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code. C) Gain realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but loss realized is not recognized unless specifically stated otherwise in the Internal Revenue Code. D) Loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but gain realized is not recognized unless specifically stated otherwise in the Internal Revenue Code.

B) Gain or loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code. Explanation: The general rule is that gain or loss realized is recognized unless otherwise specifically stated in the Internal Revenue Code.

26. Which statement best describes the concept of realization as it applies to gain or loss? A) Realization is the recording of gain or loss on a tax return. B) Realization is the result of an exchange of property rights in a transaction. C) Realization is the excess of amount realized over adjusted basis. D) Realization is the excess of adjusted basis over amount realized.

B) Realization is the result of an exchange of property rights in a transaction. Explanation: Realization occurs when a person engages in a transaction. Realized gain is higher or the same as recognized gain.

35) Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange? A) $800 B) $600 C) $550 D) $450

C) $550 Explanation: The corporation's basis in the property equals Carlos's tax basis of $500 (a carryover basis) plus gain recognized of $50. If the corporation sells the property for $800, it will recognize a gain of $250, an amount equal to the gain deferred on the transfer.

36) Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange? A) $800 B) $750 C) $700 D) $500

C) $700 Explanation: The shareholder's tax basis equals his tax basis in the property transferred of $800 (a substituted basis) less the $50 liability assumed by the corporation less the fair market value of boot received. If Roy sells the stock for $400, the loss recognized will be $300, an amount equal to the loss deferred of $300.

39) Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange? A) $6,000 B) $5,000 C) $4,000 D) $3,000

D) $3,000 Explanation: The shareholder's tax basis equals her tax basis in the property transferred of $5,000 (a substituted basis) plus gain recognized of $1,000 less boot received of $2,000 less the $1,000 liability assumed by the corporation. If Sybil sells the stock for $3,000, no gain or loss will be realized

33) Antoine transfers property with a tax basis of $500 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $550 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Antoine's tax basis in the stock received in the exchange? A) $600 B) $550 C) $500 D) $450

D) $450 Explanation: The shareholder's tax basis equals his tax basis in the property transferred (a substituted basis) less any liability assumed by the corporation. If Antoine sells the stock for $550, the gain recognized will be $100, an amount equal to the gain deferred of $100.

27. Which of the following amounts is not included in the computation of amount realized in an exchange? A) Cash received. B) Fair market value of property received. C) Selling expenses. D) Adjusted basis of property transferred.

D) Adjusted basis of property transferred.