Problem 2-61 (Algorithmic) Capital Recovery Concept (LO. 5)

Determine the taxpayer's adjusted basis in each of the following situations. If any changes are made in the original basis of the asset, why are they necessary?

If an amount is zero, enter "0".

a. Simone purchases 280 shares of Wilguess, Inc., stock in 2013 for $5,880. In 2013 and 2014, Wilguess pays cash dividends of $2 per share. In 2015, Wilguess pays a 40% stock dividend (nontaxable), and Simone receives an additional 112 shares of stock.

The receipt of the cash dividend is - Select your answer -taxablenontaxableCorrect 1 of Item 1 and Simone's basis in the stock after the cash dividend is $. The receipt of the stock dividend is - Select your answer -taxablenontaxableCorrect 3 of Item 1 and Simone's basis in the stock after the stock dividend is $.

b. Symbol Corporation purchases a building in 2012 at a cost of $223,000. Annual maintenance costs on the building are $75,500. In 2014, Symbol adds a wing to the building at a cost of $62,500. In 2015, the building is painted at a cost of $24,500. Symbol deducts $5,000 in depreciation in 2012, $7,400 in 2013, and $8,000 in 2014 and 2015.

The depreciation - Select your answer -increasesreducesCorrect 1 of Item 2 the basis of the building. The adjusted basis at the end of 2015 is $.

c. Lorissa purchases land as an investment in 2013 for $33,300. Property taxes on the property are $430 per year. In 2014, Lorissa is assessed $1,950 by the county assessor for her share of a sidewalk that the county builds adjacent to the land. Lorissa pays the assessment in 2015.

The property taxes - Select your answer -areare notCorrect 1 of Item 3 deducted in the year paid and - Select your answer -affectdo not affectCorrect 2 of Item 3 the basis. The assessment for the sidewalk - Select your answer -isis notCorrect 3 of Item 3 a deductible tax. Therefore, it must be - Select your answer -added toremoved fromCorrect 4 of Item 3 the basis of the land, resulting in an adjusted basis of $ at the end of 2015.

d. The Barton Brothers Partnership purchases a computer in 2013 for $7,400. The partnership elects to deduct the entire cost of the computer in 2013. In 2015, Barton Brothers spends $200 to repair the computer.

The original basis of the computer is $7,400. Adjustments are made to the basis for any expenditure that - Select your answer -cancannotCorrect 1 of Item 4 be currently deducted and for any capital recoveries of the computer investment. The $200 repair cost is a 2015 expense and - Select your answer -affectsdoes not affectCorrect 2 of Item 4 basis, resulting in an adjusted basis of $.