Exam 8: Property Dispositions

Thieves stole computer equipment owned by Eaton Company and used for three years in its consulting business. Eaton's adjusted basis in equipment was $23,200, and its replacement value was $50,000. Eaton's insurance company paid only $15,000 on Eaton's claim for the theft loss. As a result, Eaton recognizes:

This year, Adula Company sold equipment purchased in 2011 at a cost of $117,200. Accumulated depreciation through date of sale was $33,000. Which of the following statements is false?

In 2015, TPC Inc. sold investment land with a $474,000 book and tax basis for $775,000. The purchaser paid $100,000 in cash and gave TPC a note for the $675,000 balance of the price. In 2016, TPC received a $105,500 payment on the note ($67,500 principal + $38,000 interest). Assuming that TPC is using the installment sale method, compute its gain recognized in 2016.

Four years ago, Mrs. Beights purchased marketable securities for $75,000 cash. At the end of the current year, the FMV of the securities had plummeted to $4,000. Mrs. Beights may elect to recognize her $71,000 loss this year, even though she still owns the securities.

Andrew sold IBM stock to his sister Susan for $6,000. Andrew purchased the stock two years ago for $8,000. Susan sold the stock through her broker for $7,300. How much gain or loss did Susan recognize on the sale?

Several years ago, Nipher paid $70,000 to purchase equipment to use in its business. This year, it sold the equipment for $76,500. Accumulated MACRS depreciation through date of sale was $18,000. Determine the amount and character of Nipher's gain recognized.

Abada Inc. has a $925,000 basis in 100% of the stock of AbWest Inc., which derives all its income from a manufacturing activity. If Abada determines that the AbWest stock is worthless, it can recognize a $925,000 ordinary loss.

Mrs. Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2006. 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?

Milton Inc. recognized a $1,300 net Section 1231 loss in 2015. If Milton recognizes a $5,000 net Section 1231 gain in 2016, it must characterize $1,300 as ordinary income.

A casualty loss realized on the destruction of depreciable business property is characterized as a Section 1231 loss.

Verno Inc. purchased business equipment in March and sold it in November. Verno's gain or loss recognized on the sale is ordinary.

R&T Inc. made the following sales of capital assets this year. Tax Basis Sale Price Asset 1 \ 68,100 Asset 2 Asset 3 What is the effect of the three sales on R&T's taxable income this year?

Kopel Company transferred an inventory asset to Cassim LLC in exchange for Cassim's $230,000 interest-bearing note. Kopel's tax basis in the note is its $230,000 face value.

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.

Three years ago, ChaGo Inc. sold a business asset with a $39,400 adjusted tax basis for $130,000. The purchaser paid $50,000 cash and gave ChaGo a note for the $80,000 balance of the price. ChaGo is using the installment sale method to recognize its gain on sale. This year, ChaGo sold the note to a financial institution for the note's $55,000 face value (ChaGo had received a total of $25,000 principal payments on the note.) Compute ChaGo's gain recognized on sale of the installment note.

Fantino Inc. was incorporated in 2015 and adopted a calendar year for tax purposes. Here is a schedule of Fantino's taxable income for 2015 and 2016. 2015 2016 Ordinary income \ 99,800 \ 168,100 Net capital gain -0- 5800 Net capital gain \9 9,800 \1 73,900 In 2017, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. Which of the following statements is true?

Delour Inc. was incorporated in 2011 and adopted a calendar year. Here is a schedule of Delour's net Section 1231 gains and (losses) reported on its tax returns through 2016. 2011 2012 2013 2014 2015 2016 (4,900) -0- -0- -0- (12,000) -0- In 2017, Delour recognized a $50,000 gain on the sale of business land. How is this gain characterized on Delour's tax return?

Mr. Hickem sold an investment asset worth $20,000. The purchaser paid Mr. Hickem by giving him $12,500 cash and an oil painting worth $7,500. Mr. Hickem's amount realized on sale is $12,500.

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

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.