CPA Exam Review Regulation (REG)
Questions and Answers 100% Solved
During year one, Ral Corp. exchanged 5,000 shares of its own $10 par
common stock for land with a fair market value of $75,000. As a result of
this exchange, Ral should report in its year one tax return:
A. No gain.
B. $25,000 Section 1245 gain.
C. $25,000 Section 1231 gain.
D. $25,000 ordinary income. - ✔✔A.
No gain or loss is recognized by a corporation on the sale or exchange of
its own stock.
John Thayer purchased an apartment building eight years ago, for
$200,000. The building was depreciated on the straight-line method. On
December 31, year one, the building was sold for $220,000, when the
asset balance net of accumulated depreciation was $170,000. On his year
one tax return, Thayer should report:
,A. Section 1231 gain of $20,000 and ordinary income of $30,000.
B. Section 1231 gain of $30,000 and ordinary income of $20,000.
C. ordinary income of $50,000.
D. Section 1231 gain of $50,000. - ✔✔D.
Section 1231 gain of $50,000. The building is a Section 1231 asset. None
of the gain is ordinary because the depreciation, or cost recovery, was
under the straight-line method. (There was no excess over straight-line.)
Selling price of building $220,000
Adjusted basis of building (170,000)
Realized Section 1231 gain $50,000
Ruth Lewis has adjusted gross income of $100,000 for this year and
itemizes her deductions. On September 1, she made a contribution to her
church of stock held for investment for two years which cost $10,000 and
had a fair market value of $70,000. The church sold the stock for $70,000
, on the same date. Assume that Lewis made no other contributions during
the year and made no special election in regard to this contribution on her
tax return. How much should Lewis claim as a charitable contribution
deduction?
A. $10,000.
B. $20,000.
C. $30,000.
D. $50,000. - ✔✔C.
When a contribution of appreciated property is made, the deduction
allowed is for fair market value of the property. The deduction, however, is
limited to 30% of the taxpayers adjusted gross income unless a special
election is made to use the cost of the property rather than the fair market
value. Whereas there was no special election, the deduction is limited to
$100,000 × 30%, or $30,000. The excess of $40,000 is carried over for five
years and is still subject to the 30% limitation each year.
In year one, Barlow moved from Chicago to Miami to start a new job,
incurring costs of $1,200 to move household goods and $2,500 in
temporary living expenses. Barlow was not reimbursed for any of these
