Question 1

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 2

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land it exchanged for $28,500. The new land had a fair market value of $35,250. Arlington also received $2,500 of office equipment in the transaction. What is Arlington'srecognized gain or loss on the exchange?

Accepted Answer

The answer of Arlington LLC exchanged land used in its...

Question 3

Each of the following is true except for:

Accepted Answer

The answer of Each of the following is true except...

Question 4

Which of the following is not an involuntary conversion?

Accepted Answer

A foreclosure is a voluntary action taken by the lender to repossess the property due to the borrower's failure to repay the loan. The other options are all examples of involuntary conversions that may trigger tax implications for the property owner. A foreclosure is a voluntary action taken by the lender to collect unpaid debt. The other choices are all events that happen without the owner's control and lead to the involuntary loss of property.

Question 5

Which of the following is not true regarding installment sales?

Accepted Answer

The answer of Which of the following is not true...

Question 6

Explain whether the saleat a loss of a machine used in a trade or business generates an ordinary or capital loss?

Accepted Answer

The answer of Explain whether the saleat a loss of...

Question 7

A deferred like-kind exchange does not help accomplish which of the following objectives?

Accepted Answer

A deferred like-kind exchange helps facilitate finding and acquiring replacement property, as well as reducing the possibility of receiving cash (boot). However, it does not certify the taxpayer's Form 8824; this is typically done by a tax professional or attorney. A deferred like-kind exchange does help facilitate finding replacement property, helps acquire the replacement property, and reduces the possibility that the seller must receive cash (boot) that will taint the transaction. However, it does not certify the taxpayer's Form 8824-Like-kind exchanges. It is the taxpayer's responsibility to accurately complete and file Form 8824 to properly report the exchange.

Question 8

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land it exchanged for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington'srecognized gain or loss on the exchange?

Accepted Answer

The answer of Arlington LLC exchanged land used in its...

Question 9

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:
  Assuming Andrew's marginal ordinary income tax rate is 32 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...

Question 10

Silver sold machinerythat it used in its business to Gold, a related entity, 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

The answer of Silver sold machinerythat it used in its...

Question 11

Andrea sold a piece of machinery she used in her business for nine 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...

Question 12

Which of the following is true regarding disallowed losses between related taxpayers?

Accepted Answer

The tax laws essentially treat related parties as the same taxpayer, therefore disallowed losses between related parties are not recognized for tax purposes. This is known as the related party transaction rules. The holding period of the seller does not carry over to the buyer, and the related person does not always receive a carryover basis. The seller's realized loss is not deferred until the buyer sells the assets, as the loss is disallowed for tax purposes. The tax laws essentially treat related parties as the same taxpayer, so disallowed losses between related taxpayers cannot be recognized for tax purposes. This is done to prevent related parties from transferring losses to each other in order to reduce their overall tax liability. The other options are not correct: holding periods do not carry over to buyers, related persons do not always receive a carryover basis, and realized losses are not deferred until assets are sold by the buyer.

Question 13

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building 10 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 14

Sadie sold 10 shares of stock to her brother, George, for $530 16 months ago. Sadie had purchased the stock for $660 two years earlier. If George sells the stock for $790, what are the amount and character of his recognized gain or loss in the current year?

Accepted Answer

Sadie's basis in the stock was $660 and she sold it to her brother for $530, which results in a loss of $130. Since it has been more than one year from the purchase date, it is a long-term capital loss for Sadie. When George sells the stock for $790, he has a recognized gain of $260, which is the difference between the $790 sale price and the $530 purchase price. Since George held the stock for less than one year before selling it, his recognized gain is a short-term capital gain.

Question 15

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Accepted Answer

The answer of Frederique sold furniture that she uses in...

Question 16

Which of the following may qualify as an installment sale?

Accepted Answer

Only the sale of an asset used in a business at a gain may qualify as an installment sale. Sales of inventory, securities, or land (even if sold at a loss) do not qualify for installment sale treatment. Sale of an asset used in a business at a gain can qualify as an installment sale.

Question 17

Sadie sold 10 shares of stock to her brother, George, for $500 16 months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what are the amount and character of his recognized gain or loss in the current year?

Accepted Answer

In order to calculate George's gain or loss, we need to determine the stock's basis, which is the amount Sadie initially paid for it. Since Sadie purchased the stock two years earlier, and sold it to George 16 months ago (which is less than 18 months), Sadie's holding period is greater than 1 year, classifying her initial purchase as a long-term capital asset.

Therefore, the basis of the stock for George is $600, which is the amount Sadie paid for it. If George sells the stock for $700, his recognized gain or loss is calculated as follows:

Sale Price - Basis = Recognized Gain or Loss
$700 - $600 = $100

Since Sadie held the stock for more than one year before selling it to George, her initial basis was a long-term capital asset which carried to have same amount when George sold it after some time. Thus, George also would have a long-term capital gain of $100. Therefore, the correct answer is (C) $100 long-term capital gain. George purchased the stock for $500 and sold it for $700, resulting in a gain of $200. However, since Sadie sold the stock to him for $500, he must use her original purchase price of $600 to determine the character of the gain. Since George held the stock for more than one year and sold it for a higher price than Sadie's purchase price, the gain is a long-term capital gain of $100 ($700 selling price minus $600 original purchase price).

Question 18

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

The answer of Jessie sold a piece of land held...

Question 19

The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:

Accepted Answer

The basis of the new property received in a like-kind exchange is equal to the adjusted basis of the old property. This means that any improvements, depreciation, or other adjustments that were made to the old property will carry over to the new property. This is known as a carryover basis. The basis in the new property received in a like-kind exchange is equal to the adjusted basis of the old property. This means that any improvements, depreciation, or other adjustments made to the old property's basis will transfer to the new property's basis.

Question 20

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Accepted Answer

The answer of Peroni Corporation sold a parcel of land...

Quiz 3: Property Dispositions

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?