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Income Tax Accounting

1. Francois purchases land for $100,000. He incurs legal fees of $1,000 associated with the purchase. He subsequently incurs additional legal fees of $6,500 in having the land rezoned from agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $200,000. What is Francois's basis for the land and the improvements?
a. $100,000.
b. $300,000.
c. $301,000.
d. $307,500.
e. None of the above.

2. Mack elects to treat the cutting of timber as a sale or exchange under § 1231. Mack purchased the land for $120,000 and the timber for $200,000 several years ago. On the first day of 2004, the timber was appraised at $230,000 and in September 2004 it was cut and sold for $238,750. What is Mack's ordinary income from this transaction?
a. $0.
b. $8,750.
c. $30,000.
d. $38,750.
e. None of the above.

3. The Federal income tax applicable to corporations:
a. Requires the determination of adjusted gross income.
b. Allows a deduction for dependency exemptions.
c. Allows a deduction for personal exemptions.
d. Allows a deduction for the standard deduction.
e. None of the above

Solution Preview

1. Francois purchases land for $100,000. He incurs legal fees of $1,000 associated with the purchase. He subsequently incurs additional legal fees of $6,500 in having the land rezoned from agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $200,000. What is Francois's basis for the land and the improvements?

a. $100,000.
b. $300,000.
c. $301,000.
d. $307,500.
e. None of the above.

Answer: d.

Expenses incurred in connection with the acquisition of property are considered capital expenditures and must be added to the cost basis of the property acquired.

2. Mack elects to treat the cutting of timber as a sale or exchange under § 1231. Mack ...

Solution Summary

This solution is comprised of a detailed explanation to answer the request of the assignment of more than 200 words of text.

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