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Updated: May 31, 2026
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1. Which one of the following statements is correct with regard to an individual taxpayer who has elected to
amortize the premium on a bond that yields taxable interest?
A) The amortization is not treated as a reduction of taxable income.
B) The bond's basis is increased by the amortization.
C) The bond's basis is reduced by the amortization.
D) The amortization is treated as an itemized deduction.
2. 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) $520,000
B) $530,000
C) $560,000
D) $550,000
3. In which of the following situations may taxpayers file as married filing jointly?
A) Taxpayers who were divorced during the year.
B) Taxpayers who were married but lived under a legal separation agreement at the end of the year.
C) Taxpayers who were legally separated but lived together for the entire year.
D) Taxpayers who were married but lived apart during the year.
4. Smith made a gift of property to Thompson. Smith's basis in the property was $1,200. The fair market
value at the time of the gift was $1,400. Thompson sold the property for $2,500. What was the amount of
Thompson's gain on the disposition?
A) $1,300
B) $2,500
C) $0
D) $1,100
5. Which of the following is subject to the Uniform Capitalization Rules of Code Sec. 263A?
A) Warehousing costs incurred by a manufacturing company with $12 million in annual gross receipts.
B) Research and experimental expenditures.
C) Editorial costs incurred by a freelance writer.
D) Mine development and exploration costs.
Solutions:
| Question # 1 Answer: C | Question # 2 Answer: B | Question # 3 Answer: D | Question # 4 Answer: A | Question # 5 Answer: A |
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