Quiz for Chapter 8


1	The substituted basis rule causes the unrecognized gain or loss on a nontaxable exchange to be embedded in the basis of the qualifying property acquired.
		A)	True
		B)	False


2	X owns an asset with a FMV of $30,000 which he has agreed to exchange with Y whose asset has a FMV of $25,000 and cash of $5,000. If X has a basis in his asset of $32,000 how much gain or loss will X recognize on this exchange?
		A)	$0
		B)	$2,000
		C)	$5,000
		D)	$3,000
		E)	($2,000)


3	X owns an asset with a FMV of $50,000 which he has agreed to exchange with Y who offers a qualifying asset with a FMV of $30,000 ($15,000 basis) and a non-qualifying asset with a FMV $20,000 ($10,000 basis). How much gain or loss will Y recognize on this exchange?
		A)	$0
		B)	$10,000
		C)	$15,000
		D)	$25,000
		E)	Some other answer.


4	Firm X has agreed to exchange an asset with a FMV of $60,000 ($35,000 basis) which is subject to a liability of $10,000 with another party. The asset received in the exchange is a qualifying asset and the second party to the exchange has agreed to assume the liability on the asset as part of the exchange. What is the recognized gain or loss on the exchange to Firm X?
		A)	$0
		B)	$25,000
		C)	$15,000
		D)	$10,000
		E)	Some other answer


5	Using the information in Question 4, determine the basis in and the FMV of the asset newly acquired by Firm X?
		A)	$35,000 basis, $60,000 FMV
		B)	$45,000 basis, $60,000 FMV
		C)	$35,000 basis, $50,000 FMV
		D)	$45,000 basis, $45,000 FMV
		E)	$35,000 basis, $60,000 FMV


6	Using the information in Question 3 what is the basis Y has in his new asset?
		A)	$0
		B)	$15,000
		C)	$50,000
		D)	$20,000
		E)	$35,000


7	Fever Corporation and Chill Corporation agree to exchange qualifying assets. Fever's asset has a FMV of $50,000 and is subject to a liability of $15,000. Chill's asset has a FMV of $60,000 and is subject to a liability of $25,000. Both parties agree to assume the other's liability in the exchange. If Fever has a basis of $25,000 in its asset and Chill has a basis of $52,000 in its asset, how much gain will Chill recognize on this exchange?
		A)	$0
		B)	$10,000
		C)	$12,000
		D)	$8,000
		E)	$15,000


8	Using the information in Question 7 determine the basis Fever has in its new asset?
		A)	$25,000
		B)	$50,000
		C)	$35,000
		D)	$60,000
		E)	$45,000


9	Taxpayers who experience an involuntary conversion are allowed to defer any gains from the conversion if two conditions are met. One condition is that the property be replaced within two years following of the year of conversion. The other condition is?
		A)	The taxpayer must reinvest at least an amount equal to the basis in the property destroyed in any other asset.
		B)	The taxpayer must reinvest the entire amount realized in any other asset.
		C)	The taxpayer must reinvest the entire amount realized in rebuilding the converted asset.
		D)	The taxpayer must reinvest the entire amount realized in property similar or related in service or use.
		E)	None of these statements are correct for the second condition.


10	Jocko Corporation exchanges an investment asset with a basis of $35,000 for an investment asset with a fair market value of $70,000 and cash of $25,000. What is the fair market value of Jocko's original asset and what is Jocko's realized gain?
		A)	$95,000, $25,000
		B)	$70,000, $25,000
		C)	$95,000, $60,000
		D)	$95,000, $0
		E)	$95,000, $35,000

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