Exam 8: Property Dispositions

Lenoci 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. Which of the following statements is true?

Mrs Stile owns investment land subject to a $600,000 nonrecourse mortgage. Her basis in the land is $212,000, and the land's appraised FMV is $575,000. Mrs Stile is considering defaulting on the mortgage and allowing the creditor to foreclose. If Mrs Stile disposes of the land through a foreclosure, she will recognize:

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

Oslego Company, a calendar year taxpayer, sold land with a $400,000 tax basis for $635,000 in March 2018. The purchaser paid $50,000 cash at closing and gave Oslego an interest-bearing note for the $585,000 remaining price. In September, Oslego received $50,450 cash from the purchaser consisting of a $29,250 principal payment and a $21,200 interest payment. Assuming that Oslego does not elect out of the installment sale method, compute the company's 2018 gain recognized on sale and its tax basis in the note receivable on December 31.

This year, Adula Company sold equipment purchased in 2013 at a cost of $117,200. Accumulated depreciation through date of sale was $33,000. Which of the following statements is false?

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.

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?

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: a. 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. b. 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.

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:

McOwen Inc. reported $6,029,400 net income before tax on this year's financial statements prepared in accordance with GAAP. The corporation's records reveal the following information. A tornado destroyed an office building and its contents. McOwen's book basis in the building and contents was $4,100,000 and its tax basis in the building and contents was $1,539,000. McOwen's reimbursement from its insurance company was $1 million. Four years ago, McOwen realized a $90,000 gain on the sale of investment property and elected the installment sale method to report the gain for tax purposes. Its gross profit percentage is 37.45%, and it received a $40,000 principal payment on its installment note this year. Net income per books includes a $13,670 net capital gain. McOwen has a $63,000 capital loss carryforward into the current year. Depreciation expense per books was $111,400, and MACRS depreciation was $398,100. Compute McOwen's taxable income.

Winslow Company sold investment land to an unrelated purchaser. The purchaser paid $250,000 cash, assumed Winslow's $600,000 mortgage on the land, and gave Winslow its $580,000 ten-year, interest-bearing note. Compute Winslow's amount realized on sale.

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.

This year, Izard Company sold equipment purchased several years ago at a cost of $48,500. Accumulated depreciation through date of sale was $18,900. Which of the following statements is false?

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.

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.

Mr Jason realized a gain on sale of a residential apartment complex that he had placed in service in 1994. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

Mrs Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2007. 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?

Irby Inc. was incorporated in 2012 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2017. In 2018, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on Irby's tax return?