Tax accounting-basis in equipment-stock-gain or loss


Question 1). Mr. Dennis, sole proprietor of Dennis Company, purchased a machine for use in his business. Mr. Dennis' costs in connection with this purchase were as follows:

Note to seller                                          $33,000
Cash paid to seller                                     5,000
State sales tax                                          2,400
Freight to place of business                        1,500
Wages paid to workers to install machine    4,200

What is the amount of Mr. Dennis' basis in the machine?

a. $33,000
b. $40,400
c. $41,900
d. $46,100

Question 2). During the current year, Marvin purchased new car wash equipment for use in his service station business. Marvin's costs in connection with the purchase were as follows:

Cost of the equipment                        $40,000
Sales tax on the equipment                   4,000
Delivery charges                                   600
Installation and testing charges             3,000
Expenses of operating the equipment    2,000

What is Marvin's basis in the car wash equipment?

a.    $44,000
b.    $44,600
c.    $47,600
d.    $49,600

Question 3). Edward purchased stock last year as follows:

Month    Shares    Total Cost
March       100    $ 270
July          200       600
October    600    $1,200

In April of this year, Edward sells 80 shares for $250. Edward cannot specifically identify the stock sold. The basis for the 80 shares sold is

a.    $160.
b.    $184.
c.    $216.
d.    $240.

Question 4). In 1990, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael incurs $5,000 in real estate commissions. Michael 's gain or loss on the sale is

a.    $4,000 gain.
b.    $1,000 loss.
c.    $36,000 loss.
d.    $41,000 loss.

Solution Preview :

Prepared by a verified Expert
Accounting Basics: Tax accounting-basis in equipment-stock-gain or loss
Reference No:- TGS01931677

Now Priced at $20 (50% Discount)

Recommended (95%)

Rated (4.7/5)