Exam 8: Property Dispositions

Milton Inc. recognized a $16,900 gain on sale of depreciable equipment held for three years. If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more, the entire gain is ordinary income.

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?

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.

Mr. Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash. Two years later, the son sold the securities through his broker for $90,000. Compute the son's loss recognized on sale.

N&B Inc. sold land worth $385,000. The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land. N&B's amount realized on sale is $385,000.

Brenda sold investment land for $200,000 in June. Her basis in the land was $75,000. The purchaser paid Brenda $40,000 cash and gave her his 5-year, interest-bearing note for the $160,000 remaining contract price. In December, Brenda received a $20,000 principle payment on the note. Brenda's recognized gain this year is

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Mrs. Lex realized a $78,400 gain on sale of investment land to S&T, which issued a 10-year note in full payment. Mrs. Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.

The installment sale method of accounting applies to which of the following?

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

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.

Gupta Company made the following sales of capital assets this year. Tax Basis Sale Price Asset 1 \ 60,000 \ 47,800 Asset 2 112,500 116,000 Asset 3 13,000 22,400 What is the effect of the three sales on Gupta's taxable income?

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.

Firm F purchased a commercial office building for business use in 2005 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?

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

Because land is nondepreciable, it is always a capital asset.

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.

Zeron Inc. generated $1,349,600 ordinary income from operations this year. It also recognized $29,200 recaptured ordinary income, $21,000 net Section 1231 gain, and $14,900 net capital loss on the sale of assets. Compute Zeron's taxable income.

Mr. and Mrs. Churchill operate a small business. This year, the Churchills sold a commercial office building used in their business for $1.5 million. They purchased the building in 1998 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale. The Churchills should characterize the $638,000 gain recognized on sale as:

Stone Company recognized a $7,700 loss on sale of depreciable equipment held for three years. If Stone's accumulated MACRS depreciation on the equipment is $7,700 or more, the entire loss is ordinary.