Tax Accounting: basis in equipment, stock, gain or loss
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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
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
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.
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.
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Solution Summary
The solution explains the concepts involved plus computes the correct answer for the four problems.
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1. All of the above are asset costs. Answer is d. $46,100
2. All of the above are part of the total cost of the equipment except for the $2000 of operating costs. Answer is c. $47.600.
3. ...
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