ACC 455 Apply: Week 5 Application Assignment

Review the Week 5 Knowledge Check in preparation for this assignment.

Complete the Week 5 Application Assignment in McGraw-Hill Connect.

Julian transferred 100 percent of his stock in Lemon Company to Apricot Corporation in a Type B stock-for stock exchange. In exchange, he received stock in Apricot with a fair market value of $337,500. Julian’s tax basis in the Lemon stock was $675,000. What amount of loss does Julian recognize in the exchange and what is his basis in the Apricot stock he receives?

Multiple Choice

$337,500 loss recognized and a basis in Apricot stock of $337,500.

No loss recognized and a basis in Apricot stock of $675,000.

$337,500 loss recognized and a basis in Apricot stock of $675,000.

No loss recognized and a basis in Apricot stock of $337,500.

Camille transfers property with a tax basis of $1,050 and a fair market value of $1,475 to a corporation in exchange for stock with a fair market value of $1,140 and $335 in cash in a transaction that qualifies for deferral under section 351. Camille also incurred selling expenses of $106. What is the amount realized by Camille in the exchange?

Multiple Choice

$1,475

$1,369

$1,140

$1,034

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $574,500 plus $574,500 in cash. Celeste’s tax basis in the Supply Chain stock was $1,410,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives?

Multiple Choice

$261,000 loss recognized and a basis in Marketing stock of $1,410,000.

No loss recognized and a basis in Marketing stock of $1,410,000.

$261,000 loss recognized and a basis in Marketing stock of $835,500.

No loss recognized and a basis in Marketing stock of $835,500.

Packard Corporation transferred its 100 percent interest to State Company as part of a complete liquidation of the company. In the exchange, Packard received land with a fair market value of $435,000. Packard’s basis in the State stock was $610,000. The land had a basis to State Company of $532,500. What amount of loss does State recognize in the exchange and what is Packard’s basis in the land it receives?

Multiple Choice

$97,500 loss recognized by State and a basis in the land of $435,000 to Packard.

$97,500 loss recognized by State and a basis in the land of $532,500 to Packard.

No loss recognized by State and a basis in the land of $435,000 to Packard.

No loss recognized by State and a basis in the land of $532,500 to Packard.

Casey transfers property with a tax basis of $3,500 and a fair market value of $7,200 to a corporation in exchange for stock with a fair market value of $6,000 and $430 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $770 on the property transferred. Casey also incurred selling expenses of $447. What is the amount realized by Casey in the exchange?

Multiple Choice

$7,200

$6,753

$6,653

$6,223

Antoine transfers property with a tax basis of $570 and a fair market value of $615 to a corporation in exchange for stock with a fair market value of $598 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $17 on the property transferred. What is Antoine’s tax basis in the stock received in the exchange?

Multiple Choice

$615

$598

$570

$553

Rachelle transfers property with a tax basis of $1,085 and a fair market value of $1,450 to a corporation in exchange for stock with a fair market value of $805 and $110 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $535 on the property transferred. What is the corporation’s tax basis in the property received in the exchange?

Multiple Choice

$1,450

$1,195

$1,085

$805

Amy transfers property with a tax basis of $1,055 and a fair market value of $650 to a corporation in exchange for stock with a fair market value of $495 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $155 on the property transferred. What is Amy’s tax basis in the stock received in the exchange?

Multiple Choice

$1,055

$900

$800

$495

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $732,500 plus $732,500 in cash. Simone’s tax basis in the Purple stock was $251,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Multiple Choice

$1,214,000 gain recognized and a basis in Plum stock of $1,465,000.

$1,214,000 gain recognized and a basis in Plum stock of $732,500.

$732,500 gain recognized and a basis in Plum stock of $732,500.

$732,500 gain recognized and a basis in Plum stock of $251,000.

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $635,000. The corporation’s basis in the Tea Company stock was $312,500. The land had a basis to Tea Company of $802,500. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

Multiple Choice

$322,500 gain recognized and a basis in the land of $802,500.

$322,500 gain recognized and a basis in the land of $635,000.

No gain recognized and a basis in the land of $802,500.

No gain recognized and a basis in the land of $490,000.

Gerald received a one-third capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with a FMV of $23,000. His adjusted basis in the building was $11,500. In addition, the building was encumbered with a $6,900 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald’s outside basis immediately after his contribution?

Multiple Choice

$4,600.

$6,900.

$16,100.

$18,400.

Styling Shoes, LLC filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax basis at the beginning of the 20X8: (1) Jane, a member with a 25% profits and capital interest and a $7,500 outside basis, (2) Joe, a member with a 45% profits and capital interest and a $12,500 outside basis, and (3) Jack, a member with a 30% profits and capital interest and a $4,500 outside basis. The following items were reported on Styling’s Schedule K for the year: ordinary income of $105,000, Section 1231 gain of $17,500, charitable contributions of $27,500, and tax-exempt income of $5,500. In addition, Styling received an additional bank loan of $14,500 during 20X8. What is Jane’s tax basis after adjustment for her share of these items?

Multiple Choice

$32,625.

$36,250.

$39,000.

$64,250.

Jerry, a partner with 30% capital and profit interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry’s tax basis in his partnership interest was $43,000. His current year Schedule K-1 reported an ordinary loss of $8,000, long-term capital gain of $4,700, qualified dividends of $3,700, $2,200 of non-deductible expenses, a $27,000 cash contribution, and a reduction of $5,700 in his share of partnership debt. What is Jerry’s adjusted basis in his partnership interest at the end of the year?

Multiple Choice

$35,000.

$43,400.

$62,500.

$68,200.

Kim received a 1/3 profits and capital interest in Bright Line, LLC in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $36,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: Sales – $156,000, Cost of Goods Sold – $96,000, Depreciation Expense – $51,000, Long-Term Capital Gains – $21,000, Qualified Dividends – $6,600, and Municipal Bond Interest – $3,600. How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

Multiple Choice

($27,000).

$1,200.

$2,400.

$9,000.

None of the choices will be reported as ordinary business income (loss) on Schedule K-1.

Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob’s outside basis in Freedom, LLC is $12,500. This includes his $3,000 one-fourth share of the LLC’s debt. Bob’s 704(b) capital account is $19,500. If Tom bought Bob’s LLC interest for $22,000, what would Tom’s outside basis be in Freedom, LLC?

Multiple Choice

$12,500.

$19,000.

$22,000.

$25,000.

On 12/31/X4, Zoom, LLC reported a $52,500 loss on its books. The items included in the loss computation were $25,000 in sales revenue, $10,000 in qualified dividends, $17,000 in cost of goods sold, $45,000 charitable contribution, $15,000 in employee wages, and $10,500 of rent expense. How much ordinary business income (loss) will Zoom report on its X4 return?

Multiple Choice

($8,000).

($17,500).

($52,500).

($87,500).

John, a limited partner of Candy Apple, LP, is allocated $26,500 of ordinary business loss from the partnership. Before the loss allocation, his tax basis is $18,500 and at-risk amount is $8,500. John also has ordinary business income of $18,500 from Sweet Pea, LP as a general partner and ordinary business income of $6,500 from Red Tomato, as a limited partner. How much of the $26,500 loss from Candy Apple can John deduct currently?

Multiple Choice

$6,500.

$8,500.

$20,000.

$26,500.

Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank contributed $40,000 in cash and $40,000 worth of equipment. Frank’s adjusted basis in the equipment was $25,000. Bob contributed $40,000 in cash and $40,000 worth of land. Bob’s adjusted basis in the land was $40,000. On 3/15/X4, Soxy Socks sells the land Bob contributed for $70,000. How much gain (loss) related to this transaction will Bob report on his X4 return?

Multiple Choice

$30,000.

$45,000.

$15,000.

$45,000.

Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members’ contributions, their LLC will obtain a $56,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $8,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $51,000, an adjusted basis of $36,000, and is secured by a $41,000 nonrecourse mortgage that the LLC will assume. What is Brett’s outside tax basis in his LLC interest?

Multiple Choice

$43,500.

$49,000.

$48,500.

$54,000.

Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $18,000 of cash and land with a FMV of $63,000. Her basis in the land is $28,000. Andrew contributes equipment with a FMV of $20,000 and a building with a FMV of $41,000. His basis in the equipment is $16,000, and his basis in the building is $28,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

Multiple Choice

$0.

$4,000.

$48,000.

$52,000.