Exam 8: Property Dispositions

Philp Inc. sold equipment with a $132,900 adjusted tax basis for $200,000. The purchaser paid $20,000 in cash and assumed Philp's $180,000 mortgage on the asset. Compute Philp's net cash flow from the sale assuming a 35% tax rate.

Murrow Corporation generated $285,700 income from the performance of services for its clients. Murrow also sold several operating assets during the year. Compute Murrow's taxable income under each of the following assumptions about the tax consequences of the asset sales. a. Murrow recognized $6,800 recaptured ordinary income, a $23,200 net Section 1231 gain, and an $11,600 net capital loss. b. Murrow recognized a $47,300 net Section 1231 loss and a $5,075 net capital loss. c. Murrow recognized a $61,800 net Section 1231 gain and a $4,210 net capital gain. d. Murrow recognized a $15,300 net Section 1231 loss and a $3,000 net capital gain.

Twelve years ago, Mr. and Mrs. Bathgate purchased a business. This year, they sold the business for $750,000 lump-sum payment. The business had the following balance sheet assets. Tax Basis FMV Accounts receivable 63,500 \ 63,500 Inventory 249,000 300,000 Furniture and fixtures: Cost \ 468,000 Acc. depreciation (421,800) 46,200 100,000 Purchased goodwill Cost \ 300,000 Acc. amortization (233,600) 66,400 286,500 \ 425,100 \ 750.000 As a result of the sale, the Bathgates should recognize:

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:

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.

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?

Oslego Company, a calendar year taxpayer, sold land with a $400,000 tax basis for $635,000 in March 2016. 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 2016 gain recognized on sale and its tax basis in the note receivable on December 31.

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?

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa. The owner recently recognized a $43,500 gain on sale of the figurine. Which of the following statements is false?

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?

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

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.

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?

O&V sold a business asset with a $78,300 adjusted tax basis for $100,000. The purchaser paid $30,000 in cash and gave O&V a note for the $70,000 balance of the price. O&V will not receive a payment on the note until next year. Compute O&V's gain recognized under the installment sale method.

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

A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.

Hugo Inc., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $38,700 Section 1231 gain, and the second sale generated a $59,400 Section 1231 loss. As a result of these sales, Hugo should recognize:

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2006 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:

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: a. $200,000 b. $300,000 c. $400,000

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?