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:

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

This year, Ms Lucas sold investment land for $125,000 cash plus the purchaser's assumption of a $50,000 mortgage on the land. Ms. Lucas's tax basis in the land was $93,000. If any recognized gain is taxed at 15 percent, compute the after-tax cash flow from the sale.

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2002 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:

O&V sold an asset with a $78,300 adjusted tax basis for $100,000. The purchaser paid $30,000 in cash and assumed O&V's $70,000 mortgage on the asset. Compute O&V's net cash flow from the sale assuming a 35% tax rate.

In its current tax year, PRS Corporation generated $300,000 ordinary income from the performance of consulting services for its clients. PRS sold two assets, recognizing a $20,000 gain on the first sale and a $31,000 loss on the second sale. Which of the following statements is false?

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?

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.

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

R&T Inc. made the following sales of capital assets this year. What is the effect of the three sales on R&T's taxable income this year?

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?

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

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.

Which of the following is a capital asset?

Irby Inc. was incorporated in 2005 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2010. In 2011, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on Irby's tax return?

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.

Firm F purchased a commercial office building for business use in 2000 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?

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:

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.

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: