TAX 4001 Final Exam | Questions & Answers (100 %Score) Latest Updated 2024/2025
Comprehensive Questions A+ Graded Answers | With Expert Solutions
A fire destroyed furniture and fixtures used in Jock's business. Jock's adjusted basis in
the furniture and fixtures was $81,300. Jock received a $100,000 reimbursement from
his insurance company and immediately spent $93,000 to purchase new furniture and
fixtures. How much gain or loss must Jock recognize on this involuntary conversion? -
$7000
Which of the following statements concerning partnerships is false? - A partner is taxed
annually on only that portion of a partnership's taxable income that is actually
distributed.
Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis
$111,700) to M&W Incorporated in exchange for 4,200 shares of M&W stock.
Immediately after the exchange, M&W had 7,800 shares of outstanding stock.
Determine Mrs. Brinkley's realized and recognized gain on the exchange and the tax
basis in her 4,200 M&W shares. - $228,500 gain realized and recognized; $340,200
basis in M&W shares
Princetown Incorporated has a $4.82 million basis in 88% of the outstanding stock of
Merryvale Corporation. Merryvale manufactures Christmas decorations, cards, and
wrapping paper. Princetown's board of directors recently learned that Merryvale is
bankrupt. The board voted unanimously to dissolve the corporation and distribute all
assets to Merryvale's creditors. What is the tax consequence to Princetown of the
board's actions? - $4.82 million ordinary loss.
Mrs. Stile owns investment land subject to a $600,000 nonrecourse mortgage. Her
basis in the land is $212,000, and the land's appraised FMV is $575,000. Mrs. Stile is
considering defaulting on the mortgage and allowing the creditor to foreclose. If Mrs.
Stile disposes of the land through a foreclosure, she will recognize: - $388,000 capital
gain
Waters Corporation is an S corporation with two equal shareholders, Mia Jones and
David Kerns. This year, Waters recorded the following items of income and expense:
Sales revenue $ 500,000
Interest income 6,000
Long-term capital gain 10,000
Cost of goods sold (250,000)
Salary and wages (75,000)
Other operating expenses (55,000)
Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted
tax basis in her partnership interest was $50,000 at the beginning of the year, compute
her adjusted tax basis in her partnership interest at the end of the year. - $93,000
,Grantly Seafood is a calendar year taxpayer. In 2021, a hurricane destroyed three of
Grantly's fishing boats with a $784,500 aggregate adjusted tax basis. On October 12,
2021, Grantly received a $1 million reimbursement from its insurance company. On May
19, 2022, Grantly purchased a new fishing boat for $750,000. Compute Grantly's
recognized gain or loss on the involuntary conversion and its tax basis in the new boat. -
$215,500 recognized gain; $750,000 basis in the boat
Mr. and Mrs. Cox reported $490,000 AGI on their joint return. The couple has three
dependent children under age 17. Compute their child tax credit. - $1,500
Honu, Incorporated has book income of $1,200,000. Book income includes $380,000
income tax expense, $10,000 of municipal bond interest income, and $150,000 of
business meals expense. Based only on these items, compute Honu's taxable income. -
$1,645,000
Mr. and Mrs. Lansing, who file a joint tax return, have four dependent children under
age 17. Which of the following statements is false? - None of these choices are false.
Which of the following statements regarding S corporations is true? - Generally, the
transfer of property by a controlling shareholder to a newly-formed S corporation in
exchange for stock is a nontaxable event.
Which of the following statements regarding alternative business forms is true? - Some
states treat S corporations as taxable corporations for purposes of corporate franchise
taxes.
Samantha died on January 18, 2020. Her husband Dave lived by himself until he
remarried in 2021. What was Dave's filing status in 2020 and 2021? - Married filing
jointly in 2020 and 2021.
Mr. Jones and his first wife were legally divorced on February 19, 2021. Mr. Jones
remarried the second Mrs. Jones on December 20, 2021. Which of the following
describes Mr. Jones' filing status in 2021? - Married filing jointly with the second Mrs.
Jones
Nixon Incorporated transferred Asset A to an unrelated party in exchange for Asset Z
and $15,750 cash. Nixon's tax basis in Asset A was $400,000, and Asset Z had a
$510,000 appraised FMV. Which of the following statements is true? - If Asset A and
Asset Z are like-kind property, Nixon recognizes a $15,750 gain and takes a $400,000
basis in Asset Z.
Irby Incorporated was incorporated in 2015 and adopted a calendar year. Here is a
schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns
through 2020.
2015 2016 2017 2018 2019 2020
$(4,900) $(3,000) $(7,890) $45,600 $-0- $1,300
, In 2021, Irby recognized a $14,750 gain on the sale of business land. How is this gain
characterized on Irby's tax return? - $14,750 Section 1231 gain.
Waters Corporation is an S corporation with two equal shareholders, Mia Jones and
David Kerns. This year, Waters recorded the following items of income and expense:
Sales revenue $ 500,000
Interest income 6,000
Long-term capital gain 10,000
Cost of goods sold (250,000)
Salary and wages (75,000)
Other operating expenses (55,000)
Waters distributed $25,000 to each of its shareholders during the year. Calculate the S
corporation's ordinary (non-separately stated) income and indicate which items must be
separately stated. - Ordinary income, $120,000; interest income and long-term capital
gain are separately stated.
Mr. and Mrs. Anderson file a joint return. They provide more than 50% of the financial
support for their two children, Dana, age 26, and John, age 17. Both children live in the
Andersons' home. Dana earned $7,100 from a part-time job, while John earned no
income this year. Which of the following statements is true? - Dana is neither a
qualifying child nor a qualifying relative of the Andersons.
Cactus Company is a calendar year S corporation with the following current year
information:
Operating loss $ (120,000)
Liabilities:
Notes payable, City Bank 20,000
Notes payable, Jake Crow 20,000
On January 1, John James bought 50% of Cactus Company stock for $30,000. How
much of the operating loss may John deduct on his Form 1040? Assume the excess
business loss limitation does not apply. - $30,000
In April, vandals completely destroyed outdoor signage owned by Renfru Incorporated
Renfru's adjusted tax basis in the signage was $31,300. Renfru received a $50,000
reimbursement from its property insurance company, and on August 8, it paid $60,000
to replace the signage. Compute Renfru's recognized gain on loss on the involuntary
conversion and its tax basis in the new signage. - None of these choices are correct
Mr. Weller and the Olson Partnership entered into an exchange of investment real
property. Mr. Weller's property was subject to a $428,000 mortgage, which Olson
assumed. Olson's property was subject to a $235,000 mortgage, which Mr. Weller
assumed. Which of the following statements is true? - Mr. Weller received $193,000
boot; Olson paid $193,000 boot.
Armond earned $10,000 of profit from a sole proprietorship in 2021. If he also has
$150,000 of salary income, how much self-employment tax will he owe? - $268
