Question 1

The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Acme Inc. sold three capital assets this year. The corporation realized an $18,900 gain on the first sale, a $93,000 loss on the second sale, and a $40,000 gain on the third sale. If Acme's ordinary taxable income from operations was $250,000, compute Acme's taxable income.

Accepted Answer

A)  $308,900 
B)  $215,900 
C)  $250,000 
D)  None of these choices are correct 
A)  $308,900 
B)  $215,900 
C)  $250,000 
D)  None of these choices are correct

Question 4

Steiger Company owned investment land subject to a $715,000 recourse mortgage. Steiger failed to make timely mortgage payments, so the creditor foreclosed. At date of foreclosure, Steiger's basis in the land was $587,300, and the land's appraised FMV was $690,000. Steiger completely settled its recourse debt by paying $25,000 cash to the creditor. As a result of the foreclosure, Steiger recognizes:

Accepted Answer

A)  $102,700 capital gain and $25,000 ordinary loss 
B)  $612,300 ordinary loss 
C)  $102,700 capital gain 
D)  None of these choices are correct 
A)  $102,700 capital gain and $25,000 ordinary loss 
B)  $612,300 ordinary loss 
C)  $102,700 capital gain 
D)  None of these choices are correct

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

Norbett Inc. generated $15,230,000 ordinary taxable income and realized a $238,000 net capital loss on the sale of marketable securities this year. Which of the following statements is false?

Accepted Answer

A)  Norbett's net income per books includes the $238,000 net capital loss. 
B)  Norbett's taxable income is $15,230,000. 
C)  The $238,000 net capital loss is a favorable book/tax difference. 
D)  The $238,000 net capital loss is a temporary book/tax difference. 
A)  Norbett's net income per books includes the $238,000 net capital loss. 
B)  Norbett's taxable income is $15,230,000. 
C)  The $238,000 net capital loss is a favorable book/tax difference. 
D)  The $238,000 net capital loss is a temporary book/tax difference.

Question 8

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

A tornado demolished several delivery vans owned for three years by Wadham Company. Wadham's adjusted basis in the vans was $28,400, and Wadham paid $90,000 to purchase new vans. Wadham received a $25,000 settlement from its casualty insurance company. Consequently, Wadham recognizes:

Accepted Answer

A)  $3,400 Section 1231 loss 
B)  $65,000 Section 1231 loss 
C)  $65,000 ordinary loss 
D)  None of these choices are correct 
A)  $3,400 Section 1231 loss 
B)  $65,000 Section 1231 loss 
C)  $65,000 ordinary loss 
D)  None of these choices are correct

Question 11

Princetown Inc. has a $4.82 million basis in 88% of the outstanding stock of Merryvale Corporation. Merryvale manufactures Christmas decorations, cards, and wrapping paper. Princetown's board of directors recently learned that Merryvale is bankrupt. The board voted unanimously to dissolve the corporation and distribute all assets to Merryvale's creditors. What is the tax consequence to Princetown of the board's actions?

Accepted Answer

A)  No loss recognition until Princetown actually disposes of the Merryvale stock. 
B)  $4.82 million Section 1231 loss. 
C)  $4.82 million capital loss. 
D)  $4.82 million ordinary loss. 
A)  No loss recognition until Princetown actually disposes of the Merryvale stock. 
B)  $4.82 million Section 1231 loss. 
C)  $4.82 million capital loss. 
D)  $4.82 million ordinary loss.

Question 12

The gain or loss recognized on any disposition of a capital asset is characterized as capital gain or loss.

Accepted Answer

A) True 
 B)False

Question 13

Inventory, accounts receivable, and machinery used in a business are examples of capital assets.

Accepted Answer

A) True 
 B)False

Question 14

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 these statements are 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 these statements are true.

Question 15

Firm F purchased a commercial office building for business use in 2009 for $965,000. This year, the firm sold the building for $1 million. Accumulated MACRS depreciation through date of sale was $275,000. Which of the following statements is true?

Accepted Answer

A)  If Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain. 
B)  If Firm F is a corporation, it recognizes $62,000 ordinary income and $248,000 Section 1231 gain. 
C)  If Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain. 
D)  Both if Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain and if Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain are true. 
A)  If Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain. 
B)  If Firm F is a corporation, it recognizes $62,000 ordinary income and $248,000 Section 1231 gain. 
C)  If Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain. 
D)  Both if Firm F is a corporation, it recognizes $55,000 ordinary income and $255,000 Section 1231 gain and if Firm F is a noncorporate taxpayer, it recognizes $310,000 Section 1231 gain are true.

Question 16

Noble Inc. paid $310,000 for equipment three years ago. This year, it sold the equipment for $200,000. Through date of sale, accumulated book depreciation was $93,840 and accumulated tax depreciation was $147,327. Assuming a 21% tax rate, what is the effect of the sale on Noble's deferred tax accounts?

Accepted Answer

A)  $11,232 increase in deferred tax assets 
B)  $11,232 increase in deferred tax liabilities 
C)  $11,232 decrease in deferred tax liabilities 
D)  No effect on deferred tax accounts 
A)  $11,232 increase in deferred tax assets 
B)  $11,232 increase in deferred tax liabilities 
C)  $11,232 decrease in deferred tax liabilities 
D)  No effect on deferred tax accounts

Question 17

In 2019, TPC Inc. sold investment land with a $388,000 book and tax basis for $523,000. The purchaser paid $60,000 in cash and gave TPC a note for the $463,000 balance of the price. In 2020, TPC received a $67,800 payment on the note ($40,000 principal + $27,800 interest). In 2020, TPC's use of the installment sale method results in a:

Accepted Answer

A)  $10,325 favorable permanent book/tax difference 
B)  $17,496 unfavorable temporary difference 
C)  $17,496 favorable temporary difference 
D)  None of these choices are correct 
A)  $10,325 favorable permanent book/tax difference 
B)  $17,496 unfavorable temporary difference 
C)  $17,496 favorable temporary difference 
D)  None of these choices are correct

Question 18

Dender Company sold business equipment with a $386,000 initial cost basis and $171,000 accumulated tax depreciation. Compute Dender's recaptured ordinary income and Section 1231 gain or loss recognized if the amount realized on sale was:
$200,000$300,000$400,000

Accepted Answer

Dender recognizes a $15,000 Section 1231

The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.

Acme Inc. sold three capital assets this year. The corporation realized an $18,900 gain on the first sale, a $93,000 loss on the second sale, and a $40,000 gain on the third sale. If Acme's ordinary taxable income from operations was $250,000, compute Acme's taxable income.

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

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

Norbett Inc. generated $15,230,000 ordinary taxable income and realized a $238,000 net capital loss on the sale of marketable securities this year. Which of the following statements is false?

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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

A tornado demolished several delivery vans owned for three years by Wadham Company. Wadham's adjusted basis in the vans was $28,400, and Wadham paid $90,000 to purchase new vans. Wadham received a $25,000 settlement from its casualty insurance company. Consequently, Wadham recognizes:

The gain or loss recognized on any disposition of a capital asset is characterized as capital gain or loss.

Inventory, accounts receivable, and machinery used in a business are examples of capital assets.

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?

Firm F purchased a commercial office building for business use in 2009 for $965,000. This year, the firm sold the building for $1 million. Accumulated MACRS depreciation through date of sale was $275,000. Which of the following statements is true?

Dender Company sold business equipment with a $386,000 initial cost basis and $171,000 accumulated tax depreciation. Compute Dender's recaptured ordinary income and Section 1231 gain or loss recognized if the amount realized on sale was: $200,000$300,000$400,000

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 seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.

Acme Inc. sold three capital assets this year. The corporation realized an $18,900 gain on the first sale, a $93,000 loss on the second sale, and a $40,000 gain on the third sale. If Acme's ordinary taxable income from operations was $250,000, compute Acme's taxable income.

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

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

Norbett Inc. generated $15,230,000 ordinary taxable income and realized a $238,000 net capital loss on the sale of marketable securities this year. Which of the following statements is false?

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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

A tornado demolished several delivery vans owned for three years by Wadham Company. Wadham's adjusted basis in the vans was $28,400, and Wadham paid $90,000 to purchase new vans. Wadham received a $25,000 settlement from its casualty insurance company. Consequently, Wadham recognizes:

The gain or loss recognized on any disposition of a capital asset is characterized as capital gain or loss.

Inventory, accounts receivable, and machinery used in a business are examples of capital assets.

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?

Firm F purchased a commercial office building for business use in 2009 for $965,000. This year, the firm sold the building for $1 million. Accumulated MACRS depreciation through date of sale was $275,000. Which of the following statements is true?

Dender Company sold business equipment with a $386,000 initial cost basis and $171,000 accumulated tax depreciation. Compute Dender's recaptured ordinary income and Section 1231 gain or loss recognized if the amount realized on sale was: $200,000$300,000$400,000

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