Exam 8: Property Dispositions

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?

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.

Ms. Cregg has a $43,790 basis in 2,460 shares of ABD Inc. common stock. ABD recently declared bankruptcy and announced that its common stock is worthless. As a result, Ms. Cregg can recognize a $43,790 ordinary loss.

The sale of business inventory always generates ordinary income or loss.

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. As a result of the sale, the Bathgates should recognize:

The use of the installment sale method can result in an unfavorable difference between book income and taxable income in the year of sale.

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.

JG Inc. recognized $690,000 ordinary income, $48,000 net Section 1231 gain, and $77,000 net capital loss this year. JG's taxable income is $690,000.

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.

This year, Izard Company sold equipment purchased in 2008 at a cost of $48,500. Accumulated depreciation through date of sale was $18,900. Which of the following statements is false?