Question 1

Gain or loss realized on the disposition of property is recognized unless the tax law provides a nonrecognition exception.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Mrs.Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash.Two years later,the daughter sold the securities through her broker for $93,000.Compute the daughter's gain recognized on sale.

Accepted Answer

A) $13,400 
B) $19,600 
C) $33,000 
D) None of the above 
A) $13,400 
B) $19,600 
C) $33,000 
D) None of the above

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 the above 
A) $102,700 capital gain and $25,000 ordinary loss 
B) $612,300 ordinary loss 
C) $102,700 capital gain 
D) None of the above

Question 5

Kuong Inc.sold a commercial office building used in the corporate business for $1.5 million.Kuong purchased the building in 2000 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 6

Gupta Company made the following sales of capital assets this year.     What is the effect of the three sales on Gupta's taxable income?

Accepted Answer

A) $700 increase 
B) $12,900 increase 
C) No effect 
D) None of the choices are correct 
A) $700 increase 
B) $12,900 increase 
C) No effect 
D) None of the choices are correct

Question 7

B&I Inc.sold a commercial office building used in the corporate business for $862,000.B&I purchased the building in 2007 for a cost of $700,000 and had deducted $167,200 MACRS depreciation through date of sale.B&I should characterize the $329,200 gain recognized on sale as:

Accepted Answer

A) $167,200 ordinary gain and $162,000 Section 1231 gain 
B) Section 1231 gain 
C) Capital gain 
D) None of the above 
A) $167,200 ordinary gain and $162,000 Section 1231 gain 
B) Section 1231 gain 
C) Capital gain 
D) None of the above

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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?

Accepted Answer

A) Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return. 
B) Warsham does not report the $183,000 realized loss on its current year financial statements. 
C) The $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income. 
D) Both Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return and the $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income is true. 
A) Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return. 
B) Warsham does not report the $183,000 realized loss on its current year financial statements. 
C) The $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income. 
D) Both Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return and the $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income is true.

Question 10

Nolan Inc.sold marketable securities with a $223,000 basis to Totem Company.Compute Nolan's recognized gain or loss assuming that:
a.Nolan's amount realized on sale was $160,000,and Nolan and Totem are unrelated parties.
b.Nolan's amount realized on sale was $275,000,and Nolan and Totem are unrelated parties.
c.Nolan's amount realized on sale was $160,000,and Nolan and Totem are related parties.
d.Nolan's amount realized on sale was $275,000,and Nolan and Totem are related parties.

Accepted Answer

a.Nolan recognizes a $63,000 l

Question 11

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 12

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 the above 
A) $308,900 
B) $215,900 
C) $250,000 
D) None of the above

Question 13

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:

Accepted Answer

A) $1 million ordinary loss 
B) $748,200 ordinary loss 
C) $748,200 Section 1231 loss 
D) None of the above 
A) $1 million ordinary loss 
B) $748,200 ordinary loss 
C) $748,200 Section 1231 loss 
D) None of the above

Question 14

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.

Accepted Answer

A) $250,000 
B) $830,000 
C) $850,000 
D) $1,430,000 
A) $250,000 
B) $830,000 
C) $850,000 
D) $1,430,000

Question 15

Skeen Company paid $90,000 for tangible personalty three years ago and elected to expense and deduct the cost under Section 179.This year,Skeen sold the personalty for $52,700.Accumulated book depreciation through date of sale was $31,000.What is the effect of the sale on Skeen's book income and taxable income?

Accepted Answer

A) $6,300 book loss: $52,700 tax gain 
B) $6,300 book loss; -0- tax gain 
C) $6,300 book and tax gain 
D) None of the above 
A) $6,300 book loss: $52,700 tax gain 
B) $6,300 book loss; -0- tax gain 
C) $6,300 book and tax gain 
D) None of the above

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business in 1994.Which of the following statements is true?

Accepted Answer

A) The $100,000 gain is capital gain eligible for a preferential tax rate. 
B) The $100,000 gain is capital gain against which the Sykes can deduct any capital losses recognized this year. 
C) The $100,000 gain is ordinary business income. 
D) Statements a.and b.are true. 
A) The $100,000 gain is capital gain eligible for a preferential tax rate. 
B) The $100,000 gain is capital gain against which the Sykes can deduct any capital losses recognized this year. 
C) The $100,000 gain is ordinary business income. 
D) Statements a.and b.are true.

Question 18

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 19

According to the realization principle,an increase in the value of an asset is not accounted for as income unless the amount of the increase can be accurately measured.

Accepted Answer

A) True 
 B)False

Question 20

Mr.and Mrs.Plame sold an investment asset to their grandson Leonard.Because Leonard is a related party,the Plames do not recognize any gain or loss realized on sale.

Accepted Answer

A) True 
 B)False

Gain or loss realized on the disposition of property is recognized unless the tax law provides a nonrecognition exception.

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?

Mrs.Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash.Two years later,the daughter sold the securities through her broker for $93,000.Compute the daughter's gain recognized on sale.

Kuong Inc.sold a commercial office building used in the corporate business for $1.5 million.Kuong purchased the building in 2000 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:

Gupta Company made the following sales of capital assets this year. What is the effect of the three sales on Gupta's taxable income?

B&I Inc.sold a commercial office building used in the corporate business for $862,000.B&I purchased the building in 2007 for a cost of $700,000 and had deducted $167,200 MACRS depreciation through date of sale.B&I should characterize the $329,200 gain recognized on sale as:

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.

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?

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.

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.

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:

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.

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.

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business in 1994.Which of the following statements is true?

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.

According to the realization principle,an increase in the value of an asset is not accounted for as income unless the amount of the increase can be accurately measured.

Mr.and Mrs.Plame sold an investment asset to their grandson Leonard.Because Leonard is a related party,the Plames do not recognize any gain or loss realized on sale.

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

Gain or loss realized on the disposition of property is recognized unless the tax law provides a nonrecognition exception.

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?

Mrs.Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash.Two years later,the daughter sold the securities through her broker for $93,000.Compute the daughter's gain recognized on sale.

Kuong Inc.sold a commercial office building used in the corporate business for $1.5 million.Kuong purchased the building in 2000 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:

Gupta Company made the following sales of capital assets this year. What is the effect of the three sales on Gupta's taxable income?

B&I Inc.sold a commercial office building used in the corporate business for $862,000.B&I purchased the building in 2007 for a cost of $700,000 and had deducted $167,200 MACRS depreciation through date of sale.B&I should characterize the $329,200 gain recognized on sale as:

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.

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?

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.

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.

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:

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.

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.

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business in 1994.Which of the following statements is true?

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.

According to the realization principle,an increase in the value of an asset is not accounted for as income unless the amount of the increase can be accurately measured.

Mr.and Mrs.Plame sold an investment asset to their grandson Leonard.Because Leonard is a related party,the Plames do not recognize any gain or loss realized on sale.

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