ACC 5762 Spring 2014 Assignment- Set1

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Please read the following
carefully. For each question, unless the question expressly provides
to the contrary, you should assume that:

1. all
events occurred in ‘the current taxable year;’

2. all
persons are United States citizens;

3.
there is no tax avoidance purpose for any transaction, and that with respect to
any mortgage onany property, there was a bona fide business
purpose for incurring or assuming the debt;

4. whenever
a party receives encumbered property, the party assumed the mortgage, even if
not specifically stated;

5.
there is no special election made unless the facts specifically state that
there is an election made or in effect;

6. in
all cases, there is only one class of stock issued and outstanding in any
corporation, and that is common voting stock, unless the question expressly
states to the contrary, and

7. all
corporations are “C” corporations.

For each question, choose the one letter
that best answers the question or completes the sentence.

Question 1

Chris owns 70 percent of ABC Corporation. ABC
Corporation had acquired land known as Parcel A in 1984 for $68,000 and held
Parcel A for investment purposes. During the current taxable year, ABC
Corporation sold Parcel A to Chris for $65,000 which amount was equal to the
fair market value of Parcel A. Shortly after receiving Parcel A, Chris sold
Parcel A to his friend from college for $73,000. How much gain or loss is
realized and recognized by the respective parties as a result of each of the
sales?

A. ABC Corporation realized a loss of $3,000 and
recognized a loss of $3,000 on the distribution; Chris realized a gain of
$8,000 and recognized a gain of 8,000 on the sale.

B. ABC Corporation realized a loss of $3,000 and
recognized a loss of 3,000 on the distribution; Chris realized a gain of $5,000
and recognized a gain of $5,000.

C. ABC
Corporation realized a loss of $3,000 and recognized a loss of 0; Chris
realized a gain of $8,000 and recognized a gain of $5,000.

D. ABC
Corporation realized a loss of $3,000 and recognized a loss of 0; Chris
realized a gain of $5,000 and recognized a gain of$5,000.

Question
2

For the current taxable year, HIJ Inc. had gross
receipts from operations of $230,000, operating and other expenses of $310,000,
and $120,000 of dividends that it received from a 45 percent-owned domestic
corporation. For the current taxable year, HIJ Inc. has taxable income or a net
operating loss of what amount?

A. $8,000 taxable income.

B. $40,000
taxable income.

C. $56,000 net operating loss.

D. $80,000 net operating loss.

Question
3

NOP Inc. had the following income and expenses during
the current taxable year. Its income from operations was $250,000, its
expenses from operations were $120,000, its dividends received (from a 30 percent-owned
corporation)) were $80,000, and it made cash charitable contributions
of $30,000

How much is NOP Inc.’s charitable contribution
deduction for the current taxable year?

A. $14,600.

B. $21,000.

C. $26,000.

D. $30,000.

Question
4

For the current taxable year, RST Inc.’s gross
income from operations was $1,000,000 and its expenses from operations were
$1,500,000. RST Inc. also received a $600,000 dividend from a 10 percent-owned
corporation. How much is RST Inc.’s dividends-received deduction?

A. 0.

B. $70,000.

C. $320,000.

D.
$420,000.

Question 5

Books and Toys Corporation, a calendar year
corporation, had a net operating loss of $50,000 for 2011. Books and Toys
Corporation made a proper election to forego the carryback period. For 2012,
Books and Toys Corporation correctly deducted $40,000 of the 2011 loss. Books
and Toys Corporation will lose the remaining $10,000 of the loss if the loss
cannot be deducted by the end of which tax year?

A. 2018.

B. 2021.

C. 2026.

D. 2031.

Question 6

LMN Inc. liquidated. As part of the liquidation, one
shareholder, Larry, who owned 30 percent of the stock of LMN Inc., received as
a distribution in exchange for all of his stock in the corporation, inventory
worth $90,000 that had a basis to the corporation of $70,000. How much gain was
recognized by LMN Inc. as a result of this liquidating distribution and what
was the character of the gain?

A. $0 gain.

B. $20,000 capital gain.

C. $20,000 ordinary income.

D. $20,000 Section 1231 gain.

Question 7

Ben and John formed BCD Inc., a corporation, in 2012.
Ben received 80% of the voting common stock, the only class of stock and John
received the remaining 20% of the stock. In 2013, Ben transferred additional
property to BCD Inc. The property had an adjusted basis to Ben of $40,000 and a
fair market value of $50,000 on the date of the transfer. On the same day, and
in exchange for the property he transferred to BCD Inc., Ben received cash of
$15,000 and additional stock worth $35,000. How much gain was recognized by Ben
as a result of this transaction?


  1. 0.


  1. $10,000.

C. $15,000.

D. $25,000.

Question 8

Sue transferred a building to her newly formed
corporation, RSTU Inc. The building had an adjusted basis to Sue of $75,000 and
a fair market value of $150,000 on the date of the transfer. The building was
encumbered by a mortgage of $100,000, which RSTU Inc. assumed. On the same day,
and in exchange for the building she transferred to RSTU Inc., Sue received 100
percent of RSTU Inc.’s only class of stock. The fair market value of the stock
at the date of transfer was $50,000. How much gain was recognized by Sue as a
result of this transaction?

A. 0.

B.$25,000.

C.$50,000.

D. $75,000.

Question 9

Bob created MNO Inc. several years ago and has owned
all 10 outstanding shares of MNO Inc. since the creation of MNO Inc. The fair
market value of those shares is now $50,000. Bob’s friend, Lee, owns a building
having a fair market value of $80,000 and an adjusted basis to Lee of $20,000.
The building is encumbered by a $30,000 mortgage. Earlier this month, Bob and
Lee discussed Lee’s becoming involved in the business of MNO Inc., and as a
result of these discussions, Lee transferred the building to MNO Inc. and in
exchange for the building, MNO Inc. transferred to Lee 10 shares of authorized
but not previously issued stock of MNO Inc. After the transaction there were 20
shares of stock issued and outstanding. How much gain was realized and recognized
by Lee as a result of this transaction?

A. $30,000 of gain was realized and recognized.

B. $30,000 of gain was realized,0 of which was
recognized.

C. $60,000 of gain was realized, $10,000 of
which was recognized.

D. $60,000 of gain was realized and recognized.

Question 10

Al owned all of the outstanding stock of ABC
Corporation. Al transferred a building, cash, and IBM stock to ABC Corporation.
The adjusted basis and the fair market value of the assets transferred to ABC
Corporation, and the amount remaining on the mortgage on the building
transferred, were as follows. A building was transferred by Al to ABC
Corporation that had an adjusted basis to Al of $20,000, a fair market value of
$50,000, and a mortgage of $40,000, that was assumed by the corporation, cash in the amount of $10,000 was transferred, and IBM stock
with an adjusted basis to Al of $15,000 and a fair market value of $12,000. In
exchange for the assets transferred to ABC Corporation, Al received additional stock of ABC Corporation. How much gain did
Al recognize as a result of this transaction?

A. 0.

B.$10,000.

C.$20,000.

D.$27,000.

Question 11

Fact Pattern for Questions 11 and 12: Sandra owned a
rental apartment building in her sole name for four years. After her business
advisors suggested that she conduct her rental activity in corporate form, she
promptly transferred the apartment building to ABC Rental Corporation, a newly
formed corporation. Sandra received all of the stock of ABC Rental Corporation
in exchange for the apartment building. At the time of the transfer of the
apartment building to ABC Rental Corporation, Sandra’s adjusted basis in the
building was $50,000, the fair market value of the building was $150,000, the
building was subject to a mortgage of $70,000 which ABC Rental Corporation assumed,
and there was depreciation recapture potential of $12,000. Sandra received
stock of ABC Rental Corporation worth $80,000. As a result of the transaction,
how much gain was recognized by Sandra and what was the character of the gain?

A. 0 gain.

B.$12,000 gain, all of which was ordinary
income.

C.$20,000 gain, at least $12,000 of which was
ordinary income.

D. $30,000 gain, at least $12,000 of which was
ordinary income.

Question 12

Fact Pattern for Questions 11 and 12: Sandra owned a
rental apartment building in her sole name for four years. After her business
advisors suggested that she conduct her rental activity in corporate form, she
promptly transferred the apartment building to ABC Rental Corporation, a newly
formed corporation. Sandra received all of the stock of ABC Rental Corporation
in exchange for the apartment building. At the time of the transfer of the
apartment building to ABC Rental Corporation, Sandra’s adjusted basis in the
building was $50,000, the fair market value of the building was $150,000, the
building was subject to a mortgage of $70,000 which ABC Rental Corporation
assumed, and there was depreciation recapture potential of $12,000. Sandra
received stock of ABC Rental Corporation worth $80,000. As a result of the
transaction, what is the corporation’s basis in the building?

A.$50,000.

B.$70,000.

C.$150,000.

D. $170,000.

Question
13

Larry formed Sleuth Corporation in order to
incorporate the detective agency business that he had been operating for
several years as a sole proprietorship. Larry transferred to Sleuth Corporation
the detective agency’s accounts receivable with an adjusted basis to Larry of
$0 and a fair market value of $6,000, and the office condominium that Larry owned outright
and from which he had operated the detective agency that had an adjusted basis
to Larry of $30,000, a fair market value of $62,000, and as to which there was a mortgage payable
of $34,000, which was assumed by the corporation. Also transferred to the corporation were
accounts payable in the amount of $3,000.

In exchange for the assets transferred, Larry
received 100 percent of the stock of the corporation. Which of the following
statements regarding the tax consequences of the transaction is accurate?

A. Larry recognized $4,000 of his realized gain.

B. Larry recognized $7,000 of his realized gain.

C. The corporation’s basis in the condominium it
received from Larry is $30,000.

D. Larry recognized $6,000 of ordinary income
upon the assignment of receivables.

Question 14

ABC Inc. had current earnings and profits of $50,000
when it distributed to an individual shareholder land that the corporation held
as an investment. On the date the land was distributed, ABC Inc.’s adjusted
basis in the land was $10,000, the fair market value of the land was $50,000,
and the land was encumbered by a $30,000 mortgage, which liability was assumed
by the shareholder. There were no other
transactions that might affect ABC Inc.’s earnings and profits for the year.
What was the amount of ABC Inc.’s earning and profits at the end of the year?

A.$30,000.

B. $50,000.

C.$60,000.

D.$70,000.

Question 15

EFG Inc. distributed land to an individual
shareholder in a nonliquidating distribution. On the date the land was
distributed, EFG Inc.’s adjusted basis in the land was $20,000, the fair market
value of the land was $75,000, and the land was encumbered by a $35,000
mortgage, which liability was assumed by the shareholder. The corporation’s
earnings and profits were $300,000 on the last day of the year in which the
distribution was made after taking into effect any impact of the distribution
on the corporation’s earnings and profits. As a result of the distribution, how
much is the amount of dividend income to the shareholder, and what is the shareholder’s
basis in the distributed property?

A. Dividend income of $20,000 and basis of
$20,000.

B. Dividend income of $40,000 and basis of
$20,000.

C. Dividend
income of $40,000 and basis of $40,000.

D. Dividend
income of $40,000 and basis of $75,000.

Question 16

XYZ Corporation distributed land Jim, its sole
shareholder, in a liquidating distribution. At the time of the distribution,
the land had a fair market value of $120,000 and XYZ Corporation’s adjusted
basis in the land was $100,000. The land was encumbered by a $140,000 mortgage,
which mortgage was assumed by the shareholder. How much gain did XYZ
Corporation recognize as a result of the distribution?

A.0.

B.$20,000.

C.$40,000.

D.$100,000.

Question 17

FAS Inc. had one class of stock outstanding. The one
class of stock was owned 50 percent by Fred and 25 percent by each of Fred’s
two sons. In the current taxable year, FAS Inc. redeemed 25 percent of Fred’s
50 percent, and in exchange for the stock, FAS Inc. distributed to Fred a
building that had an adjusted basis to FAS Inc. of $10,000 and a fair market
value of $50,000. Assume that FAS Inc.’s current earnings and profits were
$200,000, there were no accumulated earnings and profits, and Fred’s total
basis in his stock before the redemption was $20,000. What is Fred’s basis in
his remaining stock after the redemption, and what is his basis in the building
distributed to him?

A.Stock basis: $10,000; building basis:
$10,000.

B.Stock basis: $10,000; building basis:
$50,000.

C.Stock basis: $20,000; building basis:
$10,000.

D.Stock basis: $20,000; building basis:
$50,000.

Question 18

A tract of land was distributed by MNO Inc. to its
sole shareholder, Martha, as a dividend. At the time of the distribution, MNO
Inc.’s adjusted basis in the land was $40,000, the fair market value of the
land was $80,000, and the land was encumbered by a $55,000 mortgage. Which of
the following statements is true?

A. The net adjustment to MNO Inc.’s earnings and
profits is an increase of $15,000,
(the excess of the liability over the adjusted basis in the land).

B. The net adjustment to MNO Inc.’s earnings and
profits is an increase of $40,000, (that is, equal to the amount of gain realized
by the corporation).

C.The corporation’s realized gain of $40,000 is
recognized to the extent of the $15,000, (the excess of the liability over
adjusted basis in the land).

D.The shareholder’s basis in the land
distributed by the corporation to the shareholder is $80,000, (which is the
fair market value of the land).

Question 19

XYZ Corporation distributed to its shareholders a
total of $30,000 in cash plus property that had a fair market value of $80,000
and a basis of $60,000. The corporation’s earnings and profits were $100,000 on
the last day of the year in which the distribution was made after taking into
effect any impact of the distribution on the corporation’s earnings and
profits. How much was the total dividend income received by the shareholders as
a result of the distributions made by XYZ Corporation?

A. $50,000.

B. $90,000.

C. $100,000.

D. $110,000.

Question 20

MJJM Inc. has four equal shareholders who are
unrelated. Each shareholder owns 300 shares of the common stock of MJJM Inc.
representing all of the stock of MJJM Inc. During the taxable year, as part of
a single transaction, MJJM Inc. redeemed stock from three of the shareholders.
Specifically, MJJM Inc. redeemed 150 shares from Michael, 75 shares from
Joseph, and 40 shares from John. The redemption was substantially
disproportionate for:

A.Michael and Joseph.

B.Michael and John.

C.Joseph only.

D.Michael only.

Question
21

Fact Pattern for Questions 21 and 22. EFG, Inc. is a
calendar year corporation. EFG, Inc. had current earnings and profits of
$100,000 and no accumulated earnings and profits when it distributed a total of $160,000, as a nonliquidating
distribution, to its two equal shareholders, Jane and Joe. On the date of the
cash distribution, Jane’s basis in her EFG, Inc. stock was $10,000 and Joe’s
basis in his EFG, Inc. stock was $35,000. How much is includible by Jane in her
gross income for the current taxable year with respect to the distribution to
her?

A. $50,000
dividend income and 0 capital gain.

B.
$80,000
dividend income and 0 capital gain.

C.0 dividend income and $70,000 capital gain.

D. $50,000 dividend income and $20,000 capital gain.

Question 22

Fact Pattern for Questions 21 and 22. EFG, Inc. is a
calendar year corporation. EFG, Inc. had current earnings and profits of
$100,000 and no accumulated earnings and profits when it distributed a total of
$160,000 to its two equal shareholders, Jane and Joe. On the date of the cash
distribution, Jane’s basis in her EFG, Inc. stock was $10,000 and Joe’s basis
in his EFG, Inc. stock was $35,000. What is Joe’s adjusted basis in his EFG,
Inc. stock after the distribution?

A. $0.

B.$5,000.

C. $15,000.

D. $35,000.

Question 23

Mary received a liquidating distribution from ABC
Corporation as part of the redemption of all of the ABC Corporation’s stock and
the complete liquidation of ABC Corporation. Mary’s basis for her ABC
Corporation stock was $10,000. In exchange for her stock, Mary received a
payment of $15,000 and property that had an adjusted basis to ABC Corporation
of $10,000, a fair market value of $25,000, and that was encumbered by a
$12,000 mortgage which Mary assumed. How much gain did Mary recognize as a
result of this transaction?

A. $3,000.

B. $18,000.

C. $30,000.

D. $42,000.

E. None of the above.

Question 24

Ann and Irene form AIB Corporation transferring
their respective business assets to AIB Corporation. Ann exchanges her property
with a basis to Ann of $100,000 and fair market value of $400,000 for 200
shares in AIB Corporation on March 1, 2009. Irene exchanges her property with a
basis of $140,000 and fair market value of $600,000 for 300 shares in AIB
Corporation on April 11, 2009. Bob transfers his property with a basis of
$250,000 and fair market value of $1,000,000 for 500 shares in AIB Corporation
on May 15, 2011. Bob’s transfer is not part of Ann and Irene’s plan to incorporate
their businesses. What gain, if any, will Bob recognize on the transfer?

A. $0.

B. $250,000.

C. $750,000.

D. $1,000,000.

Question 25

Tom and George form T and G Corporation. Tom
transfers machinery worth $100,000 with a basis
to Tom of $40,000, while George transfers land worth $90,000 with a
basis to George of $20,000 and services rendered in organizing the corporation
worth $10,000. Each is issued 25 shares in T and G Corporation. With respect to
the transfers:

A.
Tom has no recognized gain; George recognizes gain/income of $80,000.

B.
Neither Tom nor George recognizes gain or income.

C. T and G
Corporation has a basis of $30,000 in the land.

D. George has
a basis of $30,000 in the shares of T & G Corporation.

Question 26

The stock of Kenny Corp. is owned equally by two
brothers. During 2008, they transferred land (which had a basis of $300,000 and
a fair market value of $320,000) as a contribution to capital to Kenny Corp.
During September, 2013, Kenny Corp. adopted a plan of complete liquidation and
subsequently made a pro rata distribution of land back to the brothers. At the
time of the liquidating distribution, the land had a fair market value of
$180,000. What amount of loss can be recognized by Kenny Corp. on the
distribution of land?

A. $0.

B. $20,000.

C. $120,000.

D. $140,000.

Question
27

Henry, Emmy, and Frannie, unrelated individuals, own
all of the stock in New Corporation with earnings and profits of $1,200,000 as
follows: Henry own 1,300 shares; Emmy owns 400 shares; and Frannie owns 300
shares. New Corporation redeems 300 of Henry’s shares with a basis of $60,000
for $450,000. With respect to the distribution in redemption of the stock:

A. Henry has a capital gain of $390,000.

B. Henry has dividend income of $450,000.

C. Henry has dividend income of $390,000.

D. Henry has a capital gain of $450,000.

Question 28

Lucinda owns 1,100 shares of Old Corporation stock
at a time when Old Corporation has 2,000 shares of stock outstanding. The
remaining shareholders are unrelated to Lucinda. The corporation redeems 400
shares from Lucinda. Does the transaction qualify as substantially
disproportionate redemption as to Lucinda?

A. We do not have sufficient information.

B. No.

C. Yes.

D. This is
not a transaction that could qualify for sale or exchange treatment.

Question 29

Helen, Greg, and Wanda own the stock in HGW
Corporation with earnings and profits of $900,000 as follows: Helen, 600
shares; Greg, 400 shares; and Wanda, 1,000 shares. Greg is Helen’s son, and
Wanda is Helen’s sister. HGW Corporation redeems 400 of Helen’s shares with a
basis of $55,000 for $240,000. Helen purchased the stock three years ago as an
investment. With respect to the stock redemption, Helen has:

A.Dividend income of $185,000.

B.Dividend income of $240,000.

C. Long-term capital gain of $185,000.

D. Long-term capital gain of $240,000.

Question 30

JKL Corporation has earnings and profits of $800,000
and has 1,000 shares of stock outstanding. That stock is held 550 shares by
Anna and 450 shares by Ellen, who are unrelated individuals. JKL Corporation
redeems 200 of Anna’s shares for $1,000 per share. Anna paid $300 per share for
her JKL Corporation stock nine years ago. Which of the following statements is
correct with respect to the stock redemption?

A. Anna has dividend income of $200,000.

B. Anna has a long-term capital gain of
$140,000.

C. Anna’s basis in her remaining 350 shares is
$60,000.

D. JKL Corporation reduces its E & P by
$200,000.


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