Question 1

The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 2

Kuong Inc.sold a commercial office building used in the corporate business for $1.5 million.Kuong purchased the building in 2001 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale.Kuong should characterize the $638,000 gain recognized on sale as:

Accepted Answer

A) $127,600 ordinary gain and $510,400 Section 1231 gain 
B) $107,600 ordinary gain and $530,400 Section 1231 gain 
C) $538,000 ordinary gain and $100,000 Section 1231 gain 
D) Section 1231 gain 
A) $127,600 ordinary gain and $510,400 Section 1231 gain 
B) $107,600 ordinary gain and $530,400 Section 1231 gain 
C) $538,000 ordinary gain and $100,000 Section 1231 gain 
D) Section 1231 gain

Question 3

Which of the following is a Section 1231 asset?

Accepted Answer

A) Business inventory 
B) Business accounts receivable 
C) Supplies used in a business 
D) None of the above is a Section 1231 asset 
A) Business inventory 
B) Business accounts receivable 
C) Supplies used in a business 
D) None of the above is a Section 1231 asset

Question 4

Michael sold machinery used in his business for $50,000.He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through the date of sale.Compute and characterize Michael's gain on sale.

Accepted Answer

A) $17,800 Section 1231 gain 
B) $22,800 ordinary gain and $45,000 Section 1231 loss 
C) $17,800 ordinary gain 
D) $17,800 capital gain 
A) $17,800 Section 1231 gain 
B) $22,800 ordinary gain and $45,000 Section 1231 loss 
C) $17,800 ordinary gain 
D) $17,800 capital gain

Question 5

Stone Company recognized a $7,700 loss on sale of depreciable equipment held for three years.If Stone's accumulated MACRS depreciation on the equipment is $7,700 or more,the entire loss is ordinary.

Accepted Answer

A) True 
 B)False

Question 6

N&B Inc.sold land worth $385,000.The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land.N&B's amount realized on sale is $385,000.

Accepted Answer

A) True 
 B)False

Question 7

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

Accepted Answer

A) True 
 B)False

Question 8

Three years ago,ChaGo Inc.sold a business asset with a $39,400 adjusted tax basis for $130,000.The purchaser paid $50,000 cash and gave ChaGo a note for the $80,000 balance of the price.ChaGo is using the installment sale method to recognize its gain on sale.This year,ChaGo sold the note to a financial institution for the note's $55,000 face value (ChaGo had received a total of $25,000 principal payments on the note.)Compute ChaGo's gain recognized on sale of the installment note.

Accepted Answer

A) -0- 
B) $38,332 
C) $52,268 
D) $55,000 
A) -0- 
B) $38,332 
C) $52,268 
D) $55,000

Question 9

The installment sale method of accounting applies to which of the following?

Accepted Answer

A) $89,300 gain realized on sale of business inventory. 
B) $798,600 gain realized on sale of common stock in a publicly held corporation. 
C) ($41,500)loss realized on sale of land used in a trade or business. 
D) None of the above 
A) $89,300 gain realized on sale of business inventory. 
B) $798,600 gain realized on sale of common stock in a publicly held corporation. 
C) ($41,500)loss realized on sale of land used in a trade or business. 
D) None of the above

Question 10

Delta Inc.generated $668,200 ordinary income from operations this year.It also recognized $3,910 recaptured ordinary income,$5,000 net Section 1231 gain,and $14,600 net capital loss on the sale of assets.Compute Delta's taxable income.

Accepted Answer

A) $672,110 
B) $677,100 
C) $668,200 
D) $697,700 
A) $672,110 
B) $677,100 
C) $668,200 
D) $697,700

Question 11

The use of the installment sale method can result in an unfavorable difference between book income and taxable income in the year of sale.

Accepted Answer

A) True 
 B)False

Question 12

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Accepted Answer

A) True 
 B)False

Question 13

Mr.Beck sold real property with a $140,000 adjusted basis for $255,000.The buyer paid $148,000 cash and assumed Mr.Beck's $107,000 mortgage on the realty.Mr.Beck's realized gain or loss on sale is:

Accepted Answer

A) $115,000 gain 
B) $8,000 gain 
C) $33,000 loss 
D) $0 gain or loss 
A) $115,000 gain 
B) $8,000 gain 
C) $33,000 loss 
D) $0 gain or loss

Question 14

Murrow Corporation generated $285,700 income from the performance of services for its clients.Murrow also sold several operating assets during the year.Compute Murrow's taxable income under each of the following assumptions about the tax consequences of the asset sales.
a.Murrow recognized $6,800 recaptured ordinary income,a $23,200 net Section 1231 gain,and an $11,600 net capital loss.
b.Murrow recognized a $47,300 net Section 1231 loss and a $5,075 net capital loss.
c.Murrow recognized a $61,800 net Section 1231 gain and a $4,210 net capital gain.
d.Murrow recognized a $15,300 net Section 1231 loss and a $3,000 net capital gain.

Accepted Answer

a.Murrow's taxable income is $304,100 ($

Question 15

DiLamer Inc.paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation.The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored.What is the tax consequence to DiLamer of this bad news?

Accepted Answer

A) No loss recognition until DiLamer actually disposes of the bonds. 
B) $300,000 Section 1231 loss. 
C) $300,000 capital loss. 
D) $300,000 ordinary abandonment loss. 
A) No loss recognition until DiLamer actually disposes of the bonds. 
B) $300,000 Section 1231 loss. 
C) $300,000 capital loss. 
D) $300,000 ordinary abandonment loss.

Question 16

Lettuca Inc.generated a $77,050 ordinary loss from operations this year.It also recognized $5,920 recaptured ordinary income,$55,000 net Section 1231 loss,and $7,840 net capital loss on the sale of assets.Compute Lettuca's net operating loss.

Accepted Answer

A) ($77,050) 
B) ($126,130) 
C) ($132,050) 
D) ($133,970) 
A) ($77,050) 
B) ($126,130) 
C) ($132,050) 
D) ($133,970)

Question 17

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Accepted Answer

A) True 
 B)False

Question 18

Four years ago,Mrs.Beights purchased marketable securities for $75,000 cash.At the end of the current year,the FMV of the securities had plummeted to $4,000.Mrs.Beights may elect to recognize her $71,000 loss this year,even though she still owns the securities.

Accepted Answer

A) True 
 B)False

Question 19

Irby Inc.was incorporated in 2013 and adopted a calendar year.Here is a schedule of Irby's net Section 1231 gains and (losses)reported on its tax returns through 2018.   In 2019,Irby recognized a $14,750 gain on the sale of business land.How is this gain characterized on Irby's tax return?

Accepted Answer

A) $14,750 Section 1231 gain. 
B) $10,890 ordinary gain and $9,415 Section 1231 gain. 
C) $14,750 ordinary gain. 
D) None of the choices are correct. 
A) $14,750 Section 1231 gain. 
B) $10,890 ordinary gain and $9,415 Section 1231 gain. 
C) $14,750 ordinary gain. 
D) None of the choices are correct.

Question 20

Which of the following statements about Section 1250 recapture rule is false?

Accepted Answer

A) The rule applies to sales of depreciable realty by noncorporate taxpayers but not to sales by corporate taxpayers. 
B) The rule applies only to sales of depreciable realty placed in service before 1987. 
C) The rule applies only to sales of depreciable realty for which an accelerated tax depreciation method was used. 
D) The rule has no effect on the characterization of gain recognized on sale of any realty with a zero tax basis. 
A) The rule applies to sales of depreciable realty by noncorporate taxpayers but not to sales by corporate taxpayers. 
B) The rule applies only to sales of depreciable realty placed in service before 1987. 
C) The rule applies only to sales of depreciable realty for which an accelerated tax depreciation method was used. 
D) The rule has no effect on the characterization of gain recognized on sale of any realty with a zero tax basis.

The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

Kuong Inc.sold a commercial office building used in the corporate business for $1.5 million.Kuong purchased the building in 2001 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale.Kuong should characterize the $638,000 gain recognized on sale as:

Which of the following is a Section 1231 asset?

Michael sold machinery used in his business for $50,000.He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through the date of sale.Compute and characterize Michael's gain on sale.

Stone Company recognized a $7,700 loss on sale of depreciable equipment held for three years.If Stone's accumulated MACRS depreciation on the equipment is $7,700 or more,the entire loss is ordinary.

N&B Inc.sold land worth $385,000.The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land.N&B's amount realized on sale is $385,000.

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

The installment sale method of accounting applies to which of the following?

Delta Inc.generated $668,200 ordinary income from operations this year.It also recognized $3,910 recaptured ordinary income,$5,000 net Section 1231 gain,and $14,600 net capital loss on the sale of assets.Compute Delta's taxable income.

The use of the installment sale method can result in an unfavorable difference between book income and taxable income in the year of sale.

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Mr.Beck sold real property with a $140,000 adjusted basis for $255,000.The buyer paid $148,000 cash and assumed Mr.Beck's $107,000 mortgage on the realty.Mr.Beck's realized gain or loss on sale is:

DiLamer Inc.paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation.The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored.What is the tax consequence to DiLamer of this bad news?

Lettuca Inc.generated a $77,050 ordinary loss from operations this year.It also recognized $5,920 recaptured ordinary income,$55,000 net Section 1231 loss,and $7,840 net capital loss on the sale of assets.Compute Lettuca's net operating loss.

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Four years ago,Mrs.Beights purchased marketable securities for $75,000 cash.At the end of the current year,the FMV of the securities had plummeted to $4,000.Mrs.Beights may elect to recognize her $71,000 loss this year,even though she still owns the securities.

Irby Inc.was incorporated in 2013 and adopted a calendar year.Here is a schedule of Irby's net Section 1231 gains and (losses)reported on its tax returns through 2018. In 2019,Irby recognized a $14,750 gain on the sale of business land.How is this gain characterized on Irby's tax return?

Which of the following statements about Section 1250 recapture rule is false?

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

The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

Kuong Inc.sold a commercial office building used in the corporate business for $1.5 million.Kuong purchased the building in 2001 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale.Kuong should characterize the $638,000 gain recognized on sale as:

Which of the following is a Section 1231 asset?

Michael sold machinery used in his business for $50,000.He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through the date of sale.Compute and characterize Michael's gain on sale.

Stone Company recognized a $7,700 loss on sale of depreciable equipment held for three years.If Stone's accumulated MACRS depreciation on the equipment is $7,700 or more,the entire loss is ordinary.

N&B Inc.sold land worth $385,000.The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land.N&B's amount realized on sale is $385,000.

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

The installment sale method of accounting applies to which of the following?

Delta Inc.generated $668,200 ordinary income from operations this year.It also recognized $3,910 recaptured ordinary income,$5,000 net Section 1231 gain,and $14,600 net capital loss on the sale of assets.Compute Delta's taxable income.

The use of the installment sale method can result in an unfavorable difference between book income and taxable income in the year of sale.

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Mr.Beck sold real property with a $140,000 adjusted basis for $255,000.The buyer paid $148,000 cash and assumed Mr.Beck's $107,000 mortgage on the realty.Mr.Beck's realized gain or loss on sale is:

DiLamer Inc.paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation.The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored.What is the tax consequence to DiLamer of this bad news?

Lettuca Inc.generated a $77,050 ordinary loss from operations this year.It also recognized $5,920 recaptured ordinary income,$55,000 net Section 1231 loss,and $7,840 net capital loss on the sale of assets.Compute Lettuca's net operating loss.

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Four years ago,Mrs.Beights purchased marketable securities for $75,000 cash.At the end of the current year,the FMV of the securities had plummeted to $4,000.Mrs.Beights may elect to recognize her $71,000 loss this year,even though she still owns the securities.

Irby Inc.was incorporated in 2013 and adopted a calendar year.Here is a schedule of Irby's net Section 1231 gains and (losses)reported on its tax returns through 2018. In 2019,Irby recognized a $14,750 gain on the sale of business land.How is this gain characterized on Irby's tax return?

Which of the following statements about Section 1250 recapture rule is false?

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