Tax Accounting Chapter 9 questions
with correct answers.
adjusted basis ANS - The original basis, plus or minus changes in the amount of unrecovered
investment. It roughly corresponds to the book-value concept studied in financial accounting. At any
point in time, the remaining capital investment to be recovered is represented by an asset's adjusted
basis. An asset's adjusted basis may never be less than zero.
amount realized ANS - Capital is recovered at disposition by offsetting the adjusted basis at the date of
disposition with the amount realized from the property disposition. The amount realized from a
disposition is the amount received from the disposition (generally the sales price of the property), less
the expenses incurred to make the disposition. If the amount is greater than the adjusted basis, the
taxpayer has a realized gain on the disposition. If the amount realized is less than the adjusted basis,
capital investment is not fully recovered, resulting in a realized loss
bargain purchases ANS - A true bargain purchase is taxable to the buyer. Such a purchase occurs when
the difference between the purchase price and the fair market value represents an effort by the seller to
confer an economic advantage to the buyer. Bargain purchases are typically found in
employer/employee purchases and related party transactions.
carryover basis ANS - Indicates that all or part of an asset's basis transfers from one owner to another or
from one asset to another. Transactions resulting in carryover basis are subject to special rules for
determining holding period—an adding on of the holding period of the prior asset or of a prior owner.
conduit entity ANS - A nontaxable reporting entity, the tax attributes of which (income, deductions,
losses, credits) flow through to its owner(s) for tax purposes
direct construction costs ANS - Costs that are actually incurred to physically construct an asset.
Examples of direct costs include materials, labor, supplies, and payments to subcontractors
goodwill ANS - In the purchase of a business, goodwill represents the difference between the purchase
price and fair market value of the net assets acquired. If purchased after August 9, 1993, goodwill is
amortized over 15 years.
with correct answers.
adjusted basis ANS - The original basis, plus or minus changes in the amount of unrecovered
investment. It roughly corresponds to the book-value concept studied in financial accounting. At any
point in time, the remaining capital investment to be recovered is represented by an asset's adjusted
basis. An asset's adjusted basis may never be less than zero.
amount realized ANS - Capital is recovered at disposition by offsetting the adjusted basis at the date of
disposition with the amount realized from the property disposition. The amount realized from a
disposition is the amount received from the disposition (generally the sales price of the property), less
the expenses incurred to make the disposition. If the amount is greater than the adjusted basis, the
taxpayer has a realized gain on the disposition. If the amount realized is less than the adjusted basis,
capital investment is not fully recovered, resulting in a realized loss
bargain purchases ANS - A true bargain purchase is taxable to the buyer. Such a purchase occurs when
the difference between the purchase price and the fair market value represents an effort by the seller to
confer an economic advantage to the buyer. Bargain purchases are typically found in
employer/employee purchases and related party transactions.
carryover basis ANS - Indicates that all or part of an asset's basis transfers from one owner to another or
from one asset to another. Transactions resulting in carryover basis are subject to special rules for
determining holding period—an adding on of the holding period of the prior asset or of a prior owner.
conduit entity ANS - A nontaxable reporting entity, the tax attributes of which (income, deductions,
losses, credits) flow through to its owner(s) for tax purposes
direct construction costs ANS - Costs that are actually incurred to physically construct an asset.
Examples of direct costs include materials, labor, supplies, and payments to subcontractors
goodwill ANS - In the purchase of a business, goodwill represents the difference between the purchase
price and fair market value of the net assets acquired. If purchased after August 9, 1993, goodwill is
amortized over 15 years.
