Question 1

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Accepted Answer

A) True 
 B)False

Question 2

Sandy Cole realized a loss on sale of an investment asset to her mother, Lynne. If the facts and circumstances prove that the selling price was an arm's length market price, Sandy can recognize the loss.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 7

A corporation can use the installment sale method of accounting for both book and tax purposes.

Accepted Answer

A) True 
 B)False

Question 8

Two months ago, Dawes Inc. broke a multi-year lease on office space that it had occupied for four years. Three years ago, Dawes paid $85,300 to install carpeting and new electrical fixtures throughout the office. Accumulated depreciation through the date that Dawes vacated the office was $51,000. What is the tax consequence of Dawes' abandonment of the carpeting and fixtures?

Accepted Answer

A) Dawes has no tax consequence because it did not sell or exchange these assets. 
B) $34,300 capital loss. 
C) $34,300 ordinary loss. 
D) $34,300 Section 1231 loss. 
A) Dawes has no tax consequence because it did not sell or exchange these assets. 
B) $34,300 capital loss. 
C) $34,300 ordinary loss. 
D) $34,300 Section 1231 loss.

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A) Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return. 
B) Warsham does not report the $183,000 realized loss on its current year financial statements. 
C) The $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income. 
D) Both a.and c.are true. 
A) Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return. 
B) Warsham does not report the $183,000 realized loss on its current year financial statements. 
C) The $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income. 
D) Both a.and c.are true.

Question 11

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.

Accepted Answer

A) $62,300 
B) $69,700 
C) $112,700 
D) $162,700 
A) $62,300 
B) $69,700 
C) $112,700 
D) $162,700

Question 12

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa. The owner recently recognized a $43,500 gain on sale of the figurine. Which of the following statements is false?

Accepted Answer

A) If Diego Ossa was the seller, the gain is ordinary. 
B) If a commercial art gallery that had held Tiny Dancer in its inventory was the seller, the gain is ordinary. 
C) If a private collector who purchased Tiny Dancer from an art gallery was the seller, the gain is capital gain. 
D) None of the above is false. 
A) If Diego Ossa was the seller, the gain is ordinary. 
B) If a commercial art gallery that had held Tiny Dancer in its inventory was the seller, the gain is ordinary. 
C) If a private collector who purchased Tiny Dancer from an art gallery was the seller, the gain is capital gain. 
D) None of the above is false.

Question 13

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2003 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:

Accepted Answer

A) $167,200 ordinary gain and $162,000 Section 1231 gain 
B) Section 1231 gain 
C) Capital gain 
D) None of the above 
A) $167,200 ordinary gain and $162,000 Section 1231 gain 
B) Section 1231 gain 
C) Capital gain 
D) None of the above

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) $(77,050) 
B) $(126,130) 
C) $(132,050) 
D) $(133,970) 
A) $(77,050) 
B) $(126,130) 
C) $(132,050) 
D) $(133,970)

Question 16

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?

Accepted Answer

A) If the sale price was $25,000, Izard recognized $4,600 Section 1231 loss. 
B) If the sale price was $42,500, Izard recognized $18,900 Section 1231 gain. 
C) If the sale price was $50,000, Izard recognized $18,900 ordinary gain and $1,500 Section 1231 gain. 
D) None of the above is false. 
A) If the sale price was $25,000, Izard recognized $4,600 Section 1231 loss. 
B) If the sale price was $42,500, Izard recognized $18,900 Section 1231 gain. 
C) If the sale price was $50,000, Izard recognized $18,900 ordinary gain and $1,500 Section 1231 gain. 
D) None of the above is false.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Mr. and Mrs. Plame sold an investment asset to their grandson Leonard. Because Leonard is a related party, the Plames do not recognize any gain or loss realized on sale.

Accepted Answer

A) True 
 B)False

Question 19

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

Accepted Answer

A) True 
 B)False

Question 20

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

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Sandy Cole realized a loss on sale of an investment asset to her mother, Lynne. If the facts and circumstances prove that the selling price was an arm's length market price, Sandy can recognize the loss.

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

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.

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

A corporation can use the installment sale method of accounting for both book and tax purposes.

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.

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?

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.

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa. The owner recently recognized a $43,500 gain on sale of the figurine. Which of the following statements is false?

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2003 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:

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.

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.

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?

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

Mr. and Mrs. Plame sold an investment asset to their grandson Leonard. Because Leonard is a related party, the Plames do not recognize any gain or loss realized on sale.

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters

Exam 8: Property Dispositions

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Sandy Cole realized a loss on sale of an investment asset to her mother, Lynne. If the facts and circumstances prove that the selling price was an arm's length market price, Sandy can recognize the loss.

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

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.

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

A corporation can use the installment sale method of accounting for both book and tax purposes.

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.

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?

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.

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa. The owner recently recognized a $43,500 gain on sale of the figurine. Which of the following statements is false?

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2003 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:

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.

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.

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?

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

Mr. and Mrs. Plame sold an investment asset to their grandson Leonard. Because Leonard is a related party, the Plames do not recognize any gain or loss realized on sale.

The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters