Question 1

This year, Izard Company sold equipment purchased several years ago at a cost of $48,500. Accumulated depreciation through date of sale was $18,900. 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 $18,900 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 2

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 3

Because land is nondepreciable, it is always a capital asset.

Accepted Answer

A) True 
 B)False

Question 4

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 5

A fire destroyed business equipment that was worth $160,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $160,000 ordinary casualty loss.

Accepted Answer

A) True 
 B)False

Question 6

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 7

A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.

Accepted Answer

A) True 
 B)False

Question 8

In 2014, TPC Inc. sold investment land with a $474,000 book and tax basis for $775,000. The purchaser paid $100,000 in cash and gave TPC a note for the $675,000 balance of the price. In 2015, TPC received a $105,500 payment on the note ($67,500 principal + $38,000 interest). Assuming that TPC is using the installment sale method, compute its gain recognized in 2015.

Accepted Answer

A)  $26,216 
B)  $40,976 
C)  $67,500 
D)  None of the above

Question 9

A tornado demolished several delivery vans owned for three years by Wadham Company. Wadham's adjusted basis in the vans was $28,400, and Wadham paid $90,000 to purchase new vans. Wadham received a $25,000 settlement from its casualty insurance company. Consequently, Wadham recognizes:

Accepted Answer

A)  $3,400 Section 1231 loss 
B)  $65,000 Section 1231 loss 
C)  $65,000 ordinary loss 
D)  None of the above.

Question 10

This year, Adula Company sold equipment purchased in 2010 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 11

Mrs. Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash. Two years later, the daughter sold the securities through her broker for $93,000. Compute the daughter's gain recognized on sale.

Accepted Answer

A)  $13,400 
B)  $19,600 
C)  $33,000 
D)  None of the above

Question 12

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 13

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)  Statements a. and c. are true.

Question 14

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 15

Mr. Jason realized a gain on sale of a residential apartment complex that he had placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

Accepted Answer

A) True 
 B)False

Question 16

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 17

CBM Inc. realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

Accepted Answer

A) True 
 B)False

Question 18

Nancy owned business equipment with a $16,950 adjusted basis and a $7,500 FMV that was destroyed by a tornado. The equipment was uninsured. As a result of this casualty, Nancy

Accepted Answer

A)  Recognizes a $7,500 Section 1231 loss 
B)  Recognizes a $16,950 Section 1231 loss 
C)  Is allowed to deduct a $16,950 ordinary loss 
D)  Is allowed to deduct a $7,500 ordinary loss

Question 19

Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 8: Property Dispositions

This year, Izard Company sold equipment purchased several years ago at a cost of $48,500. Accumulated depreciation through date of sale was $18,900. Which of the following statements is false?

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

Because land is nondepreciable, it is always a capital asset.

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

A fire destroyed business equipment that was worth $160,000 and had a $118,100 adjusted tax basis. The equipment was uninsured. The owner can recognize a $160,000 ordinary casualty loss.

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.

A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.

A tornado demolished several delivery vans owned for three years by Wadham Company. Wadham's adjusted basis in the vans was $28,400, and Wadham paid $90,000 to purchase new vans. Wadham received a $25,000 settlement from its casualty insurance company. Consequently, Wadham recognizes:

This year, Adula Company sold equipment purchased in 2010 at a cost of $117,200. Accumulated depreciation through date of sale was $33,000. Which of the following statements is false?

Mrs. Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash. Two years later, the daughter sold the securities through her broker for $93,000. Compute the daughter's gain 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:

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.

Mr. Jason realized a gain on sale of a residential apartment complex that he had placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

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:

CBM Inc. realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1993. Accumulated MACRS depreciation on the complex was $311,800. The entire gain is characterized as Section 1231 gain.

Nancy owned business equipment with a $16,950 adjusted basis and a $7,500 FMV that was destroyed by a tornado. The equipment was uninsured. As a result of this casualty, Nancy

Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

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.