Question 1

The holding period for a long-term capital asset must exceed one year for tax-favored treatment.

Accepted Answer

A) True 
 B)False

Question 2

A personal residence owned by an individual is a capital asset.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is correct?

Accepted Answer

A) The Section 1231 lookback rule converts potential long-term capital gain into ordinary income. 
B) The Section 1231 lookback rule converts ordinary gain into ordinary loss. 
C) The Section 1231 lookback rule converts casualty gain into long-term capital gain. 
D) The Section 1231 lookback rule applies only to realty. 
A) The Section 1231 lookback rule converts potential long-term capital gain into ordinary income. 
B) The Section 1231 lookback rule converts ordinary gain into ordinary loss. 
C) The Section 1231 lookback rule converts casualty gain into long-term capital gain. 
D) The Section 1231 lookback rule applies only to realty.

Question 4

The most common ordinary income assets are receivables and inventory.

Accepted Answer

A) True 
 B)False

Question 5

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.

Accepted Answer

A) 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January 22 of year 4. 
B) 20 acres of investment land bought for $8,000 on January 31 of year 3 and sold for $7,000 on February 2 of year 4. 
C) 150 shares of Data stock bought for $15,000 on April 1 of year 2 and sold for $17,000 on May 28 of year 4. 
A) 100 shares of Bilco stock bought for $8,000 on January 22 of year 3 and sold for $10,000 on January 22 of year 4. 
B) 20 acres of investment land bought for $8,000 on January 31 of year 3 and sold for $7,000 on February 2 of year 4. 
C) 150 shares of Data stock bought for $15,000 on April 1 of year 2 and sold for $17,000 on May 28 of year 4.

Question 6

An individual's net Section 1231 gain is given the tax-favored treatment of a long-term capital asset.

Accepted Answer

A) True 
 B)False

Question 7

Tina is single and one of the founding shareholders of Exacta Corporation.She acquired her Exacta Section 1244 stock four years ago for $123,000.During the current year, Tina sold all of her Exacta stock to an unrelated party for $40,000.Tina had no other capital gains or losses during the year.What is the maximum amount of loss Tina can deduct in the current year for the Exacta stock?

Accepted Answer

A) $83,000 
B) $53,000 
C) $50,000 
D) $3,000 
A) $83,000 
B) $53,000 
C) $50,000 
D) $3,000

Question 8

Caldwell Corporation sold a factory building for $300,000 that it originally purchased for $600,000.It had an adjusted basis of $200,000 due to having taken $400,000 of depreciation.What is Caldwell's Section 1231 gain on the sale of the property?

Accepted Answer

A) $400,000 
B) $300,000 
C) $100,000 
D) $80,000 
A) $400,000 
B) $300,000 
C) $100,000 
D) $80,000

Question 9

Mason received $20,000 cash and equipment worth $10,000 in exchange for land that was encumbered by an $80,000 mortgage that the buyer assumed.Mason's basis for the land is $90,000.What is Mason's realized gain or loss on the sale?

Accepted Answer

A) $20,000 realized gain 
B) $10,000 realized gain 
C) $10,000 realized loss 
D) no realized gain or loss 
A) $20,000 realized gain 
B) $10,000 realized gain 
C) $10,000 realized loss 
D) no realized gain or loss

Question 10

Lopez Corporation sold equipment that it had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago.As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note.Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment.How much of Lopez Corporation's realized gain on the sale will be a net Section 1231 gain?

Accepted Answer

A) $30,000 
B) $142,500 
C) $212,500 
D) $187,500 
A) $30,000 
B) $142,500 
C) $212,500 
D) $187,500

Question 11

The tax effect of a sale of an asset at a gain increases the cash flow from the sale.

Accepted Answer

A) True 
 B)False

Question 12

Carol used her auto 60 percent for business and 40 percent for personal use.She purchased it for $10,800 and has taken $3,992 of depreciation on it.What is her recognized gain on a sale for $7,800 and what is it character?

Accepted Answer

A) $6,808 Section 1231 gain 
B) $3,808 Section 1245 recapture 
C) $2,192 Section 1245 recapture 
D) $992 Section 1231 gain 
A) $6,808 Section 1231 gain 
B) $3,808 Section 1245 recapture 
C) $2,192 Section 1245 recapture 
D) $992 Section 1231 gain

Question 13

A gain must be recognized unless some tax provision allows nonrecognition or deferral.

Accepted Answer

A) True 
 B)False

Question 14

Vero Corporation owns $200,000 of equipment used for its business and the building that the business is located in that is valued at $175,000.The business is successful and has investments in marketable securities valued at $45,000.What is the value of its capital assets?

Accepted Answer

A) $45,000 
B) $75,000 
C) $275,000 
D) $320,000 
A) $45,000 
B) $75,000 
C) $275,000 
D) $320,000

Question 15

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission.The buyer assumed Wesley's $13,000 mortgage on the property.Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it.What is Wesley's realized gain on the sale?

Accepted Answer

A) $6,000 
B) $9,000 
C) $19,000 
D) $22,000 
A) $6,000 
B) $9,000 
C) $19,000 
D) $22,000

Question 16

Grill Corporation sold all of its business assets when it went out of business.Which of the following is a capital asset?

Accepted Answer

A) Inventory 
B) Office equipment 
C) Goodwill 
D) Factory machinery 
A) Inventory 
B) Office equipment 
C) Goodwill 
D) Factory machinery

Question 17

Section 291 recapture only applies to a corporation.

Accepted Answer

A) True 
 B)False

Question 18

Gain representing depreciation recapture on equipment is taxed at ordinary income rates.

Accepted Answer

A) True 
 B)False

Question 19

During the current year, Zach had taxable income of $100,000 before considering the following property transactions: $\begin{array} { l l } 
\text { Short-term \quad capital gain } & \$ 2,000 \
\text { Short-term \quad capital loss } & 8,000 \
\text { Long-tem \quad capital gain } & 3,000 \
\text { Long-term \quad capital loss } & 2,000 \
\text { Section 1231 gain } & 8,000 \
\text { Secton 1231 loss } & 7,000
\end{array}$ Two years ago Zach had a $4,000 gain from the sale of a Section 1231 asset but last year Zach had no capital or Section 1231 gains or losses.What effect will the above property transactions have on Zach current taxable income and will there be any carryforward or carryback of gains or losses?

Accepted Answer

A) Reduces Zach's current taxable income by $4,000 
B) Reduces Zach's current taxable income by $3,000 and he will carry $1,000 loss forward 
C) Zach has $1,000 additional ordinary income this year due to recapture and he can carry the remaining losses forward 
D) Zach has $1,000 additional ordinary income this year due to recapture, he can deduct $3,000 loss this year, and can carry any remaining losses forward 
A) Reduces Zach's current taxable income by $4,000 
B) Reduces Zach's current taxable income by $3,000 and he will carry $1,000 loss forward 
C) Zach has $1,000 additional ordinary income this year due to recapture and he can carry the remaining losses forward 
D) Zach has $1,000 additional ordinary income this year due to recapture, he can deduct $3,000 loss this year, and can carry any remaining losses forward

Question 20

A mixed-use asset is an asset that is used for both personal purposes and business activities.

Accepted Answer

A) True 
 B)False

The holding period for a long-term capital asset must exceed one year for tax-favored treatment.

A personal residence owned by an individual is a capital asset.

Which of the following is correct?

The most common ordinary income assets are receivables and inventory.

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.

An individual's net Section 1231 gain is given the tax-favored treatment of a long-term capital asset.

Caldwell Corporation sold a factory building for $300,000 that it originally purchased for $600,000.It had an adjusted basis of $200,000 due to having taken $400,000 of depreciation.What is Caldwell's Section 1231 gain on the sale of the property?

Mason received $20,000 cash and equipment worth $10,000 in exchange for land that was encumbered by an $80,000 mortgage that the buyer assumed.Mason's basis for the land is $90,000.What is Mason's realized gain or loss on the sale?

The tax effect of a sale of an asset at a gain increases the cash flow from the sale.

Carol used her auto 60 percent for business and 40 percent for personal use.She purchased it for $10,800 and has taken $3,992 of depreciation on it.What is her recognized gain on a sale for $7,800 and what is it character?

A gain must be recognized unless some tax provision allows nonrecognition or deferral.

Vero Corporation owns $200,000 of equipment used for its business and the building that the business is located in that is valued at $175,000.The business is successful and has investments in marketable securities valued at $45,000.What is the value of its capital assets?

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission.The buyer assumed Wesley's $13,000 mortgage on the property.Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it.What is Wesley's realized gain on the sale?

Grill Corporation sold all of its business assets when it went out of business.Which of the following is a capital asset?

Section 291 recapture only applies to a corporation.

Gain representing depreciation recapture on equipment is taxed at ordinary income rates.

A mixed-use asset is an asset that is used for both personal purposes and business activities.

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 8: Property Dispositions

The holding period for a long-term capital asset must exceed one year for tax-favored treatment.

A personal residence owned by an individual is a capital asset.

Which of the following is correct?

The most common ordinary income assets are receivables and inventory.

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.

An individual's net Section 1231 gain is given the tax-favored treatment of a long-term capital asset.

Caldwell Corporation sold a factory building for $300,000 that it originally purchased for $600,000.It had an adjusted basis of $200,000 due to having taken $400,000 of depreciation.What is Caldwell's Section 1231 gain on the sale of the property?

Mason received $20,000 cash and equipment worth $10,000 in exchange for land that was encumbered by an $80,000 mortgage that the buyer assumed.Mason's basis for the land is $90,000.What is Mason's realized gain or loss on the sale?

The tax effect of a sale of an asset at a gain increases the cash flow from the sale.

Carol used her auto 60 percent for business and 40 percent for personal use.She purchased it for $10,800 and has taken $3,992 of depreciation on it.What is her recognized gain on a sale for $7,800 and what is it character?

A gain must be recognized unless some tax provision allows nonrecognition or deferral.

Vero Corporation owns $200,000 of equipment used for its business and the building that the business is located in that is valued at $175,000.The business is successful and has investments in marketable securities valued at $45,000.What is the value of its capital assets?

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission.The buyer assumed Wesley's $13,000 mortgage on the property.Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it.What is Wesley's realized gain on the sale?

Grill Corporation sold all of its business assets when it went out of business.Which of the following is a capital asset?

Section 291 recapture only applies to a corporation.

Gain representing depreciation recapture on equipment is taxed at ordinary income rates.

A mixed-use asset is an asset that is used for both personal purposes and business activities.

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Employee Compensation

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters