Question 1

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 2

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

Accepted Answer

A) Nilex can deduct its $14,500 net Section 1231 loss. 
B) Nilex can deduct its $34,100 net Section 1231 loss and can treat its $19,600 Section 1231 gain as a capital gain. 
C) Nilex must treat its $14,500 net Section 1231 loss as a capital loss. 
D) None of the above statements is true.

Question 3

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Accepted Answer

A) True 
 B)False

Question 4

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Accepted Answer

A) True 
 B)False

Question 5

Mrs.Lex realized a $78,400 gain on sale of investment land to S&T,which issued a 10-year note in full payment.Mrs.Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.

Accepted Answer

A) True 
 B)False

Question 6

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 the above

Question 7

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

Question 8

N&B Inc.sold land worth $385,000.The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land.N&B's amount realized on sale is $385,000.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

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 35% tax rate.

Accepted Answer

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

Question 12

Blitza Inc.owned real property used for 12 years in its business that was subject to a $294,500 nonrecourse mortgage.Blitza failed to make timely mortgage payments,so the creditor foreclosed.At date of foreclosure,Blitza's basis in the property was $300,000,and the property's appraised FMV was $260,000.Which of the following statements is true?

Accepted Answer

A) Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage. 
B) Blitza recognizes a $40,000 Section 1231 loss. 
C) Blitza recognizes a $5,500 Section 1231 loss. 
D) Both Blitza has no legal obligation to settle the $34,500 unpaid balance of the mortgage and Blitza recognizes a $5,500 Section 1231 loss is true.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

Accepted Answer

A) -0- 
B) $5,000 
C) $22,900 
D) None of the above

Question 15

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 2003 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 16

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Accepted Answer

A) $42,000 unfavorable permanent book/tax difference 
B) $42,000 unfavorable temporary book/tax difference 
C) $42,000 favorable permanent book/tax difference 
D) No book/tax difference

Question 17

Ms.Cregg has a $43,790 basis in 2,460 shares of ABD Inc.common stock.ABD recently declared bankruptcy and announced that its common stock is worthless.As a result,Ms.Cregg can recognize a $43,790 ordinary loss.

Accepted Answer

A) True 
 B)False

Question 18

This year,Adula Company sold equipment purchased in 2012 at a cost of $117,200.Accumulated depreciation through date of sale was $33,000.Which of the following statements is false?

Accepted Answer

A) If the sale price was $90,000,Adula recognized $5,800 ordinary gain. 
B) If the sale price was $120,000 Adula recognized $33,000 ordinary gain and $2,800 Section 1231 gain. 
C) If the sale price was $80,000,Adula recognized $4,200 ordinary loss. 
D) None of the above is false.

Question 19

McOwen Inc.reported $6,029,400 net income before tax on this year's financial statements prepared in accordance with GAAP.The corporation's records reveal the following information.
A tornado destroyed an office building and its contents.McOwen's book basis in the building and contents was $4,100,000 and its tax basis in the building and contents was $1,539,000.McOwen's reimbursement from its insurance company was $1 million.
Four years ago,McOwen realized a $90,000 gain on the sale of investment property and elected the installment sale method to report the gain for tax purposes.Its gross profit percentage is 37.45%,and it received a $40,000 principal payment on its installment note this year.
Net income per books includes a $13,670 net capital gain.McOwen has a $63,000 capital loss carryforward into the current year.
Depreciation expense per books was $111,400,and MACRS depreciation was $398,100.
Compute McOwen's taxable income.

Accepted Answer

The answer of McOwen Inc.reported $6,029,400 net income before tax...

Question 20

Dender Company sold business equipment with a $386,000 initial cost basis and $171,000 accumulated tax depreciation.Compute Dender's recaptured ordinary income and Section 1231 gain or loss recognized if the amount realized on sale was:
a.$200,000
b.$300,000
c.$400,000

Accepted Answer

The answer of Dender Company sold business equipment with a...

Exam 8: Property Dispositions

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

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Mrs.Lex realized a $78,400 gain on sale of investment land to S&T,which issued a 10-year note in full payment.Mrs.Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.

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:

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.

N&B Inc.sold land worth $385,000.The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land.N&B's amount realized on sale is $385,000.

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:

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:

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 sale of business inventory always generates ordinary income or loss.

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Ms.Cregg has a $43,790 basis in 2,460 shares of ABD Inc.common stock.ABD recently declared bankruptcy and announced that its common stock is worthless.As a result,Ms.Cregg can recognize a $43,790 ordinary loss.

This year,Adula Company sold equipment purchased in 2012 at a cost of $117,200.Accumulated depreciation through date of sale was $33,000.Which of the following statements is false?

Dender Company sold business equipment with a $386,000 initial cost basis and $171,000 accumulated tax depreciation.Compute Dender's recaptured ordinary income and Section 1231 gain or loss recognized if the amount realized on sale was: a.$200,000 b.$300,000 c.$400,000