Question 1

Which of the following assets is not a Section 1231 asset?

Accepted Answer

A)  Business equipment held for four years 
B)  Office furniture held for eight months 
C)  Land used in a business and held for 16 years 
D)  All of the above are Section 1231 assets 
A)  Business equipment held for four years 
B)  Office furniture held for eight months 
C)  Land used in a business and held for 16 years 
D)  All of the above are Section 1231 assets B

Question 2

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:

Accepted Answer

A)  $35,000 ordinary loss 
B)  $8,200 Section 1231 loss 
C)  $8,200 ordinary loss 
D)  None of the above. 
A)  $35,000 ordinary loss 
B)  $8,200 Section 1231 loss 
C)  $8,200 ordinary loss 
D)  None of the above. C

Question 3

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?

Accepted Answer

A)  Norbett's net income per books includes the $238,000 net capital loss. 
B)  Norbett's taxable income is $15,230,000. 
C)  The $238,000 net capital loss is a favorable book/tax difference. 
D)  The $238,000 net capital loss is a temporary book/tax difference. 
A)  Norbett's net income per books includes the $238,000 net capital loss. 
B)  Norbett's taxable income is $15,230,000. 
C)  The $238,000 net capital loss is a favorable book/tax difference. 
D)  The $238,000 net capital loss is a temporary book/tax difference. C

Question 4

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 5

Irby Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2014.   In 2015, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on Irby's tax return?

Accepted Answer

A)  $14,750 Section 1231 gain 
B)  $10,890 ordinary gain and $9,415 Section 1231 gain 
C)  $14,750 ordinary gain 
D)  None of the above. 
A)  $14,750 Section 1231 gain 
B)  $10,890 ordinary gain and $9,415 Section 1231 gain 
C)  $14,750 ordinary gain 
D)  None of the above.

Question 6

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 7

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 8

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 9

"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 10

The installment sale method of accounting applies to which of the following?

Accepted Answer

A)  $89,300 gain realized on sale of business inventory. 
B)  $798,600 gain realized on sale of common stock in a publicly held corporation. 
C)  $(41,500) loss realized on sale of land used in a trade or business. 
D)  None of the above 
A)  $89,300 gain realized on sale of business inventory. 
B)  $798,600 gain realized on sale of common stock in a publicly held corporation. 
C)  $(41,500) loss realized on sale of land used in a trade or business. 
D)  None of the above

Question 11

If a taxpayer sells business realty that was depreciated using the straightline method, the entire gain is characterized as Section 1231 gain.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A)  $23,485 
B)  $20,000 
C)  -0- 
D)  None of the above 
A)  $23,485 
B)  $20,000 
C)  -0- 
D)  None of the above

Question 13

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

A)  $21,600 increase 
B)  $12,900 increase 
C)  No effect 
D)  None of the above 
A)  $21,600 increase 
B)  $12,900 increase 
C)  No effect 
D)  None of the above

Question 15

Proctor Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through   In 2015, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return?

Accepted Answer

A)  $25,000 Section 1231 gain 
B)  $19,700 ordinary gain and $5,300 Section 1231 gain 
C)  $15,900 ordinary gain and $9,100 Section 1231 gain 
D)  $25,000 ordinary gain 
A)  $25,000 Section 1231 gain 
B)  $19,700 ordinary gain and $5,300 Section 1231 gain 
C)  $15,900 ordinary gain and $9,100 Section 1231 gain 
D)  $25,000 ordinary gain

Question 16

Delour Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Delour's net Section 1231 gains and (losses) reported on its tax returns through 2014.   In 2015, 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 17

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

Accepted Answer

A)  $19,200 ordinary loss and $33,600 gain treated as capital gain. 
B)  $14,400 gain treated as capital gain. 
C)  $14,400 ordinary income. 
D)  None of the above. 
A)  $19,200 ordinary loss and $33,600 gain treated as capital gain. 
B)  $14,400 gain treated as capital gain. 
C)  $14,400 ordinary income. 
D)  None of the above.

Question 18

Noble Inc. paid $310,000 for equipment three years ago. This year, it sold the equipment for $200,000. Through date of sale, accumulated book depreciation was $93,840 and accumulated tax depreciation was $147,327. Assuming a 35% tax rate, what is the effect of the sale on Noble's deferred tax accounts?

Accepted Answer

A)  $18,720 increase in deferred tax assets 
B)  $18,720 increase in deferred tax liabilities 
C)  $18,720 decrease in deferred tax liabilities 
D)  No effect on deferred tax accounts 
A)  $18,720 increase in deferred tax assets 
B)  $18,720 increase in deferred tax liabilities 
C)  $18,720 decrease in deferred tax liabilities 
D)  No effect on deferred tax accounts

Question 19

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

Accepted Answer

A)  Loss realized on a related party sale 
B)  Sale of a depreciable asset with a $100,000 book basis and a $33,600 adjusted tax basis 
C)  Gain recognized under the installment method 
D)  Net capital loss 
A)  Loss realized on a related party sale 
B)  Sale of a depreciable asset with a $100,000 book basis and a $33,600 adjusted tax basis 
C)  Gain recognized under the installment method 
D)  Net capital loss

Question 20

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

Accepted Answer

A) True 
 B)False

Which of the following assets is not a Section 1231 asset?

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?

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.

Irby Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2014. In 2015, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on Irby's tax return?

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?

The installment sale method of accounting applies to which of the following?

If a taxpayer sells business realty that was depreciated using the straightline method, the entire gain is characterized as Section 1231 gain.

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.

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.

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?

Proctor Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through In 2015, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return?

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

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

Which of the following assets is not a Section 1231 asset?

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?

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.

Irby Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Irby's net Section 1231 gains and (losses) reported on its tax returns through 2014. In 2015, Irby recognized a $14,750 gain on the sale of business land. How is this gain characterized on Irby's tax return?

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?

The installment sale method of accounting applies to which of the following?

If a taxpayer sells business realty that was depreciated using the straightline method, the entire gain is characterized as Section 1231 gain.

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.

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.

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?

Proctor Inc. was incorporated in 2009 and adopted a calendar year. Here is a schedule of Proctor's net Section 1231 gains and (losses) reported on its tax returns through In 2015, Proctor recognized a $25,000 gain on the sale of business land. How is this gain characterized on Proctor's tax return?

Benlow Company., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $19,200 Section 1231 loss, and the second sale generated a $33,600 Section 1231 gain. As a result of these sales, Benlow should recognize:

Which of the following results in a permanent book/tax difference for a corporate taxpayer?

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

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