Question

8)Your friend JJ purchased a property for development. The property had a cost basis of $5,000,000, JJ paid $1,250,000 cash, the remaining $3,750,000 financed via non-recourse mortgage. Unfortunately, the development was a flop and JJ couldn’t meet the mortgage payment. At the time of default, the mortgage had a balance of $6,500,000 due to refinancing. The accumulated depreciation was $650,000 fair market value at the time of foreclosure was $6,000,000. What is the gain or loss on foreclosure?

	A.	Gain of $2,150,000
	B.	Gain of $5,950,000
	C.	Loss of $650,000
	D.	None of the other responses.
	E.	Gain of $5,350,000

10) Which of the following statements is correct?

	A.	Mike, who is a handy man, received concert tickets for doing repairs. The tickets had a FMV of $250 and a face value of $125. Mike included $125 in gross income.
	B.	Jenny won a car on the Price is Right. The retail price of the car is $35,000.  Jenny included $35,000 in her gross income.
	C.	John is 12 years old and the son of Tom and Ida.  Unfortunately, John was very sick and spent over 270 days in a hospital. Tom and Ida cannot claim John because more than half of the year, John was in a hospital and not at home.
	D.	Paul earned $500 in municipal bond interest.  He excluded this income from taxable income.
	E.	B and D only.

12) Emily was starting a new business.  She purchased a used truck for $30,150.  The cost to ship the truck was $925.  She had the car detailed and painted with her logo on it for $1,250.  Shortly after purchasing the vehicle, the truck needed brakes and tune-up.  The cost of the brakes and tune-up were $650 and $200, respectively. What is Emily's cost basis for the truck?   

	A.	32,325
	B.	30,150
	C.	30,800
	D.	33,175
	E.	31,400

Answer 1

Answer :

(8)

Particular		Explanation
Gain or (loss) on foreclosure	Gain of $2150000	Mortgage balance - Adjusted basis of the property = $6500000 - ($5000000 - $650000) = $2150000

(10) The correct answer is (c)

Explanation : Statement (C) is correct. Because according to income tax law if a person is dependent on someone then he will claim any relief.

(12).

Truck cost	$30150
Cost to ship truck	$925
The cost of brakers and tune up [$650 + $200]	$850
The cost of car paintitng and detaliling as well as logo	$1250
Total cost of the truck is	$33175

So, option (D) is correct answer

Note : The cost regarding car painting and detailling is also added because it is used a truck in business.