Question 1

Sadie sold 10 shares of stock to her brother,George,for $500 sixteen months ago.Sadie had purchased the stock for $600 two years earlier.If George sells the stock for $700 six months later,what is the amount and character of his recognized gain or loss in the current year?

Accepted Answer

A)  $0. 
B)  $100 short-term capital gain. 
C)  $100 long-term capital gain. 
D)  $200 short-term capital gain. 
E)  None of the choices are correct.

Question 2

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

Accepted Answer

A)  $25,000 §1231 gain. 
B)  $20,000 ordinary gain, and $5,000 §1231 gain. 
C)  $5,000 ordinary gain, and $20,000 §1231 gain. 
D)  $25,000 capital gain. 
E)  None of the choices are correct.

Question 3

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Accepted Answer

A) True 
 B)False

Question 4

Andrew,an individual,began business four years ago and has never sold a §1231 asset.Andrew owned each of the assets for several years.In the current year,Andrew sold the following business assets:
  Assuming Andrew's marginal ordinary income tax rate is 30 percent,what is the character of the gains and losses and what affect do they have on Andrew's tax liability?

Accepted Answer

The answer of Andrew,an individual,began business four years ago and...

Question 5

Alexandra sold equipment that she uses in her business for $100,000.Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Alexandra's gain or loss?

Accepted Answer

The answer of Alexandra sold equipment that she uses in...

Question 6

For an installment sale,the gross profit percentage is the gain recognized divided by the gain realized.

Accepted Answer

A) True 
 B)False

Question 7

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 8

Pelosi Corporation sold a parcel of land valued at $300,000.Its basis in the land was $250,000.For the land,Pelosi received $150,000 in cash in the current year and a note providing Pelosi with $150,000 in the subsequent year.What is Pelosi's recognized gain in the current and subsequent year,respectively?

Accepted Answer

A)  $0, $50,000. 
B)  $10,000, $40,000. 
C)  $25,000, $25,000. 
D)  $50,000, $0. 
E)  None of the choices are correct.

Question 9

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Accepted Answer

A)  The basis is equal to the fair market value of the new property. 
B)  The basis is equal to the fair market value of the old property. 
C)  The basis is equal to the adjusted basis of the old property. 
D)  The basis is equal to the cost basis of the old property. 
E)  All of the choices are correct.

Question 10

Which one of the following is NOT true regarding a like-kind exchange?

Accepted Answer

A)  Loss on like-kind property is not recognized. 
B)  Gains on boot given are deferred. 
C)  Losses on boot given are not recognized. 
D)  Securities can be like-kind with any other securities. 
E)  All of the choices are true.

Question 11

An asset's tax-adjusted basis is usually greater than its book-adjusted basis.

Accepted Answer

A) True 
 B)False

Question 12

The sale of land held for investment results in the following type of gain or loss?

Accepted Answer

A)  Capital. 
B)  Ordinary. 
C)  §1231. 
D)  §1245. 
E)  None of the choices are correct.

Question 13

Brandy sold a rental house that she owned for $150,000.Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Brandy's gain or loss?

Accepted Answer

The answer of Brandy sold a rental house that she...

Question 14

Each of the following is true except for:

Accepted Answer

A)  A direct involuntary conversion occurs when property taken under imminent domain is replaced with other property. 
B)  Qualified replacement property rules are more restrictive than the like-kind property rules. 
C)  An indirect involuntary conversion occurs when property is destroyed and insurance proceeds are used to purchase qualified replacement property. 
D)  Losses realized in involuntary conversions are deferred. 
E)  All of the choices are true.

Question 15

Which of the following is NOT used in the calculation of the amount realized?

Accepted Answer

A)  Cash. 
B)  Adjusted basis. 
C)  Fair market value of other property received. 
D)  Buyer's assumption of liabilities. 
E)  All of the choices are used.

Question 16

Brandon,an individual,began business four years ago and has never sold a §1231 asset.Brandon owned each of the assets for several years.In the current year,Brandon sold the following business assets:  Assuming Brandon's marginal ordinary income tax rate is 35 percent,what effect do the gains and losses have on Brandon's tax liability?

Accepted Answer

A)  $7,000 ordinary income, $1,000 §1231 loss and $2,100 tax liability. 
B)  $6,000 ordinary income and $2,100 tax liability. 
C)  $7,000 §1231 gain and $2,450 tax liability. 
D)  $7,000 §1231 gain and $1,050 tax liability. 
E)  None of the choices are correct.

Question 17

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

Accepted Answer

A) True 
 B)False

Question 18

Winchester LLC sold the following business assets during the current year: (1)automobile,$30,000 cost basis,$12,000 depreciation,proceeds $20,000; (2)machinery,$25,000 cost basis,$20,000 depreciation,proceeds $10,000; (3)furniture,$15,000 cost basis,$10,000 depreciation,proceeds $4,000; (4)computer equipment,$25,000 cost basis,$6,000 depreciation,proceeds $10,000; (5)Winchester had unrecaptured §1231 losses of $3,000 in the prior 5 years.What is the amount and character of Winchester's gains and losses before the 1231 netting process? Assume all assets were held for more than one year.

Accepted Answer

A)  $3,000 ordinary loss, $0 §1231 loss. 
B)  $7,000 ordinary gain, $10,000 §1231 loss. 
C)  $7,000 ordinary loss, $4,000 §1231 gain. 
D)  $1,000 ordinary gain, $4,000 §1231 loss. 
E)  None of the choices are correct.

Question 19

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following does NOT ultimately result in a capital gain or loss?

Accepted Answer

A)  Sale of a personal use asset. 
B)  Sale of inventory. 
C)  Gain on equipment used in a trade or business held for more than one year, if it is the only asset sale during the year. 
D)  Sale of capital stock in another company. 
E)  None of the choices are correct.

Exam 3: Property Dispositions

Sadie sold 10 shares of stock to her brother,George,for $500 sixteen months ago.Sadie had purchased the stock for $600 two years earlier.If George sells the stock for $700 six months later,what is the amount and character of his recognized gain or loss in the current year?

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.

Alexandra sold equipment that she uses in her business for $100,000.Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Alexandra's gain or loss?

For an installment sale,the gross profit percentage is the gain recognized divided by the gain realized.

A net §1231 gain becomes ordinary while a net §1231 loss becomes long-term capital gain.

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Which one of the following is NOT true regarding a like-kind exchange?

An asset's tax-adjusted basis is usually greater than its book-adjusted basis.

The sale of land held for investment results in the following type of gain or loss?

Brandy sold a rental house that she owned for $150,000.Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Brandy's gain or loss?

Each of the following is true except for:

Which of the following is NOT used in the calculation of the amount realized?

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

§1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.

Which of the following does NOT ultimately result in a capital gain or loss?