Question 1

On January 31 of the current year,Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31.As of December 31 Sophia had not exercised the option or sold it.Which of the following statements is correct?

Accepted Answer

The answer of On January 31 of the current year,Sophia...

Question 2

Margaret died on September 16,2013,when she owned securities with a basis of $50,000 and a FMV of $60,000.Caroline inherited the property and sold it on December 19,2013 for $67,000.What is Caroline's reported gain on this sale?

Accepted Answer

Caroline's basis in the inherited property is the FMV at the date of Margaret's death, which is $60,000. She sold it for $67,000, resulting in a gain of $7,000. Since inherited property is considered long-term, the gain is a long-term capital gain (LTCG).

Question 3

On July 25,2012,Marilyn gives stock with a FMV of $7,500 and a basis of $5,000 to her nephew Darryl.Marilyn had purchased the stock on March 18,2012.Darryl sold the stock on April 18,2013 for $7,800.As a result of the sale,what will Darryl report on his 2013 tax return?

Accepted Answer

Darryl's basis in the stock is the same as Marilyn's basis, which is $5,000. When Darryl sold the stock for $7,800, he had a capital gain of $2,800 ($7,800 - $5,000). Since the stock was held for more than a year, this gain is considered a long-term capital gain (LTCG). Therefore, Darryl will report a $2,800 LTCG on his 2013 tax return. Choice D is the correct answer.

Question 4

Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV.She receives 100 stock rights with a total FMV of $15,000.Answer the following:
a.What is the basis of the 100 shares of stock?
b.What is the basis of the 100 stock rights?

Accepted Answer

The answer of Gina owns 100 shares of XYZ common...

Question 5

On January 31,2013,Mallory pays $800 for an option to acquire 100 shares of Mesa Corporation common stock for $85 per share.As a result of an increase in the market value of the Mesa stock,the market price of the option increases and Mallory sells the option for $1,000 on August 4,2013.As a result of the sale,Mallory must recognize

Accepted Answer

Mallory's gain from selling the option is $200 ($1,000 - $800). Since the option was held for less than a year, the gain is considered a short-term capital gain (STCG).

Question 6

Mike sold the following shares of stock in 2013:
  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 7

Emma Grace acquires three machines for $80,000,which have FMVs of $32,000,$28,000,and $20,000 respectively.The delivery cost is $500,and installation costs amount to $2,500.What is the basis of each machine?

Accepted Answer

The answer of Emma Grace acquires three machines for $80,000,which...

Question 8

Niral is single and provides you with the following tax information for 2013:
  Compute her tax liability.[Show all calculations in good form.]

Accepted Answer

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

Question 9

On January 31 of this year,Jennifer pays $700 for an option to acquire 100 shares of Lifetime Corporation common stock for $70 per share.Jennifer exercises the option on June 2.Jennifer sells the stock on April 30 of next year for $10,000.Jennifer's basis for the stock immediately before the sale is

Accepted Answer

Jennifer paid $700 for the option and then exercised it by purchasing 100 shares of stock for $70 per share, which means she paid an additional $7,000. Her total cost basis for the stock is therefore $7,700 ($700 + $7,000). When she sells the stock for $10,000, her capital gain will be $2,300 ($10,000 - $7,700).

Question 10

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

Under the Medicare tax, single taxpayers with AGI exceeding $200,000 ($250,000 for married filing jointly) must pay an additional 3.8% tax on net investment income, which includes interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. In this case, Melanie's investment income of $60,000 exceeds the threshold of $200,000, so she will pay Medicare tax on the lesser of her net investment income ($60,000) or the amount by which her AGI exceeds the threshold ($220,000 - $200,000 = $20,000). Therefore, Melanie will pay Medicare tax on $20,000 at a rate of 3.8%, which equals $760.

Question 11

Chen had the following capital asset transactions during 2013:
  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 12

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

Accepted Answer

The answer of Topaz Corporation had the following income and...

Question 13

Rita died on January 1,2013 owning an asset with a FMV of $730,000 that she purchased in 2007 for $600,000.Bert inherited the asset from Rita.When Bert sells the asset for $800,000 on August 20 of this year,he must recognize a

Accepted Answer

Bert inherited the asset from Rita, so his basis in the asset is the same as Rita's basis, which is $600,000. When Bert sells the asset for $800,000, he has a gain of $200,000. Since Bert held the asset for more than one year, the gain is a long-term capital gain.

Question 14

Joy purchased 200 shares of HiLo Mutual Fund on July 15,2009,for $10,500,and has been reinvesting dividends.On December 15,2013,she sells 100 shares.
  What is the basis for the shares sold assuming (1)FIFO and (2)average cost method?

Accepted Answer

The answer of Joy purchased 200 shares of HiLo Mutual...

Question 15

How long must a capital asset be held to qualify for long-term treatment?

Accepted Answer

To qualify for long-term treatment, a capital asset must be held for at least one year and one day. This is because the holding period starts on the day after the asset is acquired and ends on the day it is disposed of. Therefore, if an asset is held for exactly one year, it does not meet the requirement for long-term treatment.

Question 16

On July 25,2012,Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill.Karen had purchased the stock on March 18,2012.Bill sold the stock on April 18,2013 for $6,000.As a result of the sale,what must Bill report on his 2013 tax return?

Accepted Answer

The answer of On July 25,2012,Karen gives stock with a...

Question 17

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

The answer of In the current year,ABC Corporation had the...

Question 18

Max sold the following capital assets in 2013:
  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 in...

Question 19

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)A corporation can reduce its NLTCG by its NSTCL,but corporations do have a preferential tax rate for ANCG.35% × ($15,000 - $5,000)= $3,500.

Question 20

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%,has the...

Quiz 5: Property Transactions: Capital Gains and Losses

On January 31 of the current year,Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31.As of December 31 Sophia had not exercised the option or sold it.Which of the following statements is correct?

Margaret died on September 16,2013,when she owned securities with a basis of $50,000 and a FMV of $60,000.Caroline inherited the property and sold it on December 19,2013 for $67,000.What is Caroline's reported gain on this sale?

On July 25,2012,Marilyn gives stock with a FMV of $7,500 and a basis of $5,000 to her nephew Darryl.Marilyn had purchased the stock on March 18,2012.Darryl sold the stock on April 18,2013 for $7,800.As a result of the sale,what will Darryl report on his 2013 tax return?

Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV.She receives 100 stock rights with a total FMV of $15,000.Answer the following: a.What is the basis of the 100 shares of stock? b.What is the basis of the 100 stock rights?

Mike sold the following shares of stock in 2013: 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.

Emma Grace acquires three machines for $80,000,which have FMVs of $32,000,$28,000,and $20,000 respectively.The delivery cost is $500,and installation costs amount to $2,500.What is the basis of each machine?

Niral is single and provides you with the following tax information for 2013: 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

Chen had the following capital asset transactions during 2013: 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?

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

Rita died on January 1,2013 owning an asset with a FMV of $730,000 that she purchased in 2007 for $600,000.Bert inherited the asset from Rita.When Bert sells the asset for $800,000 on August 20 of this year,he must recognize a

Joy purchased 200 shares of HiLo Mutual Fund on July 15,2009,for $10,500,and has been reinvesting dividends.On December 15,2013,she sells 100 shares. What is the basis for the shares sold assuming (1)FIFO and (2)average cost method?

How long must a capital asset be held to qualify for long-term treatment?

On July 25,2012,Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill.Karen had purchased the stock on March 18,2012.Bill sold the stock on April 18,2013 for $6,000.As a result of the sale,what must Bill report on his 2013 tax return?

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

Max sold the following capital assets in 2013: What is the amount of and nature of (LT or ST)capital gain or loss?

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?

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)?