Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Mr. and Mrs. Churchill operate a small business. This year, the Churchills sold a commercial office building used in their business for $1.5 million. They purchased the building in 1997 for a cost of $1.4 million and had deducted $538,000 MACRS depreciation through date of sale. The Churchills should characterize the $638,000 gain recognized on sale as:

Accepted Answer

A)  Ordinary gain 
B)  Capital gain 
C)  $538,000 ordinary gain and $100,000 Section 1231 gain 
D)  Section 1231 gain 
A)  Ordinary gain 
B)  Capital gain 
C)  $538,000 ordinary gain and $100,000 Section 1231 gain 
D)  Section 1231 gain

Question 4

Which of the following is a capital asset?

Accepted Answer

A)  Accounts receivable of an accrual basis business 
B)  Business equipment 
C)  Self-created goodwill 
D)  Purchased goodwill 
A)  Accounts receivable of an accrual basis business 
B)  Business equipment 
C)  Self-created goodwill 
D)  Purchased goodwill

Question 5

Mr. Beck sold real property with a $140,000 adjusted basis for $255,000. The buyer paid $148,000 cash and assumed Mr. Beck's $107,000 mortgage on the realty. Mr. Beck's realized gain or loss on sale is

Accepted Answer

A)  $115,000 gain 
B)  $8,000 gain 
C)  $33,000 loss 
D)  $0 gain or loss 
A)  $115,000 gain 
B)  $8,000 gain 
C)  $33,000 loss 
D)  $0 gain or loss

Question 6

Skeen Company paid $90,000 for tangible personalty three years ago and elected to expense and deduct the cost under Section 179. This year, Skeen sold the personalty for $52,700. Accumulated book depreciation through date of sale was $31,000. What is the effect of the sale on Skeen's book income and taxable income?

Accepted Answer

A)  $6,300 book loss: $52,700 tax gain 
B)  $6,300 book loss; -0- tax gain 
C)  $6,300 book and tax gain 
D)  None of the above 
A)  $6,300 book loss: $52,700 tax gain 
B)  $6,300 book loss; -0- tax gain 
C)  $6,300 book and tax gain 
D)  None of the above

Question 7

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

Accepted Answer

A)  Sale of 12-acre tract of land held as inventory by a real estate developer 
B)  Sale of business equipment 
C)  Sale of U.S. Treasury notes 
D)  The method does not apply to a. and c. 
A)  Sale of 12-acre tract of land held as inventory by a real estate developer 
B)  Sale of business equipment 
C)  Sale of U.S. Treasury notes 
D)  The method does not apply to a. and c.

Question 8

A fire destroyed business equipment that was worth $100,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $118,100 ordinary casualty loss.

Accepted Answer

A) True 
 B)False

Question 9

Several years ago, Y&S Inc. purchased a patent on a production process for $250,000 and has amortized $91,000 of the cost. Y&S has learned that a rival company recently developed a new process that renders the patent worthless. Consequently, Y&S made a public announcement that it would no longer enforce the patent. What is the tax consequence to Y&S of this unfortunate situation?

Accepted Answer

A)  $159,000 ordinary abandonment loss. 
B)  $159,000 capital loss. 
C)  $159,000 Section 1231 loss. 
D)  Y&S has no tax consequences because it did not sell or exchange the patent. 
A)  $159,000 ordinary abandonment loss. 
B)  $159,000 capital loss. 
C)  $159,000 Section 1231 loss. 
D)  Y&S has no tax consequences because it did not sell or exchange the patent.

Question 10

Lenoci 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. Which of the following statements is true?

Accepted Answer

A)  The sale results in a $53,487 favorable temporary book/tax difference. 
B)  The sale results in a $53,487 unfavorable temporary book/tax difference. 
C)  The sale results in a $53,487 unfavorable permanent book/tax difference. 
D)  None of the above is true. 
A)  The sale results in a $53,487 favorable temporary book/tax difference. 
B)  The sale results in a $53,487 unfavorable temporary book/tax difference. 
C)  The sale results in a $53,487 unfavorable permanent book/tax difference. 
D)  None of the above is true.

Question 11

Oslego Company, a calendar year taxpayer, sold land with a $400,000 tax basis for $635,000 in March 2015. The purchaser paid $50,000 cash at closing and gave Oslego an interest-bearing note for the $585,000 remaining price. In September, Oslego received $50,450 cash from the purchaser consisting of a $29,250 principal payment and a $21,200 interest payment. Assuming that Oslego does not elect out of the installment sale method, compute the company's 2015 gain recognized on sale and its tax basis in the note receivable on December 31.

Accepted Answer

Oslego realized a $235,000 gain on sale

Question 12

WQP Company generated $1,814,700 ordinary income from the sale of inventory to its customers. It also sold three noninventory assets during the year. Compute WQP's taxable income assuming that:
a. The first sale resulted in a $10,400 ordinary gain, the second sale resulted in a $23,900 capital loss, and the third sale resulted in a $44,000 capital gain.
b. The first sale resulted in a $79,100 capital loss, the second sale resulted in a $35,200 ordinary loss, and the third sale resulted in a $16,000 capital gain.

Accepted Answer

a. WQP's taxable income is $1,845,200 ($

Question 13

Michael sold machinery used in his business for $50,000. He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through the date of sale. Compute and characterize Michael's gain on sale.

Accepted Answer

A)  $17,800 Section 1231 gain 
B)  $22,800 ordinary gain and $45,000 Section 1231 loss 
C)  $17,800 ordinary gain 
D)  $17,800 capital gain 
A)  $17,800 Section 1231 gain 
B)  $22,800 ordinary gain and $45,000 Section 1231 loss 
C)  $17,800 ordinary gain 
D)  $17,800 capital gain

Question 14

Acme Inc. sold three capital assets this year. The corporation realized an $18,900 gain on the first sale, a $93,000 loss on the second sale, and a $40,000 gain on the third sale. If Acme's ordinary taxable income from operations was $250,000, compute Acme's taxable income.

Accepted Answer

A)  $308,900 
B)  $215,900 
C)  $250,000 
D)  None of the above. 
A)  $308,900 
B)  $215,900 
C)  $250,000 
D)  None of the above.

Question 15

Several years ago, Nipher paid $70,000 to purchase equipment to use in its business. This year, it sold the equipment for $76,500. Accumulated MACRS depreciation through date of sale was $18,000. Determine the amount and character of Nipher's gain recognized.

Accepted Answer

A)  $24,500 ordinary gain 
B)  $24,500 Section 1231 gain 
C)  $18,000 ordinary gain and $6,500 capital gain 
D)  $18,000 ordinary gain and $6,500 Section 1231 gain 
A)  $24,500 ordinary gain 
B)  $24,500 Section 1231 gain 
C)  $18,000 ordinary gain and $6,500 capital gain 
D)  $18,000 ordinary gain and $6,500 Section 1231 gain

Question 16

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?

Accepted Answer

A)  If the gain and loss were capital gain and loss, PRS's taxable income was $300,000. 
B)  If the gain was capital gain and the loss was ordinary, PRS's taxable income was $269,000. 
C)  If the gain and loss were ordinary, PRS's taxable income was $289,000. 
D)  If the gain was ordinary and the loss was a capital loss, PRS's taxable income was $320,000. 
A)  If the gain and loss were capital gain and loss, PRS's taxable income was $300,000. 
B)  If the gain was capital gain and the loss was ordinary, PRS's taxable income was $269,000. 
C)  If the gain and loss were ordinary, PRS's taxable income was $289,000. 
D)  If the gain was ordinary and the loss was a capital loss, PRS's taxable income was $320,000.

Question 17

Four years ago, Mrs. Beights purchased marketable securities for $75,000 cash. At the end of the current year, the FMV of the securities had plummeted to $4,000. Mrs. Beights may elect to recognize her $71,000 loss this year, even though she still owns the securities.

Accepted Answer

A) True 
 B)False

Question 18

Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1999 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 19

Princetown Inc. has a $4.82 million basis in 88% of the outstanding stock of Merryvale Corporation. Merryvale manufactures Christmas decorations, cards, and wrapping paper. Princetown's board of directors recently learned that Merryvale is bankrupt. The board voted unanimously to dissolve the corporation and distribute all assets to Merryvale's creditors. What is the tax consequence to Princetown of the board's actions?

Accepted Answer

A)  No loss recognition until Princetown actually disposes of the Merryvale stock. 
B)  $4.82 million Section 1231 loss. 
C)  $4.82 million capital loss. 
D)  $4.82 million ordinary loss. 
A)  No loss recognition until Princetown actually disposes of the Merryvale stock. 
B)  $4.82 million Section 1231 loss. 
C)  $4.82 million capital loss. 
D)  $4.82 million ordinary loss.

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

Which of the following is a capital asset?

Mr. Beck sold real property with a $140,000 adjusted basis for $255,000. The buyer paid $148,000 cash and assumed Mr. Beck's $107,000 mortgage on the realty. Mr. Beck's realized gain or loss on sale is

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

A fire destroyed business equipment that was worth $100,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $118,100 ordinary casualty loss.

Lenoci 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. Which of the following statements is true?

Michael sold machinery used in his business for $50,000. He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through the date of sale. Compute and characterize Michael's gain on sale.

Acme Inc. sold three capital assets this year. The corporation realized an $18,900 gain on the first sale, a $93,000 loss on the second sale, and a $40,000 gain on the third sale. If Acme's ordinary taxable income from operations was $250,000, compute Acme's taxable income.

Several years ago, Nipher paid $70,000 to purchase equipment to use in its business. This year, it sold the equipment for $76,500. Accumulated MACRS depreciation through date of sale was $18,000. Determine the amount and character of Nipher's gain recognized.

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?

Four years ago, Mrs. Beights purchased marketable securities for $75,000 cash. At the end of the current year, the FMV of the securities had plummeted to $4,000. Mrs. Beights may elect to recognize her $71,000 loss this year, even though she still owns the securities.

Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1999 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 sale of business inventory always generates ordinary income or 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

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

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

Which of the following is a capital asset?

Mr. Beck sold real property with a $140,000 adjusted basis for $255,000. The buyer paid $148,000 cash and assumed Mr. Beck's $107,000 mortgage on the realty. Mr. Beck's realized gain or loss on sale is

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

A fire destroyed business equipment that was worth $100,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $118,100 ordinary casualty loss.

Lenoci 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. Which of the following statements is true?

Michael sold machinery used in his business for $50,000. He purchased the equipment three years ago for $55,000 and deducted $22,800 MACRS depreciation through the date of sale. Compute and characterize Michael's gain on sale.

Acme Inc. sold three capital assets this year. The corporation realized an $18,900 gain on the first sale, a $93,000 loss on the second sale, and a $40,000 gain on the third sale. If Acme's ordinary taxable income from operations was $250,000, compute Acme's taxable income.

Several years ago, Nipher paid $70,000 to purchase equipment to use in its business. This year, it sold the equipment for $76,500. Accumulated MACRS depreciation through date of sale was $18,000. Determine the amount and character of Nipher's gain recognized.

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?

Four years ago, Mrs. Beights purchased marketable securities for $75,000 cash. At the end of the current year, the FMV of the securities had plummeted to $4,000. Mrs. Beights may elect to recognize her $71,000 loss this year, even though she still owns the securities.

Kuong Inc. sold a commercial office building used in the corporate business for $1.5 million. Kuong purchased the building in 1999 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 sale of business inventory always generates ordinary income or 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