On September 1,of the Current Year,James,a Cash-Basis Taxpayer,sells His Cottage

question 21

Multiple Choice

On September 1,of the current year,James,a cash-basis taxpayer,sells his cottage to Bill,also a cash-basis taxpayer,for $100,000.James' basis in the cottage is $65,000.The real property tax year is the calendar year.Real estate taxes on the property for the year are $3,650 and are payable in November of the current year.The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller.Assume Bill pays all of the real estate taxes in the current year.The effects of this sales structure will be

• A) \[\begin{array} {| l | l | l |}
• \hline\text { Taxes allocated to } & & \\
• \text { James } & \text { Taxes allocated to Bill } & \text { Effect on James' Gain } \\
• \hline \$ 0 & \$ 3,650 & \text { no effect on gain } \\
• \hline
• \end{array}\]
• B) \[\begin{array} { |l | l | l | }
• \hline \begin{array} { l }
• \text { Taxes allocated to } \\
• \text { James }
• \end{array} & \text { Taxes allocated to Bill } & \text { Effect on James' Gain } \\
• \hline \$ 3,650 & \$ 0 & \text { decrease gain by } \$ 1,220 \\
• \hline
• \end{array}\]
• C) \[\begin{array} {| l | l | l | }
• \hline \begin{array} { l }
• \text { Taxes allocated to } \\
• \text { James }
• \end{array} & \text { Taxes allocated to Bill } & \text { Effect on James' Gain } \\
• \hline \$ 2,430 & \$ 1,220 & \text { increase gain by } \$ 2,430 \\
• \hline
• \end{array}\]
• D) \[\begin{array} {| l | l | l | }
• \hline \begin{array} { l }
• \text { Taxes allocated to } \\
• \text { James }
• \end{array} & \text { Taxes allocated to Bill } & \text { Effect on James' Gain } \\
• \hline \$ 1,220 & \$ 2,430 & \text { increase gain by } \$ 1,220 \\
• \hline
• \end{array}\]

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Definitions:

Manufacturing Activities

Operations involved in the production of goods, including assembling raw materials, machining, and finishing products.

Manufacturing Overhead Costs

Indirect costs related to manufacturing that are not directly tied to specific products, such as maintenance, utilities, and management salaries.

Overhead Application

The process of assigning overhead costs to specific cost objects such as products or departments.

Cost Distribution

The process of allocating indirect costs to different departments, projects, or products based on relevant criteria or drivers.