Question 1

Gupta Company made the following sales of capital assets this year.   What is the effect of the three sales on Gupta's taxable income?

Accepted Answer

A) $700 increase 
B) $12,900 increase 
C) No effect 
D) None of the choices are correct 
A) $700 increase 
B) $12,900 increase 
C) No effect 
D) None of the choices are correct

Question 2

Tullia Inc.recognized $500,000 ordinary income,$22,600 net Section 1231 gain,and $6,000 net capital loss this year.Tullia's taxable income is $522,600.

Accepted Answer

A) True 
 B)False

Question 3

Fantino Inc.was incorporated in 2018 and adopted a calendar year for tax purposes.Here is a schedule of Fantino's taxable income for 2018 and (tax rate is 21% for 2019).   In 2020,Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss.Which of the following statements is true?

Accepted Answer

A) Fantino can deduct its $14,000 net capital loss only on a carryforward basis. 
B) Fantino can carry the net capital loss back to 2018 and receive a $2,940 refund of 2018 tax. 
C) Fantino can deduct the capital loss against its 2020 ordinary income,producing $2,940 of tax savings. 
D) Fantino can carry the net capital loss back to 2019 and receive a $1,218 refund of 2019 tax. 
A) Fantino can deduct its $14,000 net capital loss only on a carryforward basis. 
B) Fantino can carry the net capital loss back to 2018 and receive a $2,940 refund of 2018 tax. 
C) Fantino can deduct the capital loss against its 2020 ordinary income,producing $2,940 of tax savings. 
D) Fantino can carry the net capital loss back to 2019 and receive a $1,218 refund of 2019 tax.

Question 4

The installment sale method of accounting is not applicable to realized losses.

Accepted Answer

A) True 
 B)False

Question 5

A corporation can use the installment sale method of accounting for both book and tax purposes.

Accepted Answer

A) True 
 B)False

Question 6

Abada Inc.has a $925,000 basis in 100% of the stock of AbWest Inc.,which derives all its income from a manufacturing activity.If Abada determines that the AbWest stock is worthless,it can recognize a $925,000 ordinary loss.

Accepted Answer

A) True 
 B)False

Question 7

Blitza Inc.owned real property used for 12 years in its business that was subject to a $294,500 nonrecourse mortgage.Blitza failed to make timely mortgage payments,so the creditor foreclosed.At date of foreclosure,Blitza's basis in the property was $300,000,and the property's appraised FMV was $260,000.Which of the following statements is true?

Accepted Answer

A) Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage. 
B) Blitza recognizes a $40,000 Section 1231 loss. 
C) Blitza recognizes a $5,500 Section 1231 loss. 
D) Both Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage and Blitza recognizes a $5,500 Section 1231 loss is true. 
A) Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage. 
B) Blitza recognizes a $40,000 Section 1231 loss. 
C) Blitza recognizes a $5,500 Section 1231 loss. 
D) Both Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage and Blitza recognizes a $5,500 Section 1231 loss is true.

Question 8

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

Accepted Answer

A) Nilex can deduct its $14,500 net Section 1231 loss. 
B) Nilex can deduct its $34,100 net Section 1231 loss and can treat its $19,600 Section 1231 gain as a capital gain. 
C) Nilex must treat its $14,500 net Section 1231 loss as a capital loss. 
D) None of the above statements is true. 
A) Nilex can deduct its $14,500 net Section 1231 loss. 
B) Nilex can deduct its $34,100 net Section 1231 loss and can treat its $19,600 Section 1231 gain as a capital gain. 
C) Nilex must treat its $14,500 net Section 1231 loss as a capital loss. 
D) None of the above statements is true.

Question 9

Dolzer Inc.sold a business asset with a $474,000 adjusted book and tax basis for $775,000.The purchaser paid $100,000 in cash and gave Dolzer a note for the $675,000 balance of the price.Dolzer will not receive a payment on the note until next year.Assuming that Dolzer uses the installment sale method,compute Dolzer's book and tax gain in the year of sale.

Accepted Answer

A) Book gain $301,000; tax gain $100,000 
B) Book and tax gain $38,839 
C) Book gain $301,000; tax gain $38,839 
D) None of the above 
A) Book gain $301,000; tax gain $100,000 
B) Book and tax gain $38,839 
C) Book gain $301,000; tax gain $38,839 
D) None of the above

Question 10

This year,Adula Company sold equipment purchased in 2014 at a cost of $117,200.Accumulated depreciation through date of sale was $33,000.Which of the following statements is false?

Accepted Answer

A) If the sale price was $90,000,Adula recognized $5,800 ordinary gain. 
B) If the sale price was $120,000 Adula recognized $33,000 ordinary gain and $2,800 Section 1231 gain. 
C) If the sale price was $80,000,Adula recognized $4,200 ordinary loss. 
D) None of the above is false. 
A) If the sale price was $90,000,Adula recognized $5,800 ordinary gain. 
B) If the sale price was $120,000 Adula recognized $33,000 ordinary gain and $2,800 Section 1231 gain. 
C) If the sale price was $80,000,Adula recognized $4,200 ordinary loss. 
D) None of the above is false.

Question 11

Zeron Inc.generated $1,349,600 ordinary income from operations this year.It also recognized $29,200 recaptured ordinary income,$21,000 net Section 1231 gain,and $14,900 net capital loss on the sale of assets.Compute Zeron's taxable income.

Accepted Answer

A) $1,349,000 
B) $1,378,800 
C) $1,384,900 
D) $1,399,800 
A) $1,349,000 
B) $1,378,800 
C) $1,384,900 
D) $1,399,800

Question 12

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

Accepted Answer

A) -0- 
B) $5,000 
C) $22,900 
D) None of the above 
A) -0- 
B) $5,000 
C) $22,900 
D) None of the above

Question 13

Brenda sold investment land for $200,000 in June.Her basis in the land was $75,000.The purchaser paid Brenda $40,000 cash and gave her his 5-year,interest-bearing note for the $160,000 remaining contract price.In December,Brenda received a $20,000 principle payment on the note.Brenda's recognized gain this year is:

Accepted Answer

A) $125,000 
B) $60,000 
C) $37,500 
D) $22,500 
A) $125,000 
B) $60,000 
C) $37,500 
D) $22,500

Question 14

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a capital asset?

Accepted Answer

A) Supplies used in a business 
B) Business inventory 
C) Land used in a business 
D) None of the above 
A) Supplies used in a business 
B) Business inventory 
C) Land used in a business 
D) None of the above

Question 16

Nolan Inc.sold marketable securities with a $223,000 basis to Totem Company.Compute Nolan's recognized gain or loss assuming that:
a.Nolan's amount realized on sale was $160,000,and Nolan and Totem are unrelated parties.
b.Nolan's amount realized on sale was $275,000,and Nolan and Totem are unrelated parties.
c.Nolan's amount realized on sale was $160,000,and Nolan and Totem are related parties.
d.Nolan's amount realized on sale was $275,000,and Nolan and Totem are related parties.

Accepted Answer

a.Nolan recognizes a $63,000 l

Question 17

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Accepted Answer

A) True 
 B)False

Question 18

Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

Accepted Answer

A) True 
 B)False

Question 19

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Accepted Answer

A) $42,000 unfavorable permanent book/tax difference 
B) $42,000 unfavorable temporary book/tax difference 
C) $42,000 favorable permanent book/tax difference 
D) No book/tax difference 
A) $42,000 unfavorable permanent book/tax difference 
B) $42,000 unfavorable temporary book/tax difference 
C) $42,000 favorable permanent book/tax difference 
D) No book/tax difference

Question 20

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

Accepted Answer

A) Loss realized on a related party sale 
B) Sale of a depreciable asset with a $100,000 book basis and a $33,600 adjusted tax basis 
C) Gain recognized under the installment method 
D) Net capital loss 
A) Loss realized on a related party sale 
B) Sale of a depreciable asset with a $100,000 book basis and a $33,600 adjusted tax basis 
C) Gain recognized under the installment method 
D) Net capital loss

Gupta Company made the following sales of capital assets this year. What is the effect of the three sales on Gupta's taxable income?

Tullia Inc.recognized $500,000 ordinary income,$22,600 net Section 1231 gain,and $6,000 net capital loss this year.Tullia's taxable income is $522,600.

The installment sale method of accounting is not applicable to realized losses.

A corporation can use the installment sale method of accounting for both book and tax purposes.

Abada Inc.has a $925,000 basis in 100% of the stock of AbWest Inc.,which derives all its income from a manufacturing activity.If Abada determines that the AbWest stock is worthless,it can recognize a $925,000 ordinary loss.

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

This year,Adula Company sold equipment purchased in 2014 at a cost of $117,200.Accumulated depreciation through date of sale was $33,000.Which of the following statements is false?

Zeron Inc.generated $1,349,600 ordinary income from operations this year.It also recognized $29,200 recaptured ordinary income,$21,000 net Section 1231 gain,and $14,900 net capital loss on the sale of assets.Compute Zeron's taxable income.

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

Which of the following is a capital asset?

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 8: Property Dispositions

Gupta Company made the following sales of capital assets this year. What is the effect of the three sales on Gupta's taxable income?

Tullia Inc.recognized $500,000 ordinary income,$22,600 net Section 1231 gain,and $6,000 net capital loss this year.Tullia's taxable income is $522,600.

The installment sale method of accounting is not applicable to realized losses.

A corporation can use the installment sale method of accounting for both book and tax purposes.

Abada Inc.has a $925,000 basis in 100% of the stock of AbWest Inc.,which derives all its income from a manufacturing activity.If Abada determines that the AbWest stock is worthless,it can recognize a $925,000 ordinary loss.

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

This year,Adula Company sold equipment purchased in 2014 at a cost of $117,200.Accumulated depreciation through date of sale was $33,000.Which of the following statements is false?

Zeron Inc.generated $1,349,600 ordinary income from operations this year.It also recognized $29,200 recaptured ordinary income,$21,000 net Section 1231 gain,and $14,900 net capital loss on the sale of assets.Compute Zeron's taxable income.

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

Which of the following is a capital asset?

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters