29 Jun uestion 43. Which of the following st
uestion
43. Which of the following statements about investment property is false?
A.
The term securities includes corporate stock, certificates of deposit, notes, bonds, and other debt
instruments.
B. Interest and dividends are taxed at the same rate as long-term capital gain.
C.
Interest on private activity bonds issued by a state or local government is excluded from ordinary
income.
D.
A mutual fund is a diversified portfolio of securities owned and managed by a regulated investment
company.
44. In 2009, Mr. Lewis paid $40,000 for a newly issued corporate bond with a $50,000 stated redemption
value. This year, he sold the bond for $43,900. Through date of sale, Mr. Lewis recognized $940 of the
original issue discount (OID) as accrued interest income. Compute his gain or loss on sale.
A. $3,900 long-term capital gain
B. $3,900 ordinary income
C. $2,960 ordinary income
D. $2,960 long-term capital gain
45. In 2009, Mr. Young paid $40,000 to buy a publicly traded corporate bond through his broker. The bond’s
stated redemption value was $45,000. This year, Mr. Young sold the bond for $47,100. Compute his gain
or loss on sale.
A. $2,100 long-term capital gain.
B. $7,100 ordinary income.
C. $5,000 ordinary income and $2,100 long-term capital gain.
D. $7,100 long-term capital gain.
46. Jane, a cash basis individual, purchased a publicly traded bond at a $6,000 market discount. Which of the
following statements is true?
A. Jane must accrue the market discount as interest income over the life of the bond.
B. If Jane holds the bond to maturity, she will recognize a $6,000 capital gain.
C. If Jane holds the bond to maturity, she will recognize $6,000 ordinary income.
D. None of the statements is true.
47. At the beginning of the year, Calvin paid $5,000 for 60 shares of Eddington stock. In June, he received a
$300 cash distribution with respect to the stock. His Form 1099-DIV reported that $170 was an ordinary
dividend and $130 was nontaxable. Compute Calvin’s tax basis in his 60 shares at year-end.
A. $4,870
B. $4,700
C. $4,830
D. $5,000
48. At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock. She instructed her
broker to reinvest any dividends in additional Gravois shares. Her Form 1099-DIV reported that she
earned $820 dividend income which purchased 39 additional shares. Which of the following statements is
true?
A. Ms. Faro recognizes no dividend income and has a $15,000 basis in her 789 shares.
B. Ms. Faro recognizes no dividend income and has a $15,820 basis in her 789 shares.
C. Ms. Faro recognizes $820 dividend income and has a $15,820 basis in her 789 shares.
D. None of the above statements is true.
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