25 May 1. Jason owns Blue Corporation bonds (face value of $10,
Question
1. Jason owns Blue Corporation bonds (face value of $10,000), purchased on January 1, 2014, for $11,000. The bonds have an annual interest rate of 8% and a maturity date of December 31, 2023. If Jason elects to amortize the bond premium, what is his taxable interest income for 2014 and the adjusted basis for the bonds at the end of 2014 (assuming straight-line amortization is appropriate)?
a. $800 and $11,000.
b. $800 and $10,900.
c. $700 and $11,000. d. $700 and $10,900.
e. None of the above.
2. A strip along the boundary of Joy’s land is condemned for a utility easement. She receives a payment of $7,500 from the utility company. Her basis in the land is $80,000. Which of the following is correct?
a. Joy must include the $7,500 in gross income.
b. Joy must reduce the basis of the land by $7,500.
c. Joy must include the $7,500 in the gross income and increase the basis of the land by $7,500.
d. Only a. and c. are correct.
e. a., b., and c. are correct.
3. Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie’s recognized gain or loss?
a. $0.
b. $12,000.
c. ($13,000).
d. ($25,000).
e. None of the above.
4. Noelle owns an automobile which she uses for personal use. Her adjusted basis is $45,000 (i.e., the original cost). The car is worth $22,000. Which of the following statements is correct?
a. If Noelle sells the car for $22,000, her realized loss of $23,000 is not recognized.
b. If Noelle exchanges the car for another car worth $22,000, her realized loss of $23,000 is not recognized.
c. If the car is stolen and it is uninsured, Noelle may be able to recognize part of her realized loss of $23,000.
d. Only a. and b. are correct.
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