Question 1

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

Question 2

Mr.and Mrs.Marley operate a small business.This year,the Marleys sold a commercial office building used in their business for $1.1 million.They purchased the building in 2005 for a cost of $900,000 and have deducted $300,000 MACRS depreciation through date of sale.The Marleys should characterize the $500,000 gain recognized on sale as:

Accepted Answer

A) Capital gain 
B) Section 1231 gain 
C) $300,000 ordinary gain and $200,000 Section 1231 gain 
D) None of the above

Question 3

Schatz Corporation generated $8,083,000 ordinary business income and recognized a $73,900 net capital gain on the sale of assets.Which of the following statements is true?

Accepted Answer

A) Schatz must pay tax at the regular corporate rate on $8,156,900 taxable income. 
B) Schatz must pay tax at the regular corporate rate on $8,083,000 taxable income.The $73,900 capital gain is eligible for a preferential tax rate. 
C) Schatz's net capital gain results in a permanent book/tax difference. 
D) None of the above is true.

Question 4

This year,Izard Company sold equipment purchased several years ago at a cost of $48,500.Accumulated depreciation through date of sale was $12,900.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 $12,900 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 5

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

Question 6

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

Question 7

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 8

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:

Accepted Answer

A) $324,900 ordinary gain. 
B) $104,800 ordinary gain and $220,100 capital gain. 
C) $51,000 ordinary gain and $273,900 Section 1231 gain. 
D) None of the choices are correct.

Question 9

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 10

For tax purposes,every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

Accepted Answer

A) True 
 B)False

Question 11

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 21% tax rate.

Accepted Answer

A) $15,800 
B) $20,000 
C) -0- 
D) None of the above

Question 12

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business.Which of the following statements is true?

Accepted Answer

A) The $100,000 gain is capital gain eligible for a preferential tax rate. 
B) The $100,000 gain is capital gain against which the Sykes can deduct any capital losses recognized this year. 
C) The $100,000 gain is ordinary business income. 
D) Statements A and B are true.

Question 13

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

Question 14

Benlow Company,a calendar year taxpayer,sold two operating assets this year (each held for over a 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

Question 15

A loss from an involuntary conversion of depreciable business property is characterized as a Section 1231 loss.

Accepted Answer

A) True 
 B)False

Question 16

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 21% tax rate.

Accepted Answer

A) $25,443 
B) $17,143 
C) $23,700 
D) None of the above

Question 17

Mrs.Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2009.This year,HiFli declared bankruptcy and announced that its stock has no value.What is the tax consequence to Mrs.Tinker of this bad news?

Accepted Answer

A) $78,400 ordinary abandonment loss 
B) $78,400 capital loss 
C) No loss recognition until Mrs.Tinker actually disposes of the stock 
D) None of the above

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

In 2018,TPC Inc.sold investment land with a $388,000 book and tax basis for $523,000.The purchaser paid $60,000 in cash and gave TPC a note for the $463,000 balance of the price.In 2019,TPC received a $67,800 payment on the note ($40,000 principal + $27,800 interest).In 2019,TPC's use of the installment sale method results in a:

Accepted Answer

A) $10,325 favorable permanent book/tax difference 
B) $17,496 unfavorable temporary difference 
C) $17,496 favorable temporary difference 
D) None of the above

Exam 8: Property Dispositions

Schatz Corporation generated $8,083,000 ordinary business income and recognized a $73,900 net capital gain on the sale of assets.Which of the following statements is true?

This year,Izard Company sold equipment purchased several years ago at a cost of $48,500.Accumulated depreciation through date of sale was $12,900.Which of the following statements is false?

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.

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

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.

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:

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.

For tax purposes,every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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 21% tax rate.

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business.Which of the following statements is true?

Benlow Company,a calendar year taxpayer,sold two operating assets this year (each held for over a 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:

A loss from an involuntary conversion of depreciable business property is characterized as a Section 1231 loss.

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 21% tax rate.

Mrs.Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2009.This year,HiFli declared bankruptcy and announced that its stock has no value.What is the tax consequence to Mrs.Tinker of this bad news?

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.

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