Question

10. Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $62,000 and it had an adjusted basis of $29,000 at the time of the exchange. The new machinery had a fair market value of $35,500. Arlington also received $3,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

MULTIPLE CHOICE

$0

$3,000

$6,500

$9,500

None of the choices are correct

11. Maren received 11 NQOs (each option gives her the right to purchase 11 shares of stock for $9 per share) at the time she started working when the stock price was $7 per share. When the share price was $16 per share, she exercised all of her options. Eighteen months later s he sold all of the shares for $21 per share. What is the amount of Maren's bargain element?

MULTIPLE CHOICE

$0

$847

$1,089

$1,936

None of these choices are correct

12. Grace's employer is now offering group-term life insurance. The company will provide each employee with $205,000 of group-term life insurance. It costs Grace's employer $920 to provide this amount of insurance to Grace each year. Assuming that Grace is 45 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit.

EXHIBIT 12-10 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

5-Year Age Bracket	Cost per $1,000 of Protection for One Month
Under 25	$0.05
25 to 29	0.06
30 to 34	0.08
35 to 39	0.09
40 to 44	0.10
45 to 49	0.15
50 to 54	0.23
55 to 59	0.43
60 to 64	0.66
65 to 69	1.27
70 and above	2.06

MULTIPLE CHOICE

$0

$23.25

$34.05

$73.80

Answer 1

10.Arilngton’s gain or loss on exchange (involving boot):

Step-1: Accounting treatment

• This transaction involves exchange of machinery for another machinery of similar asset and boot given in the form of office furniture.
• The gain or loss on the transaction shall be recognised at lower of the following:

• Fair market value of boot received or
• Realised gain on exchange of asset.

Step-2: Applying to current situation:

• Fair market value of office equipment-$3,000
• Realised gain

     

Particulars	Amount (in $)
Fair market value of new asset	35500
Add: value of boot received	3000
Less: Machinery adjusted base	(29000)
Realised gain	9500

Step-3: Conclusion:

• Answer-$3000
• Being lower of the fair value of boot received ($3000) or realised gain of $9500.

11. Step-1: Calculation of Bargain element:

No of share options received
No of shares per option
No of shares (11*11=121)	121 Shares
Market Price at the time of exercise
Option of share purchage rate
Bar Gain (121*$(16-9)=847

      Step-2: Conclusion: Answer-$847

12.Step-1: Pre-Requisites:

• As given, Grey is 45 years old, the amount that to be included is 15 cents per $1000 of coverage.

     Step-2: Calculation of Monthly Premium

Particulars	Note	Amount (in$)
Group Life Insurance amount		205000
Tax free benefit limit		50000
Taxable amount	($205000-$50,000)	155000
Monthly Premium		1000
No of Years	155000/1000=155	155 Years
Cost per $1000	Exhibit 12-10	.15
Monthly Premium	155*.15	23.25