Exam 8: Property Dispositions

Ficia Inc. owned investment land subject to a $294,500 recourse mortgage. Ficia failed to make timely mortgage payments, so the creditor foreclosed. At date of foreclosure, Ficia's basis in the land was $300,000, and the land's appraised FMV was $260,000. The creditor informed Ficia that it would not pursue collection of the $34,500 unpaid balance of the mortgage. Which of the following statements is true?

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.

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.

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.

Which of the following is a capital asset?

Warsham Inc. sold land with a $300,000 basis to Sara Phillips for $117,000 cash. Sara owns 68 percent of Warsham's outstanding stock. Which of the following statements is true?

Verno Inc. purchased business equipment in March and sold it in November. Verno's gain or loss recognized on the sale is ordinary.

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.

In 2020, Mary recognized a $45,000 gain on the sale of Section 1231 property. Over the previous five-year period, Mary recognized the following net Section 1231 gains and (losses):2019 ($28,000)2018 $16,0002017 ($30,000)Mary's 2020 gain is characterized as

Andrew sold IBM stock to his sister Susan for $6,000. Andrew purchased the stock two years ago for $8,000. Susan sold the stock through her broker for $7,300. How much gain or loss did Susan recognize on the sale?

Irby Inc. was incorporated in 2014 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2019. 2014 2015 2016 2017 2018 2015 \ (4,500) \ (3,000) \ (7,890) \ 45,600 \ -0- \ 1,300 In 2020, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on Irby's tax return?

A fire destroyed business equipment that was worth $160,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $160,000 ordinary casualty loss.

Netelli Inc. owned a tract of land with a $175,000 basis that was subject to a $228,500 nonrecourse mortgage. Netelli defaulted on the mortgage, and the creditor foreclosed on the land. Netelli must recognize a $53,500 gain on the disposition of the land.

Ms. Cregg has a $43,790 basis in 2,460 shares of ABD Inc. common stock. ABD recently declared bankruptcy and announced that its common stock is worthless. As a result, Ms. Cregg can recognize a $43,790 ordinary loss.

Delour Inc. was incorporated in 2014 and adopted a calendar year. Here is a schedule of Delour's net Section 1231 gains and (losses) reported on its tax returns through 2019. $\begin{array}{lr}2014&2015&2016&2017&2018&2019\\\$(4,900)&\$-0-&\$-0-&\$-0-&\$(12,000)&\$-0-\end{array}$ In 2020, Delour recognized a $50,000 gain on the sale of business land. How is this gain characterized on Delour's tax return?

Six years ago, Alejo Company purchased real property by paying $250,000 cash and giving the seller its $1 million note for the balance of the purchase price. This year, Alejo deducted $30,800 depreciation on the property and made a $125,000 principal payment on the note. Which of the following statements is false?

Mrs. Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2010. This year, HiFli declared bankruptcy and announced that its stock has no value. What is the tax consequence to Mrs. Tinker of this bad news?

Fantino Inc. was incorporated in 2019 and adopted a calendar year for tax purposes. Here is a schedule of Fantino's taxable income for 2019 and 2020. 2019 2020 Ordinary income \9 9,800 \1 68,100 Net capital gain 0 5,800 Taxable income \9 9,800 \1 73,900 In 2021, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. Which of the following statements is true?

Gupta Company made the following sales of capital assets this year. Tax Basis Sale Price Asset 1 \6 0,000 \4 7,800 Asset 2 112,500 116,000 Asset 3 13,000 22,400 What is the effect of the three sales on Gupta's taxable income?

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: