Question 1

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 2

Milton Inc. recognized a $1,300 net Section 1231 loss in 2015. If Milton recognizes a $5,000 net Section 1231 gain in 2016, it must characterize $1,300 as ordinary income.

Accepted Answer

A) True 
 B)False

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 these choices are true.

Question 4

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.
Murrow recognized $6,800 recaptured ordinary income, a $23,200 net Section 1231 gain, and an $11,600 net capital loss.Murrow recognized a $47,300 net Section 1231 loss and a $5,075 net capital loss.Murrow recognized a $61,800 net Section 1231 gain and a $4,210 net capital gain.Murrow recognized a $15,300 net Section 1231 loss and a $3,000 net capital gain.

Accepted Answer

The answer of Murrow Corporation generated $285,700 income from the...

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The installment sale method of accounting is not applicable to realized losses.

Accepted Answer

A) True 
 B)False

Question 7

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 1999 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

Question 8

"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 these choices are false.

Question 9

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 these choices are correct

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

DiLamer Inc. paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation. The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored. What is the tax consequence to DiLamer of this bad news?

Accepted Answer

A)  No loss recognition until DiLamer actually disposes of the bonds. 
B)  $300,000 Section 1231 loss. 
C)  $300,000 capital loss. 
D)  $300,000 ordinary abandonment loss.

Question 12

According to the realization principle, an increase in the value of an asset is not accounted for as income unless the amount of the increase can be accurately measured.

Accepted Answer

A) True 
 B)False

Question 13

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 these choices are correct

Question 14

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Accepted Answer

A) True 
 B)False

Question 15

Langtry Corporation recognized $798,000 ordinary income, $13,000 net Section 1231 loss, and $6,000 net capital loss this year. Langtry's taxable income is $785,000.

Accepted Answer

A) True 
 B)False

Question 16

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 these choices are correct.

Question 17

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 18

Bastrop Inc. generated a $169,000 ordinary loss from operations this year. It also recognized $35,920 recaptured ordinary income, $18,000 net Section 1231 loss, and $125,750 net capital gain on the sale of assets. Compute Bastrop's net operating loss.

Accepted Answer

A)  ($169,000) 
B)  ($133,080) 
C)  ($151,080) 
D)  ($25,330)

Question 19

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2010 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 these choices are correct

Question 20

Hugo Inc., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $38,700 Section 1231 gain, and the second sale generated a $59,400 Section 1231 loss. As a result of these sales, Hugo should recognize:

Accepted Answer

A)  $20,700 ordinary loss 
B)  $38,700 Section 1231 gain treated as capital gain and $59,400 ordinary loss 
C)  $20,700 capital loss 
D)  None of these choices are correct

Exam 8: Property Dispositions

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.

Milton Inc. recognized a $1,300 net Section 1231 loss in 2015. If Milton recognizes a $5,000 net Section 1231 gain in 2016, it must characterize $1,300 as ordinary income.

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?

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

The installment sale method of accounting is not applicable to realized losses.

"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?

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.

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.

DiLamer Inc. paid $300,000 to purchase 30-year bonds issued by a publicly held foreign corporation. The foreign government recently privatized the corporation and declared that all outstanding corporate debt obligations would not be honored. What is the tax consequence to DiLamer of this bad news?

According to the realization principle, an increase in the value of an asset is not accounted for as income unless the amount of the increase can be accurately measured.

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.

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Langtry Corporation recognized $798,000 ordinary income, $13,000 net Section 1231 loss, and $6,000 net capital loss this year. Langtry's taxable income is $785,000.

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:

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?

Bastrop Inc. generated a $169,000 ordinary loss from operations this year. It also recognized $35,920 recaptured ordinary income, $18,000 net Section 1231 loss, and $125,750 net capital gain on the sale of assets. Compute Bastrop's net operating loss.

B&I Inc. sold a commercial office building used in the corporate business for $862,000. B&I purchased the building in 2010 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:

Hugo Inc., a calendar year taxpayer, sold two operating assets this year. The first sale generated a $38,700 Section 1231 gain, and the second sale generated a $59,400 Section 1231 loss. As a result of these sales, Hugo should recognize: