Question 1

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

Accepted Answer

A)  $40,000 ordinary and $360,000 §1231 gain. 
B)  $200,000 ordinary and $200,000 §1231 gain. 
C)  $400,000 ordinary gain. 
D)  $400,000 capital gain. 
E)  None of these.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

All tax gains and losses are ultimately characterized as either ordinary or capital.

Accepted Answer

A) True 
 B)False

Question 4

Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

Accepted Answer

A)  $0. 
B)  $2,000. 
C)  $7,000. 
D)  $9,000. 
E)  None of these.

Question 5

§1231 assets include all assets used in a trade or business.

Accepted Answer

A) True 
 B)False

Question 6

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is true regarding the §1231 look-back rule?

Accepted Answer

A)  It only applies when a §1231 loss occurs. 
B)  It only applies when a §1231 gain occurs. 
C)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years. 
D)  It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years. 
E)  None of these.

Question 9

Which of the following is not true regarding §1239?

Accepted Answer

A)  It only applies to related taxpayers. 
B)  It only applies to gains on sales of depreciable property. 
C)  It only applies to gains on sales of non-residential real property. 
D)  It does not apply to losses. 
E)  None of these.

Question 10

The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is how gain or loss realized is calculated?

Accepted Answer

A)  Cash less selling costs. 
B)  Cost basis less cost recovery. 
C)  Cash less cost recovery. 
D)  Amount realized less adjusted basis. 
E)  None of these.

Question 12

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 last year. Sarah had purchased the stock for $20,000 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for $15,000 and $25,000, respectively?

Accepted Answer

The answer of Sarah sold 1,000 shares of stock to...

Question 13

Tyson had a parcel of undeveloped investment land that he wanted to trade for a warehouse to be used in his business. He found a buyer willing to pay him $450,000 for the land. He transferred the land to a third party intermediary on April 1st of the current year. On May 10th, with the help of a commercial real estate agent, Tyson identified two suitable warehouses. On August 10th he made an offer on the first building which was rejected. On August 13th an offer was accepted on the second warehouse. On September 23rd the third party intermediary transferred $500,000 ($450,000 from the original property plus $50,000 from Tyson) to the seller and conveyed title to the warehouse to Tyson. Explain whether the exchange of property qualifies as a like-kind exchange.

Accepted Answer

The answer of Tyson had a parcel of undeveloped investment...

Question 14

Manassas purchased a computer several years ago for $2,200. On November 10th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 15

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 these.

Question 16

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Accepted Answer

The answer of Explain whether the sale of a machine...

Question 17

Which of the following gains does not result solely in an ordinary gain or loss?

Accepted Answer

A)  Sale of equipment held for less than a year. 
B)  Sale of inventory. 
C)  Sale of equipment where the gain realized exceeds the accumulated depreciation. 
D)  Sale of equipment where the accumulated depreciation exceeds the gain realized. 
E)  None of these.

Question 18

Mary traded furniture used in her business to a furniture dealer for some new furniture. Mary originally purchased the furniture for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange. The new furniture had a fair market value of $40,000. Mary also gave $4,000 to the dealer in the transaction. What is Mary's adjusted basis in the new furniture after the exchange?

Accepted Answer

A)  $20,000. 
B)  $24,000. 
C)  $36,000. 
D)  $40,000. 
E)  None of these.

Question 19

Collins Corporation, of Camden, Maine, wants to exchange its manufacturing equipment for Rockland Company's equipment. Both parties agree that Collins's machinery is worth $200,000 and that Rockland's machinery is worth $175,000. Collins will not enter into the transaction unless it qualifies as a like-kind exchange. If Collins wants to avoid gain, what could the parties do to equalize the value exchanged but still allow the exchange to qualify as a like-kind exchange?

Accepted Answer

The answer of Collins Corporation, of Camden, Maine, wants to...

Question 20

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: $$\begin{array} { | l | r | r | r | } 
\hline { \text { Asset } } & \text { Original Cost } & \begin{array} { c } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { Gain/Loss } \
\hline \text { Machinery } & \$ 12,000 & \$ 7,000 & \$ 6,000 \
\hline \text { Furniture } & 10,000 & 2,000 & 3,000 \
\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \
\hline
\end{array}$$ 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...

Exam 10: Property Dispositions

Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?

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

All tax gains and losses are ultimately characterized as either ordinary or capital.

§1231 assets include all assets used in a trade or business.

After application of the look-back rule, net §1231 gains become capital while net §1231 losses become ordinary.

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

Which of the following is true regarding the §1231 look-back rule?

Which of the following is not true regarding §1239?

The §1231 look-back rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

Which of the following is how gain or loss realized is calculated?

Sarah sold 1,000 shares of stock to her brother, David, for $18,000 last year. Sarah had purchased the stock for $20,000 several years earlier. What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for $15,000 and $25,000, respectively?

Manassas purchased a computer several years ago for $2,200. On November 10th of the current year, the computer was worth $800. If $1,000 of depreciation deductions had been taken, what is Manassas' tax adjusted basis for the computer?

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Which of the following gains does not result solely in an ordinary gain or loss?