CHAPTER 13 PROPERTY TRANSACTIONS: DETERMINATION OF GAIN

1. Realized gain or loss
is measured by the difference between the amount realized from the sale or
other disposition of property and the property’s adjusted basis at the date of
disposition.
a. True
b. False

2. In computing the
amount realized when the fair market value of the property received cannot be
determined, the fair market value of the property surrendered may be used.
a. True
b. False

3. If Wal-Mart stock
increases in value during the tax year by $6,000, the amount realized is a
positive $6,000.
a. True
b. False

4. If the buyer assumes
the seller’s liability on the property acquired, the seller’s amount realized
is decreased by the amount of the liability assumed.
a. True
b. False

5. The fair market value
of property received in a sale or other disposition is the price at which
property will change hands between a willing seller and a willing buyer when
neither is compelled to sell or buy.
a. True
b. False

6. If a seller assumes
the buyer’s liability on the property acquired, the buyer’s adjusted basis for
the property is increased by the amount of the liability assumed.
a. True
b. False

7. Expenditures made for
ordinary repairs and maintenance of property are notadded to the original basis in the determination of the
property’s adjusted basis whereas capital expenditures are added to the original
basis.
a. True
b. False

8. Milton purchases land
and a factory building for his business for $300,000 with $100,000 being
allocated to the land. During the first year, Milton deducts cost recovery of
$4,922. Milton’s adjusted basis for the building at the end of the first year
is $195,078 ($200,000 – $4,922).
a. True
b. False

9. In a casualty or
theft, the basis of property involved is reduced by the amount of insurance
proceeds received and by any resulting recognized loss.
a. True
b. False

10.Monroe’s delivery
truck is damaged in an accident. Monroe’s adjusted basis for the delivery truck
prior to the accident is $20,000. If Monroe receives insurance proceeds of
$21,000 and recognizes a casualty gain of $1,000, his adjusted basis for the
delivery truck after the accident is $21,000.
a. True
b. False

11.If insurance proceeds
are received for property used in a trade or business, a casualty transaction
can result in recognized gain, but cannot result in a recognized loss.
a. True
b. False

12.If the amount of a
corporate distribution is less than the amount of the corporate earnings and
profits, the return of capital concept does not
apply and the shareholders’ adjusted basis for the stock remains unchanged.
a. True
b. False

13.Reggie owns all the
stock of Amethyst, Inc. (adjusted basis of $100,000). If he receives a
distribution from Amethyst of $90,000 and corporate earnings and profits are
$15,000, Reggie has a capital gain of $5,000 and an adjusted basis for his
Amethyst stock of $0.
a. True
b. False

14.The amount of a
corporate distribution qualifying for capital recovery treatment which exceeds
the shareholder-recipient’s basis in the stock investment is treated as a
capital gain.
a. True
b. False

15.The adjusted basis
for a taxable bond purchased at a premium is reduced if the amortization
election is made. The amount of the amortized premium is treated as an interest
deduction.
a. True
b. False

16.Helen purchases a
$10,000 corporate bond at a premium of $1,000 and elects to amortize the
premium. On the later sale of the bond for $10,800, she has amortized $300 of
the premium. Helen has a recognized gain of $800 ($10,800 amount realized –
$10,000 adjusted basis).
a. True
b. False

17.The amount received
for a utility easement on land is included in the gross income of the taxpayer.
a. True
b. False

18.A realized gain on
the sale or exchange of a personal use asset is recognized, but a realized loss
on the sale, exchange, or condemnation of a personal use asset is notrecognized.
a. True
b. False