Question 1

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

Accepted Answer

A)  Business equipment held for four years 
B)  Office furniture held for eight months 
C)  Land used in a business and held for 16 years 
D)  All of the above are Section 1231 assets 
A)  Business equipment held for four years 
B)  Office furniture held for eight months 
C)  Land used in a business and held for 16 years 
D)  All of the above are Section 1231 assets B

Question 2

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?

Accepted Answer

A)  Ficia recognizes $34,500 ordinary income and a $40,000 capital loss. 
B)  Ficia recognizes only a $40,000 capital loss. 
C)  Ficia recognizes only a $5,500 capital loss. 
D)  None of the above 
A)  Ficia recognizes $34,500 ordinary income and a $40,000 capital loss. 
B)  Ficia recognizes only a $40,000 capital loss. 
C)  Ficia recognizes only a $5,500 capital loss. 
D)  None of the above A

Question 3

CBM Inc. realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

Accepted Answer

A) True 
 B)False  False

Question 4

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:

Accepted Answer

A)  $42,000 unfavorable permanent book/tax difference 
B)  $42,000 unfavorable temporary book/tax difference 
C)  $42,000 favorable permanent book/tax difference 
D)  No book/tax difference 
A)  $42,000 unfavorable permanent book/tax difference 
B)  $42,000 unfavorable temporary book/tax difference 
C)  $42,000 favorable permanent book/tax difference 
D)  No book/tax difference

Question 5

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 6

Mr. Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash. Which of the following statements is true?

Accepted Answer

A)  If Mr. Quick can offer evidence that the FMV of the securities is $95,000, he can recognize his $17,900 realized loss. 
B)  If Mr. Quick and his corporation negotiated the terms of the sale at arm's length, Mr. Quick can recognize his $17,900 realized loss. 
C)  The corporation's tax basis in the securities is $112,900. 
D)  None of the above is true. 
A)  If Mr. Quick can offer evidence that the FMV of the securities is $95,000, he can recognize his $17,900 realized loss. 
B)  If Mr. Quick and his corporation negotiated the terms of the sale at arm's length, Mr. Quick can recognize his $17,900 realized loss. 
C)  The corporation's tax basis in the securities is $112,900. 
D)  None of the above is true.

Question 7

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Proctor Inc. was incorporated in 2011 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through 2016. $$\begin{array} { r r r r r r } 
2011 & 2012 & 2013 & 2014 & 2015 & 2016 \
- 0 - & ( 3,800 ) & 9,040 & ( 15,900 ) & - 0 - & - 0 -
\end{array}$$ In 2017, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return?

Accepted Answer

A)  $25,000 Section 1231 gain 
B)  $19,700 ordinary gain and $5,300 Section 1231 gain 
C)  $15,900 ordinary gain and $9,100 Section 1231 gain 
D)  $25,000 ordinary gain 
A)  $25,000 Section 1231 gain 
B)  $19,700 ordinary gain and $5,300 Section 1231 gain 
C)  $15,900 ordinary gain and $9,100 Section 1231 gain 
D)  $25,000 ordinary gain

Question 10

The installment sale method of accounting does not apply to which of the following sales?

Accepted Answer

A)  Sale of 12-acre tract of land held as inventory by a real estate developer 
B)  Sale of business equipment 
C)  Sale of U.S. Treasury notes 
D)  The method does not apply to a. and c. 
A)  Sale of 12-acre tract of land held as inventory by a real estate developer 
B)  Sale of business equipment 
C)  Sale of U.S. Treasury notes 
D)  The method does not apply to a. and c.

Question 11

JG Inc. recognized $690,000 ordinary income, $48,000 net Section 1231 gain, and $77,000 net capital loss this year. JG's taxable income is $690,000.

Accepted Answer

A) True 
 B)False

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

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 14

If a taxpayer sells business realty that was depreciated using the straightline method, the entire gain is characterized as Section 1231 gain.

Accepted Answer

A) True 
 B)False

Question 15

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 16

In 2015, 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 2016, TPC received a $67,800 payment on the note ($40,000 principal + $27,800 interest). In 2016, 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 the above 
A)  $10,325 favorable permanent book/tax difference 
B)  $17,496 unfavorable temporary difference 
C)  $17,496 favorable temporary difference 
D)  None of the above

Question 17

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

Accepted Answer

A)  $19,200 ordinary loss and $33,600 gain treated as capital gain. 
B)  $14,400 gain treated as capital gain. 
C)  $14,400 ordinary income. 
D)  None of the above 
A)  $19,200 ordinary loss and $33,600 gain treated as capital gain. 
B)  $14,400 gain treated as capital gain. 
C)  $14,400 ordinary income. 
D)  None of the above

Question 18

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 19

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 the above 
A)  $3,400 Section 1231 loss 
B)  $65,000 Section 1231 loss 
C)  $65,000 ordinary loss 
D)  None of the above

Question 20

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

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

CBM Inc. realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

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:

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

Mr. Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash. Which of the following statements is true?

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

The installment sale method of accounting does not apply to which of the following sales?

JG Inc. recognized $690,000 ordinary income, $48,000 net Section 1231 gain, and $77,000 net capital loss this year. JG's taxable income is $690,000.

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

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.

If a taxpayer sells business realty that was depreciated using the straightline method, the entire gain is characterized as Section 1231 gain.

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?

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

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:

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

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

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

CBM Inc. realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

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:

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

Mr. Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash. Which of the following statements is true?

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

The installment sale method of accounting does not apply to which of the following sales?

JG Inc. recognized $690,000 ordinary income, $48,000 net Section 1231 gain, and $77,000 net capital loss this year. JG's taxable income is $690,000.

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

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.

If a taxpayer sells business realty that was depreciated using the straightline method, the entire gain is characterized as Section 1231 gain.

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?

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

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:

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

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