Question 1

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

$20,000 of ordinary income under §1239.
Explanation: §1239 recharacterizes the entire gain as ordinary income when depreciable property is sold to a related person.

Question 2

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 these are used. B

Question 3

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 these. A

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,000 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets: $$\begin{array} { | l | r | r | r | } 
\hline \text { Asset } & \begin{array} { r } 
\text { Original } \
\text { Cost }
\end{array} & \begin{array} { r } 
\text { Accumulated } \
\text { Depreciation }
\end{array} & \text { GainLoss } \
\hline \text { Machinery } & \$ 30,000 & \$ 7,000 & \$ 10,000 \
\hline \text { Land } & 40,000 & 0 & 20,000 \
\hline \text { Building } & 90,000 & 20,000 & ( 5,000 ) \
\hline
\end{array}$$ 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)   $25,000 ordinary income, $8,750 tax liability.
B)   $25,000 §1231 gain and $3,750 tax liability.
C)   $13,000 §1231 gain, $12,000 ordinary income, and $6,150 tax liability.
D)   $12,000 §1231 gain, $13,000 ordinary income, and $6,350 tax liability.
E)   None of these.

Question 7

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 these.

Question 8

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Bull Run sold a computer for $1,200 on November 10^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Question 11

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 12

When does unrecaptured §1250 gains apply?

Accepted Answer

A)   When the taxpayer makes the election.
B)   It applies only when non-corporate taxpayers sell depreciable real property at a gain.
C)   It applies when §1245 recapture trumps §1250 recapture.
D)   It applies only when real property purchased before 1986 is sold at a gain.
E)   None of these.

Question 13

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 these.

Question 14

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 15

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 16

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

Accepted Answer

The answer of Buzz Corporation sold an office building that...

Question 17

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 18

Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income?

Accepted Answer

A)   $0.
B)   $45,000.
C)   $60,000.
D)   $105,000.
E)   None of these.

Question 19

The adjusted basis is the cost basis less cost recovery deductions.

Accepted Answer

A) True 
 B)False

Question 20

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Exam 11: Property Dispositions

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

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

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

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

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?

An installment sale is any sale where at least a portion of the sales proceeds is received in a subsequent taxable year.

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?

Bull Run sold a computer for $1,200 on November 10th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

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

When does unrecaptured §1250 gains apply?

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

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.

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?

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

Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn's net §1231 gain for year 6, if any, is treated as ordinary income?

The adjusted basis is the cost basis less cost recovery deductions.

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Bull Run sold a computer for $1,200 on November 10^th of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?