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ACCT 324 Week 6 Quiz

1. (TCO 6) Steve purchased his home for $500,000. As a sole proprietor, he operates a certified public accounting practice in his home. For this business, he uses one room exclusively and regularly as a home office. In Year 1, $3,042 of depreciation expense on the home office was deducted on his income tax return. In Year 2, Steve sustained losses in his business; therefore, no depreciation was taken on the home office. Had he been allowed to deduct depreciation expense, his depreciation expense would have been $3,175. What is the adjusted basis in the home? (Points : 2)

Question 2.2. (TCO 6) Katie sells her personal use automobile for $15,000. She purchased the car 3 years ago for $31,000. What is Katie’s recognized gain or loss? (Points : 2)


Question 3.3. (TCO 6) Which of the following is correct? (Points : 2)

Question 4.4. (TCO 6) Taylor inherited 100 acres of land on the death of his father in 20×2. A federal estate tax return was filed and this land was valued therein at $15,000, its fair market value at the date of the father’s death. The father had originally acquired the land in 1939 for $2,000, and prior to his death, he had expended $1,000 on permanent improvements. Determine Taylor’s holding period for the land. (Points : 2)

Question 5.5. (TCO 6) As part of the divorce agreement, Hale transfers his ownership interest in their personal residence to Monica. The house had been jointly owned by Hale and Monica, and the adjusted basis is $212,000. At the time of the transfer to Monica, the fair market value is $490,000. What is the recognized gain to Hale, and what is Monica’s basis for the house? (Points : 2)

Question 6.6. (TCO 6) In order to qualify for like-kind exchange treatment under § 1031, which of the following requirements must be satisfied? (Points : 2)

Question 7.7. (TCO 11) Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss? (Points : 2)

Question 8.8. (TCO 11) In determining the basis of like-kind property received, postponed gains are: (Points : 2)

Question 9.9. (TCO 11) An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 20×2. On January 11, 20×3, the insurance company paid the owner $450,000. The fair market value of the building was $500,000, but under the coinsurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $410,000 in a new office building that was smaller than the original office building. What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected? (Points : 2)

Question 10.10. (TCO 11) During 20×2, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $162,000. They had owned and occupied the residence for 11 years. To make it more attractive to prospective buyers, they had it painted in April at a cost of $5,000 and paid for the work immediately. They sold the house in May for $395,000. Broker’s commissions and other selling expenses amounted to $24,000. They purchased a new residence in June for $350,000. What is the adjusted basis of the new residence? (Points : 2)