TAX 4001 Final Exam 2024/2025 Exam
Questions and Correct Answers | New
Update
A fire destroyed furniture and fixtures used in Jock's business. Jock's
adjusted basis in the furniture and fixtures was $81,300. Jock received a
$100,000 reimbursement from his insurance company and immediately
spent $93,000 to purchase new furniture and fixtures. How much gain or
loss must Jock recognize on this involuntary conversion? - 🧠ANSWER
✔✔$7000
Which of the following statements concerning partnerships is false? -
🧠ANSWER ✔✔A partner is taxed annually on only that portion of a
partnership's taxable income that is actually distributed.
Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax
basis $111,700) to M&W Incorporated in exchange for 4,200 shares of
M&W stock. Immediately after the exchange, M&W had 7,800 shares of
outstanding stock. Determine Mrs. Brinkley's realized and recognized gain
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
1
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,on the exchange and the tax basis in her 4,200 M&W shares. - 🧠ANSWER
✔✔$228,500 gain realized and recognized; $340,200 basis in M&W shares
Princetown Incorporated has a $4.82 million basis in 88% of the
outstanding stock of Merryvale Corporation. Merryvale manufactures
Christmas decorations, cards, and wrapping paper. Princetown's board of
directors recently learned that Merryvale is bankrupt. The board voted
unanimously to dissolve the corporation and distribute all assets to
Merryvale's creditors. What is the tax consequence to Princetown of the
board's actions? - 🧠ANSWER ✔✔$4.82 million ordinary loss.
Mrs. Stile owns investment land subject to a $600,000 nonrecourse
mortgage. Her basis in the land is $212,000, and the land's appraised FMV
is $575,000. Mrs. Stile is considering defaulting on the mortgage and
allowing the creditor to foreclose. If Mrs. Stile disposes of the land through
a foreclosure, she will recognize: - 🧠ANSWER ✔✔$388,000 capital gain
Waters Corporation is an S corporation with two equal shareholders, Mia
Jones and David Kerns. This year, Waters recorded the following items of
income and expense:
Sales revenue $ 500,000
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
,Interest income 6,000
Long-term capital gain 10,000
Cost of goods sold (250,000)
Salary and wages (75,000)
Other operating expenses (55,000)
Waters distributed $25,000 to each of its shareholders during the year. If
Mia's adjusted tax basis in her partnership interest was $50,000 at the
beginning of the year, compute her adjusted tax basis in her partnership
interest at the end of the year. - 🧠ANSWER ✔✔$93,000
Grantly Seafood is a calendar year taxpayer. In 2021, a hurricane
destroyed three of Grantly's fishing boats with a $784,500 aggregate
adjusted tax basis. On October 12, 2021, Grantly received a $1 million
reimbursement from its insurance company. On May 19, 2022, Grantly
purchased a new fishing boat for $750,000. Compute Grantly's recognized
gain or loss on the involuntary conversion and its tax basis in the new boat.
- 🧠ANSWER ✔✔$215,500 recognized gain; $750,000 basis in the boat
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
3
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, Mr. and Mrs. Cox reported $490,000 AGI on their joint return. The couple
has three dependent children under age 17. Compute their child tax credit.
- 🧠ANSWER ✔✔$1,500
Honu, Incorporated has book income of $1,200,000. Book income includes
$380,000 income tax expense, $10,000 of municipal bond interest income,
and $150,000 of business meals expense. Based only on these items,
compute Honu's taxable income. - 🧠ANSWER ✔✔$1,645,000
Mr. and Mrs. Lansing, who file a joint tax return, have four dependent
children under age 17. Which of the following statements is false? -
🧠ANSWER ✔✔None of these choices are false.
Which of the following statements regarding S corporations is true? -
🧠ANSWER ✔✔Generally, the transfer of property by a controlling
shareholder to a newly-formed S corporation in exchange for stock is a
nontaxable event.
Which of the following statements regarding alternative business forms is
true? - 🧠ANSWER ✔✔Some states treat S corporations as taxable
corporations for purposes of corporate franchise taxes.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
Questions and Correct Answers | New
Update
A fire destroyed furniture and fixtures used in Jock's business. Jock's
adjusted basis in the furniture and fixtures was $81,300. Jock received a
$100,000 reimbursement from his insurance company and immediately
spent $93,000 to purchase new furniture and fixtures. How much gain or
loss must Jock recognize on this involuntary conversion? - 🧠ANSWER
✔✔$7000
Which of the following statements concerning partnerships is false? -
🧠ANSWER ✔✔A partner is taxed annually on only that portion of a
partnership's taxable income that is actually distributed.
Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax
basis $111,700) to M&W Incorporated in exchange for 4,200 shares of
M&W stock. Immediately after the exchange, M&W had 7,800 shares of
outstanding stock. Determine Mrs. Brinkley's realized and recognized gain
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
1
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,on the exchange and the tax basis in her 4,200 M&W shares. - 🧠ANSWER
✔✔$228,500 gain realized and recognized; $340,200 basis in M&W shares
Princetown Incorporated has a $4.82 million basis in 88% of the
outstanding stock of Merryvale Corporation. Merryvale manufactures
Christmas decorations, cards, and wrapping paper. Princetown's board of
directors recently learned that Merryvale is bankrupt. The board voted
unanimously to dissolve the corporation and distribute all assets to
Merryvale's creditors. What is the tax consequence to Princetown of the
board's actions? - 🧠ANSWER ✔✔$4.82 million ordinary loss.
Mrs. Stile owns investment land subject to a $600,000 nonrecourse
mortgage. Her basis in the land is $212,000, and the land's appraised FMV
is $575,000. Mrs. Stile is considering defaulting on the mortgage and
allowing the creditor to foreclose. If Mrs. Stile disposes of the land through
a foreclosure, she will recognize: - 🧠ANSWER ✔✔$388,000 capital gain
Waters Corporation is an S corporation with two equal shareholders, Mia
Jones and David Kerns. This year, Waters recorded the following items of
income and expense:
Sales revenue $ 500,000
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
2
PRIVACY STATEMENT. ALL RIGHTS RESERVED
,Interest income 6,000
Long-term capital gain 10,000
Cost of goods sold (250,000)
Salary and wages (75,000)
Other operating expenses (55,000)
Waters distributed $25,000 to each of its shareholders during the year. If
Mia's adjusted tax basis in her partnership interest was $50,000 at the
beginning of the year, compute her adjusted tax basis in her partnership
interest at the end of the year. - 🧠ANSWER ✔✔$93,000
Grantly Seafood is a calendar year taxpayer. In 2021, a hurricane
destroyed three of Grantly's fishing boats with a $784,500 aggregate
adjusted tax basis. On October 12, 2021, Grantly received a $1 million
reimbursement from its insurance company. On May 19, 2022, Grantly
purchased a new fishing boat for $750,000. Compute Grantly's recognized
gain or loss on the involuntary conversion and its tax basis in the new boat.
- 🧠ANSWER ✔✔$215,500 recognized gain; $750,000 basis in the boat
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
3
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, Mr. and Mrs. Cox reported $490,000 AGI on their joint return. The couple
has three dependent children under age 17. Compute their child tax credit.
- 🧠ANSWER ✔✔$1,500
Honu, Incorporated has book income of $1,200,000. Book income includes
$380,000 income tax expense, $10,000 of municipal bond interest income,
and $150,000 of business meals expense. Based only on these items,
compute Honu's taxable income. - 🧠ANSWER ✔✔$1,645,000
Mr. and Mrs. Lansing, who file a joint tax return, have four dependent
children under age 17. Which of the following statements is false? -
🧠ANSWER ✔✔None of these choices are false.
Which of the following statements regarding S corporations is true? -
🧠ANSWER ✔✔Generally, the transfer of property by a controlling
shareholder to a newly-formed S corporation in exchange for stock is a
nontaxable event.
Which of the following statements regarding alternative business forms is
true? - 🧠ANSWER ✔✔Some states treat S corporations as taxable
corporations for purposes of corporate franchise taxes.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
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PRIVACY STATEMENT. ALL RIGHTS RESERVED
