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Question #1
On December 31, 1989, a building owned by Pine Corp. was totally destroyed by fire. The building had
fire insurance coverage up to $500,000. Other pertinent information as of December 31, 1989 follows:

During January 1990, before the 1989 financial statements were issued, Pine received insurance
proceeds of $500,000. On what amount should Pine base the determination of its loss on involuntary
conversion?

A. $550,000
B. $560,000
C. $530,000
D. $520,000

Question #2
Which of the following is subject to the Uniform Capitalization Rules of Code Sec. 263A?

A. Research and experimental expenditures.
B. Editorial costs incurred by a freelance writer.
C. Warehousing costs incurred by a manufacturing company with $12 million in annual gross receipts.
D. Mine development and exploration costs.

Question #3
In a tax year where the taxpayer pays qualified education expenses, interest income on the redemption of
qualified U.S. Series EE Bonds may be excluded from gross income. The exclusion is subject to a
modified gross income limitation and a limit of aggregate bond proceeds in excess of qualified higher
education expenses. Which of the following is (are) true?
I. The exclusion applies for education expenses incurred by the taxpayer, the taxpayer's spouse, or any
person whom the taxpayer may claim as a dependent for the year.
II. "Otherwise qualified higher education expenses" must be reduced by qualified scholarships not
includible in gross income.

A. Both I and II.
B. II only.
C. I only.
D. Neither I nor II.

Question #4
Greller owns 100 shares of Arden Corp., a publicly-traded company, which Greller purchased on January
1 , 2001, for $10,000. On January 1, 2003, Arden declared a 2-for-1 stock split when the fair market value
(FMV) of the stock was $120 per share. Immediately following the split, the FMV of Arden stock was $62
per share. On February 1, 2003, Greller had his broker specifically sell the 100 shares of Arden stock
received in the split when the FMV of the stock was $65 per share. What is the basis of the 100 shares of
Arden sold?

A. $5,000
B. $6,000
C. $6,200
D. $6,500

Question #5
Starr, a self-employed individual, purchased a piece of equipment for use in Starr's business. The costs
associated with the acquisition of the equipment were:

What is the depreciable basis of the equipment?

A. $58,400
B. $59,125
C. $55,000
D. $59,425

Solutions: