Exam 8: Property Dispositions

Two months ago, Dawes Inc. broke a multi-year lease on office space that it had occupied for four years. Three years ago, Dawes paid $85,300 to install carpeting and new electrical fixtures throughout the office. Accumulated depreciation through the date that Dawes vacated the office was $51,000. What is the tax consequence of Dawes' abandonment of the carpeting and fixtures?

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:

Because land is nondepreciable, it is always a capital asset.

CBM Inc. realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1994. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

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.

Nancy owned business equipment with a $16,950 adjusted basis and a $7,500 FMV that was destroyed by a tornado. The equipment was uninsured. As a result of this casualty, Nancy:

Several years ago, Y&S Inc. purchased a patent on a production process for $250,000 and has amortized $91,000 of the cost. Y&S has learned that a rival company recently developed a new process that renders the patent worthless. Consequently, Y&S made a public announcement that it would no longer enforce the patent. What is the tax consequence to Y&S of this unfortunate situation?

Which of the following is a capital asset?

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

A fire completely destroyed a warehouse owned by Della Company and used for nine years in its shipping business. Della's adjusted basis in the warehouse was $748,200, and its replacement value was $1 million. Unfortunately, the warehouse was uninsured. As a result of the destruction, Della recognizes:

WQP Company generated $1,814,700 ordinary income from the sale of inventory to its customers. It also sold three noninventory assets during the year. Compute WQP's taxable income assuming that: The first sale resulted in a $10,400 ordinary gain, the second sale resulted in a $23,900 capital loss, and the third sale resulted in a $44,000 capital gain.The first sale resulted in a $79,100 capital loss, the second sale resulted in a $35,200 ordinary loss, and the third sale resulted in a $16,000 capital gain.

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

Sandy Cole realized a loss on sale of an investment asset to her mother, Lynne. If the facts and circumstances prove that the selling price was an arm's length market price, Sandy can recognize the loss.

Which of the following assets is not a Section 1231 asset?

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

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

In its current tax year, PRS Corporation generated $300,000 ordinary income from the performance of consulting services for its clients. PRS sold two assets, recognizing a $20,000 gain on the first sale and a $31,000 loss on the second sale. Which of the following statements is false?

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.

Proctor Inc. was incorporated in 2014 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through 2019. $\begin{array}{llcc}2014&2015&2016&2017&2018&2019 \\\$-0-&\$(3,800)&\$9,040&\$(15,900)&\$-0-&\$-0-\end{array}$ In 2020, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return?

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