Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Fantino Inc. was incorporated in 2008 and adopted a calendar year for tax purposes. Here is a schedule of Fantino's taxable income for 2008 and 2009.   In 2010, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. Which of the following statements is true?

Accepted Answer

A)  Fantino can deduct its $14,000 net capital loss only on a carryforward basis. 
B)  Fantino can carry the net capital loss back to 2008 and receive a $4,760 refund of 2008 tax. 
C)  Fantino can carry the net capital loss back to 2009 and receive a $5,460 refund of 2009 tax. 
D)  Fantino can carry the net capital loss back to 2009 and receive a $2,262 refund of 2009 tax. 
A)  Fantino can deduct its $14,000 net capital loss only on a carryforward basis. 
B)  Fantino can carry the net capital loss back to 2008 and receive a $4,760 refund of 2008 tax. 
C)  Fantino can carry the net capital loss back to 2009 and receive a $5,460 refund of 2009 tax. 
D)  Fantino can carry the net capital loss back to 2009 and receive a $2,262 refund of 2009 tax.

Question 4

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

Question 5

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 6

The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

a. Murrow's taxable income is $304,100 (

Question 8

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Delour Inc. was incorporated in 2004 and adopted a calendar year. Here is a schedule of Delour's net Section 1231 gains and (losses) reported on its tax returns through 2009.   In 2010, Delour recognized a $50,000 gain on the sale of business land. How is this gain characterized on Delour's tax return?

Accepted Answer

A)  $50,000 Section 1231 gain 
B)  $12,000 ordinary gain and $38,000 Section 1231 gain 
C)  $16,900 ordinary gain and $33,100 Section 1231 gain 
D)  $50,000 ordinary gain 
A)  $50,000 Section 1231 gain 
B)  $12,000 ordinary gain and $38,000 Section 1231 gain 
C)  $16,900 ordinary gain and $33,100 Section 1231 gain 
D)  $50,000 ordinary gain

Question 13

Six years ago, Alejo Company purchased real property by paying $250,000 cash and giving the seller its $1 million note for the balance of the purchase price. This year, Alejo deducted $30,800 depreciation on the property and made a $125,000 principal payment on the note. Which of the following statements is false?

Accepted Answer

A)  The depreciation deduction reduced Alejo's adjusted tax basis in the real property. 
B)  The principal payment increased Alejo's equity in the real property. 
C)  The principal payment reduced Alejo's tax basis in the real property and the balance due on the note. 
D)  None of the above statements is false. 
A)  The depreciation deduction reduced Alejo's adjusted tax basis in the real property. 
B)  The principal payment increased Alejo's equity in the real property. 
C)  The principal payment reduced Alejo's tax basis in the real property and the balance due on the note. 
D)  None of the above statements is false.

Question 14

Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1996 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 15

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

Accepted Answer

A) True 
 B)False

Question 16

Mrs. Stile owns investment land subject to a $600,000 nonrecourse mortgage. Her basis in the land is $212,000, and the land's appraised FMV is $575,000. Mrs. Stile is considering defaulting on the mortgage and allowing the creditor to foreclose. If Mrs. Stile disposes of the land through a foreclosure, she will recognize:

Accepted Answer

A)  $212,000 capital loss 
B)  $212,000 ordinary abandonment loss 
C)  $363,000 capital gain 
D)  $388,000 capital gain 
A)  $212,000 capital loss 
B)  $212,000 ordinary abandonment loss 
C)  $363,000 capital gain 
D)  $388,000 capital gain

Question 17

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 18

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 19

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 20

Bastrop Inc. generated a $169,000 ordinary loss from operations this year. It also recognized $35,920 recaptured ordinary income, $18,000 net Section 1231 loss, and $125,750 net capital gain on the sale of assets. Compute Bastrop's net operating loss.

Accepted Answer

A)  $(169,000) 
B)  $(133,080) 
C)  $(151,080) 
D)  $(25,330) 
A)  $(169,000) 
B)  $(133,080) 
C)  $(151,080) 
D)  $(25,330)

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

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

Fantino Inc. was incorporated in 2008 and adopted a calendar year for tax purposes. Here is a schedule of Fantino's taxable income for 2008 and 2009. In 2010, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. Which of the following statements is true?

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

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 characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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.

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.

Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1996 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:

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

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.

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.

Bastrop Inc. generated a $169,000 ordinary loss from operations this year. It also recognized $35,920 recaptured ordinary income, $18,000 net Section 1231 loss, and $125,750 net capital gain on the sale of assets. Compute Bastrop's net operating loss.

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

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

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

Fantino Inc. was incorporated in 2008 and adopted a calendar year for tax purposes. Here is a schedule of Fantino's taxable income for 2008 and 2009. In 2010, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. Which of the following statements is true?

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

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 characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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.

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.

Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1996 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:

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

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.

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.

Bastrop Inc. generated a $169,000 ordinary loss from operations this year. It also recognized $35,920 recaptured ordinary income, $18,000 net Section 1231 loss, and $125,750 net capital gain on the sale of assets. Compute Bastrop's net operating loss.

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