[slimming123]

Please help me out with the following questions:

1. On June 1, 2012, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2012 for the patent.

a. $0.

b. $1,667.

c. $11,667.

d. $35,000.

e. None of the above

2. In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

a. Disallowed loss to James of $2,000; gain to Lance of $1,000.

b. Disallowed loss to Lance of $2,000; gain to James of $3,000.

c. Deductible loss to Lance of $2,000; gain to James of $3,000.

d. Disallowed loss to Lance of $2,000; gain to James of $1,000.

3. On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five year ago, Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?

a. $70,000.

b. $90,000.

c. $120,000.

d. $140,000.

e. None of the above.