Question 1

Chen had the following capital asset transactions during 2015:  What is the adjusted net capital gain or loss and the related tax due to the above transactions, assuming Chen has a 25% marginal tax rate?

Accepted Answer

The answer of Chen had the following capital asset transactions...

Question 2

In the current year, ABC Corporation had the following items of income, expense, gains, and losses:  What is taxable income for the year?

Accepted Answer

Corporations cannot offset net capital losses against ordinary income. ($500,000 - $270,000 - $100,000 + $14,000 = $144,000). $6,000 of the loss offsets $6,000 of the gain. The remaining loss of $9,000 may be carried back three years and forward five years.

Question 3

Candice owns a mutual fund that reinvests her dividends and capital gains earned during the year. The mutual fund reported to her that her share of earnings was: $500 in dividends, $1,500 in short-term net capital gains, and $1,300 in long-term net capital gains. She reported the items on her tax return and paid the appropriate tax on these earnings. If her basis in the fund was $25,000 at the beginning of the year, what is her basis at the end of the year?

Accepted Answer

11eac5e3_b0d1_5c9f_a396_e75bacd1b4ff_TB5639_00 Mutual fund earnings which are not distributed increase the basis in the fund.

Question 4

Olivia, a single taxpayer, has AGI of $280,000 which includes $220,000 of salary and $60,000 of investment income. She will pay Medicare tax on the $60,000 of investment income of

Accepted Answer

The Medicare tax is 3.8% of the $60,000 net investment income.

Question 5

Abra Corporation generated $100,000 of taxable income from operations this year and realized a $4,000 loss on the sale of Starbucks stock. Abra Corporation will pay taxes on $97,000 of taxable income.

Accepted Answer

Corporate taxpayers cannot deduct any net capital losses. Net capital losses can be carried back three years and forward five years.

Question 6

Unlike an individual taxpayer, the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates, but it does apply the 15% tax rate to adjusted net capital gain.

Accepted Answer

None of the lower capital gain rates apply to corporate taxpayers.

Question 7

Topaz Corporation had the following income and expenses during the current year:  What is Topaz's taxable income?

Accepted Answer

$80,000 - 30,000 = $50,000. The $5,000 gain offsets $5,000 of the loss, leaving a $20,000 capital loss which can be carried back three years and forward five years.

Question 8

Amanda, whose tax rate is 33%, has NSTCL of $25,000, a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years. By what amount will Amanda's tax liability increase?

Accepted Answer

The $25,000 NSTCL is offset against the $25,000 of the collectibles gain in the 28% group. Amanda's tax liability increases by $4,100 [($5,000 × .28) + ($18,000 × .15)].

Question 9

Max sold the following capital assets this year:  What is the amount of and nature of (LT or ST) capital gain or loss?

Accepted Answer

The answer of Max sold the following capital assets this...

Question 10

Galvin Corporation has owned all of the stock of Rialto Corporation for five years. Rialto Corporation has been actively engaged in manufacturing in Kansas, but it is now bankrupt, and the stock is worthless. Galvin Corporation will recognize a long-term capital loss.

Accepted Answer

The stock Rialto Corporation will meet the criteria of worthless securities in an affiliated corporation so Galvin Corporation will be able to treat the loss as an ordinary loss.

Question 11

Tina, whose marginal tax rate is 33%, has the following capital gains this year:  What is the increase in income tax caused by these items (ignore the Medicare tax on net investment income)?

Accepted Answer

The answer of Tina, whose marginal tax rate is 33%,...

Question 12

Everest Inc. is a corporation in the 35% marginal tax bracket. It sold two stockholdings this year, resulting in a long-term capital gain of $15,000 on stock A and a short-term capital loss of $5,000 on stock B. What is the extra tax that Everest will pay due to the sales of these stocks?

Accepted Answer

A corporation can reduce its NLTCG by its NSTCL, but corporations do have a preferential tax rate for ANCG. 35% × ($15,000 - $10,000) = $3,500.

Question 13

Trista, a taxpayer in the 33% marginal tax bracket sold the following capital assets this year:  What is the amount of and nature of (LT or ST) capital gain or loss? Be specific as to the rates at which gains, if any, are taxed.

Accepted Answer

The answer of Trista, a taxpayer in the 33% marginal...

Question 14

Purchase of a bond at a significant discount will result in the investor recognizing a capital gain when the bond matures.

Accepted Answer

A significant discount on a bond will be treated as original issue discount or market discount, resulting in ordinary income recognition over the life of the bond or at redemption.

Question 15

Jade is a single taxpayer in the top tax bracket, with salary of $450,000 and investment income of $100,000. She is considering the sale of some shares of stock which will result in a $50,000. She purchased the shares three years ago. Taking all taxes into account, how much tax will she pay due to this gain?

Accepted Answer

The answer of Jade is a single taxpayer in the...

Question 16

Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.

Accepted Answer

Corporate taxpayers cannot deduct any net capital losses. Net capital losses can be carried back three years and forward five years.

Question 17

Niral is single and provides you with the following tax information for 2015:  Compute her tax liability. [Show all calculations in good form.]

Accepted Answer

The answer of Niral is single and provides you with...

Question 18

Melanie, a single taxpayer, has AGI of $220,000 which includes $160,000 of salary and $60,000 of investment income. She will pay Medicare tax on the $60,000 of investment income of

Accepted Answer

The Medicare tax is 3.8% of the lesser of the $60,000 net investment income or AGI in excess of the $200,000 threshold for a single taxpayer. 3.8% × ($220,000 - $200,000) = $760.

Question 19

Mike sold the following shares of stock in 2015:  What are the tax consequences of these transactions, assuming his marginal tax rate is (a) 33% and (b) 39.6%? Ignore the medicare tax on net investment income.

Accepted Answer

The answer of Mike sold the following shares of stock...

Question 20

Stock purchased on December 15, 2014, which becomes worthless in March 2015 produces a STCL since the holding period is one year or less.

Accepted Answer

If a security that is a capital asset becomes worthless during the year, any loss is treated as a loss from the sale or exchange of a capital asset on the last day of the tax year. Therefore, the holding period in this case is December 15, 2014 through December 31, 2015 resulting in a LTCL.

Quiz 5: Property Transactions: Capital Gains and Losses

Chen had the following capital asset transactions during 2015: What is the adjusted net capital gain or loss and the related tax due to the above transactions, assuming Chen has a 25% marginal tax rate?

In the current year, ABC Corporation had the following items of income, expense, gains, and losses: What is taxable income for the year?

Olivia, a single taxpayer, has AGI of $280,000 which includes $220,000 of salary and $60,000 of investment income. She will pay Medicare tax on the $60,000 of investment income of

Abra Corporation generated $100,000 of taxable income from operations this year and realized a $4,000 loss on the sale of Starbucks stock. Abra Corporation will pay taxes on $97,000 of taxable income.

Unlike an individual taxpayer, the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates, but it does apply the 15% tax rate to adjusted net capital gain.

Topaz Corporation had the following income and expenses during the current year: What is Topaz's taxable income?

Amanda, whose tax rate is 33%, has NSTCL of $25,000, a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years. By what amount will Amanda's tax liability increase?

Max sold the following capital assets this year: What is the amount of and nature of (LT or ST) capital gain or loss?

Galvin Corporation has owned all of the stock of Rialto Corporation for five years. Rialto Corporation has been actively engaged in manufacturing in Kansas, but it is now bankrupt, and the stock is worthless. Galvin Corporation will recognize a long-term capital loss.

Tina, whose marginal tax rate is 33%, has the following capital gains this year: What is the increase in income tax caused by these items (ignore the Medicare tax on net investment income)?

Everest Inc. is a corporation in the 35% marginal tax bracket. It sold two stockholdings this year, resulting in a long-term capital gain of $15,000 on stock A and a short-term capital loss of $5,000 on stock B. What is the extra tax that Everest will pay due to the sales of these stocks?

Trista, a taxpayer in the 33% marginal tax bracket sold the following capital assets this year: What is the amount of and nature of (LT or ST) capital gain or loss? Be specific as to the rates at which gains, if any, are taxed.

Purchase of a bond at a significant discount will result in the investor recognizing a capital gain when the bond matures.

Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.

Niral is single and provides you with the following tax information for 2015: Compute her tax liability. [Show all calculations in good form.]

Melanie, a single taxpayer, has AGI of $220,000 which includes $160,000 of salary and $60,000 of investment income. She will pay Medicare tax on the $60,000 of investment income of

Mike sold the following shares of stock in 2015: What are the tax consequences of these transactions, assuming his marginal tax rate is (a) 33% and (b) 39.6%? Ignore the medicare tax on net investment income.

Stock purchased on December 15, 2014, which becomes worthless in March 2015 produces a STCL since the holding period is one year or less.