Question 1

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 answer of Melanie,a single taxpayer,has AGI of $220,000 which...

Question 2

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

Olivia will pay a 3.8% Medicare tax on the lesser of her net investment income or the excess of her AGI over the threshold amount of $200,000 for single taxpayers. Since her net investment income is $60,000 and her excess AGI is $80,000 ($280,000 AGI - $200,000 threshold), she will pay Medicare tax on the $60,000 of investment income, which comes out to be $2,280 ($60,000 x 3.8%). Therefore, the correct answer is B.

Question 3

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

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The answer of Purchase of a bond at a significant...

Question 4

A taxpayer sells a patent on a new algorithm for a gain.Which taxpayer will be allowed capital gain treatment for the sale? Assume that the patent had not been placed in service as of the acquisition date.

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The answer of A taxpayer sells a patent on a...

Question 5

Gain on sale of a patent by an inventor generally is ordinary income.

Accepted Answer

When an inventor sells a patent, the gain is usually considered ordinary income and is subject to ordinary income tax rates. However, there are certain circumstances where the gain could be considered capital gain and subject to lower capital gains tax rates. It is recommended to consult with a tax professional for specific advice on your situation.

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

Corporate taxpayers do not benefit from the preferential capital gains tax rates that individual taxpayers do; instead, they are taxed at the regular corporate tax rate on capital gains.

Question 7

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?

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

Question 8

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

Galvin Corporation will recognize an ordinary loss, not a capital loss, due to the worthlessness of the stock of a subsidiary that has been engaged in an active trade or business for at least five years.

Question 9

Rana purchases a 5%,$100,000 corporate bond at issuance on January 1,2019 for $91,500.The bond matures in five years.In 2019 Rana will recognize interest income of

Accepted Answer

The answer of Rana purchases a 5%,$100,000 corporate bond at...

Question 10

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

This statement is true according to the tax laws in many countries, including the United States. Corporate taxpayers may generally offset capital losses only against capital gains, and any excess losses can be carried back for up to three years and forward for up to five years. However, there may be certain limitations or restrictions depending on the specific tax laws and circumstances of the taxpayer.

Question 11

Maya expects to report about $2 million of AGI and $1.7 million of taxable income.Her AGI is composed of $1.25 million of salary,and the balance is investment income.Maya is thinking about selling some stock before year-end.She purchased the stock three years ago and expects to recognize a $500,000 gain.How much federal tax will she pay in total on the stock gain?

Accepted Answer

The correct answer is A.Maya's taxable income is $1.7 million. Her AGI is $2 million, which includes $1.25 million of salary and $750,000 of investment income. If she sells the stock, she will recognize a $500,000 gain, which will increase her taxable income to $2.2 million. Her federal tax liability on the stock gain will be $119,000.

Question 12

Stock purchased on December 15,2018,which becomes worthless in March 2019,produces a STCL since the holding period is one year or less.

Accepted Answer

The holding period for the stock is less than one year, so it produces a short-term capital loss (STCL).

Question 13

Sergio acquires a $100,000 Ternco Corporation bond (5%,20-year bond)on January 1,2019 for $75,000.The bond had been issued on January 1,2017.If Sergio holds the bond to maturity,at redemption he will recognize

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The answer of Sergio acquires a $100,000 Ternco Corporation bond...

Question 14

Everest Inc.reports taxable income of $900,000 before considering sales of stock.Everest Inc.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

The net capital gain is $10,000 ($15,000 gain - $5,000 loss). The corporate tax rate on capital gains is typically 21%, so the extra tax is $10,000 * 21% = $2,100.

Question 15

In the current year,ABC Corporation had the following items of income,expense,gains,and losses: $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 500,000 \
\hline \text { Cost of sales } & 270,000 \
\hline \text { Operating expenses } & 100,000 \
\hline \text { Interest on savings account } & 14,000 \
\hline \text { Gain on sale of AT\&T stock } & 6,000 \
\hline \text { Loss on sale of IBM stock } & 15,000 \
\hline
\end{array}$$ What is taxable income for the year?

Accepted Answer

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

Question 16

Topaz Corporation had the following income and expenses during the current year: $$\begin{array} { l | r | } 
\hline \text { Revenues } & \$ 80,000 \
\hline \text { Expenses } & 30,000 \
\hline \text { Gains on sale of capital assets } & 5,000 \
\hline \text { Losses on sale of capital assets } & ( 25,000 ) \
\hline
\end{array}$$ What is Topaz's taxable income?

Accepted Answer

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

Question 17

On January 31 of this year,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.As a result of the sale,Mallory must recognize

Accepted Answer

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

Question 18

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

The answer of Abra Corporation generated $100,000 of taxable income...

Question 19

Jade is a single taxpayer in the top tax bracket,with salary of $550,000 and investment income of $100,000.She is considering the sale of some shares of stock which will result in a $50,000 gain.She purchased the shares three years ago.Taking all taxes into account,how much tax will she pay due to this gain?

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

Question 20

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).

Quiz 21: Property Transactions: Capital Gains and Losses