Question 1

On January 4, 2019, Courtney gave his son, Brian, stock valued at $10,000 that he had purchased three years earlier for $16,000.Later in the year, Brian sold the stock for $11,000.What is the amount and type of gain or loss that Brian will report on this sale?

Accepted Answer

Since the stock was gifted, Brian's basis for determining gain is the donor's basis ($16,000). Since the sale price ($11,000) is less than the donor's basis, there is no gain. For determining loss, the basis is the lower of the donor's basis or the fair market value at the time of the gift ($10,000). Since the sale price is higher than the fair market value at the time of the gift, there is no loss.

Question 2

Coley Corporation has an $800 net short-term capital loss and a $6,000 net long-term capital gain in the current year.It also has an $8,000 long-term capital loss carryover from the prior year.What is Coley's capital loss carryover to the next year?

Accepted Answer

The answer of Coley Corporation has an $800 net short-term...

Question 3

Determine the amount of the capital gain or loss in each of the following transactions and state whether the gain or loss is long-term or short-term.

Accepted Answer

B  C  A) The capital gain is $2,000 ($10,000 - $8,000) and it is a short-term gain because the holding period is exactly one year.  B) The capital loss is $1,000 ($7,000 - $8,000) and it is a long-term loss because the holding period is more than one year.  C) The capital gain is $2,000 ($17,000 - $15,000) and it is a long-term gain because the holding period is more than one year.

Question 4

Noah sold investment land for $70,000 cash and the buyer's assumption of Noah's $30,000 mortgage on the property.Noah paid a realtor's commission of $2,800 on the sale.What is Noah's realized gain if the land has an adjusted basis of $57,000?

Accepted Answer

Noah's realized gain is calculated by subtracting the adjusted basis of the land ($57,000) from the total amount realized from the sale. The total amount realized includes the cash received ($70,000) and the mortgage assumed by the buyer ($30,000), totaling $100,000. After subtracting the realtor's commission ($2,800), the net amount realized is $97,200. Subtracting the adjusted basis ($57,000) from this amount gives a realized gain of $40,200.

Question 5

Wesley sold a piece of property for $30,000 cash paying a $3,000 sales commission.The buyer assumed Wesley's $13,000 mortgage on the property.Wesley had purchased the property for $15,000 and had invested an additional $6,000 in it.What is Wesley's realized gain on the sale?

Accepted Answer

Wesley's realized gain on the sale is $19,000. This is calculated as follows:Selling price: $30,000Less: Sales commission: $3,000Net proceeds: $27,000Less: Mortgage assumed by buyer: $13,000Wesley's net proceeds: $14,000Less: Cost of property: $15,000Less: Additional investment: $6,000Total cost: $21,000Realized gain: $19,000

Question 6

Edna had $20,000 of ordinary income.In addition, she had a $1,500 short-term capital gain on one stock and a $4,900 long-term capital loss on another.What is her adjusted gross income?

Accepted Answer

Edna's ordinary income is $20,000. The short-term capital gain of $1,500 is added to her income, while the long-term capital loss of $4,900 is subtracted. However, only $3,000 of the capital loss can be deducted against ordinary income in a given year. Therefore, her adjusted gross income is $20,000 + $1,500 - $3,000 = $18,500. However, the correct choice is $17,000, indicating a mistake in the options or calculations.

Question 7

Emma sold her home for $60,000 cash and the buyer's assumption of her mortgage of $210,000.Emma paid closing costs of $2,900 and a broker's commission of $13,000.What is the amount Emma realized on the sale?

Accepted Answer

Emma's amount realized on the sale is the sum of the cash received and the mortgage assumed by the buyer, minus the closing costs and broker's commission. This is calculated as $60,000 (cash) + $210,000 (mortgage assumed) - $2,900 (closing costs) - $13,000 (broker's commission) = $254,100.

Question 8

Which of the following is a capital asset?

Accepted Answer

Personal auto is considered a capital asset because it is a significant piece of property owned for personal use. Capital assets typically include property not used in a business operation, such as personal vehicles, homes, and investments.

Question 9

On March 17, a calendar-year taxpayer sells a machine used in its business for $9,500.The machine was purchased sixteen months earlier for $9,000 and depreciation deductions of $1,800 have been taken.What is the amount and type of gain recognized on the sale?

Accepted Answer

The gain recognized is $2,300 ($9,500 sale price - $7,200 adjusted basis, where the adjusted basis is the original cost of $9,000 minus $1,800 of depreciation). The $1,800 of depreciation taken is recaptured as ordinary income under Section 1245, and the remaining $500 of gain is treated as Section 1231 gain, which can be taxed at more favorable rates if it is a net gain. Section 1250 applies to real property, not machinery, so it is not relevant in this case.

Question 10

Brent sold his personal car and some household furniture during the year.He had a $3,000 gain on the car but a $5,000 loss on the furniture.What is his recognized gain or loss included in taxable income as a result of these sales?

Accepted Answer

The answer of Brent sold his personal car and some...

Question 11

In 2019, Isabella sold several shares of different stocks held for investment.The following is a summary of her capital transactions for the year: $\begin{array}{lrrrr}
\underline{\text { Stock }}&\underline{\text { Purchased }} &\underline{\text { Sold }}&\underline{ \text { Selling Price }} &\underline{\text { Cost }}\
\mathrm{ABC} &02 / 15 / 19 &07 / 15 / 19 & \$ 2,200 & \$ 1,750 \
\mathrm{DEF} & 10 / 25 / 12 & 08 / 01 / 19 & 3,500 & 2,300 \
\mathrm{GHI} & 10 / 25 / 19 & 12 / 15 / 19 & 800 & 1,000 \
\mathrm{JKL} & 12 / 28 / 13 & 12 / 18 / 19 & 750 & 900
\end{array}$
 What is the amount of Isabella's net capital gains or losses for 2019?

Accepted Answer

To calculate Isabella's net capital gains or losses for 2019, we need to consider each stock transaction individually and classify them as either short-term or long-term based on the holding period. The holding period is determined by the time between the purchase and sale dates. If the holding period is more than a year, it's considered long-term; otherwise, it's short-term.- ABC: Sold for $2,200, cost $1,750. Gain = $450 (short-term, held less than a year).- DEF: Sold for $3,500, cost $2,300. Gain = $1,200 (long-term, held more than a year).- GHI: Sold for $800, cost $1,000. Loss = $200 (short-term, held less than a year).- JKL: Sold for $750, cost $900. Loss = $150 (long-term, held more than a year).Net long-term capital gain = $1,200 (DEF) - $150 (JKL) = $1,050.Net short-term capital gain = $450 (ABC) - $200 (GHI) = $250.Therefore, Isabella has a $1,050 long-term capital gain and a $250 short-term capital gain for 2019.

Question 12

Sheldon had salary income of $40,000.In addition, he had the following gains and losses on his property transactions: Long-term capital gain = $14,000; long-term capital loss = $6,000; short-term capital gain = $4,000; short-term capital loss = $8,000.If Sheldon has no other income items, what is his total income before any deductions for the year?

Accepted Answer

Sheldon's total income before any deductions for the year is $44,000. This is calculated by adding his salary income of $40,000 to his net capital gain of $4,000. His net capital gain is calculated by subtracting his short-term capital loss of $8,000 from his long-term capital gain of $14,000.

Question 13

Cliff owned investment stock purchased three years ago for $16,000 and bonds purchased six months ago for $9,800.When he needed money recently, he sold the stock for $13,800 and the bonds for $10,100.What is the amount and type of net gain or loss that Cliff will include in computing his taxable income?

Accepted Answer

The answer of Cliff owned investment stock purchased three years...

Question 14

Grill Corporation sold all of its business assets when it went out of business.Which of the following is a capital asset?

Accepted Answer

Goodwill is considered a capital asset because it is an intangible asset that represents the value of a business's reputation and customer relationships, which are not used in the ordinary course of business like inventory or equipment.

Question 15

Ginger sold stock that she had purchased five years ago for $15,000 to her brother, Carl, for $12,000.The next month, Carl sold the stock for $11,000.What is the amount and type of gain or loss included in Carl's income from this sale?

Accepted Answer

The answer of Ginger sold stock that she had purchased...

Question 16

Lopez Corporation sold equipment that it had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago..As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note.Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment.What is Lopez Corporation's realized gain on the sale?

Accepted Answer

The realized gain on the sale is calculated as follows:Cash received: $80,000Note received: $100,000Assumption of note payable: $150,000Total proceeds: $330,000Less: Book value of equipment:Cost: $300,000Accumulated depreciation: $187,500Book value: $112,500Realized gain: $330,000 - $112,500 = $217,500

Question 17

What are the carryover provisions for unused capital losses applicable to individuals?

Accepted Answer

Capital losses that cannot be used in the current year can be carried forward indefinitely to be applied against future capital gains.

Question 18

Lopez Corporation sold equipment that it had purchased for $300,000 ($100,000 cash and a note for $200,000) four years ago.As of the date of sale, Lopez had claimed $187,500 in accumulated depreciation on this equipment and had made $50,000 in principal payments on the note.Lopez received $80,000 cash and a note for $100,000 in addition to the purchaser assuming Lopez's $150,000 note on the equipment.What is the amount realized by Lopez Corporation on this sale?

Accepted Answer

The amount realized by Lopez Corporation on the sale is calculated by adding the cash received ($80,000), the note received ($100,000), and the note assumed by the purchaser ($150,000), which totals $330,000.

Question 19

What are the carryover provisions for unused capital losses applicable to corporations?

Accepted Answer

Carry back 3 years and forward 5 years is the correct answer because it is the current provision for unused capital losses applicable to corporations.

Question 20

Mason received $20,000 cash and equipment worth $10,000 in exchange for land that was encumbered by an $80,000 mortgage that the buyer assumed.Mason's basis for the land is $90,000.What is Mason's realized gain or loss on the sale?

Accepted Answer

Mason's realized gain is calculated as follows: Amount realized ($20,000 cash + $10,000 equipment + $80,000 mortgage assumed by buyer = $110,000) minus Mason's basis for the land ($90,000) equals a $20,000 realized gain.

Quiz 8: Property Dispositions