Question 1

Andrew sold IBM stock to his sister Susan for $6,000.Andrew purchased the stock two years ago for $8,000.Susan sold the stock through her broker for $7,300.How much gain or loss did Susan recognize on the sale?

Accepted Answer

The answer of Andrew sold IBM stock to his sister...

Question 2

Acme Inc.sold three capital assets this year.The corporation realized an $18,900 gain on the first sale,a $93,000 loss on the second sale,and a $40,000 gain on the third sale.If Acme's ordinary taxable income from operations was $250,000,compute Acme's taxable income.

Accepted Answer

The answer of Acme Inc.sold three capital assets this year.The...

Question 3

R&T Inc.made the following sales of capital assets this year.  What is the effect of the three sales on R&T's taxable income this year?

Accepted Answer

The answer of R&T Inc.made the following sales of capital...

Question 4

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business.Which of the following statements is true?

Accepted Answer

The answer of Mr.and Mrs.Sykes operate a very profitable small...

Question 5

Three years ago,ChaGo Inc.sold a business asset with a $39,400 adjusted tax basis for $130,000.The purchaser paid $50,000 cash and gave ChaGo a note for the $80,000 balance of the price.ChaGo is using the installment sale method to recognize its gain on sale.This year,ChaGo sold the note to a financial institution for the note's $55,000 face value (ChaGo had received a total of $25,000 principal payments on the note.)Compute ChaGo's gain recognized on sale of the installment note.

Accepted Answer

To determine the gain recognized on the sale of the installment note, we need to calculate the adjusted basis of the note. We know that ChaGo originally sold the business asset for $130,000, with a tax basis of $39,400. This means that the gain on the sale was $130,000 - $39,400 = $90,600. Of this amount, we need to allocate a portion to the note based on the ratio of the note's selling price to the total selling price.

The total selling price is the sum of the cash received and the note's face value: $50,000 + $80,000 = $130,000. The ratio of the note's selling price to the total selling price is therefore $55,000 / $130,000 = 0.4231. Multiplying this ratio by the total gain of $90,600 gives us the gain allocated to the note:

$90,600 x 0.4231 = $38,332

Since the note was sold for $55,000, ChaGo has recognized a gain of $55,000 - $38,332 = $16,668 on the sale of the note. Therefore, the correct answer is B.

Question 6

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

Accepted Answer

The net Section 1231 loss is $14,500 ($14,100 loss + $20,000 loss - $19,600 gain), which can be deducted as an ordinary loss.

Question 7

Gupta Company made the following sales of capital assets this year.  What is the effect of the three sales on Gupta's taxable income?

Accepted Answer

The answer of Gupta Company made the following sales of...

Question 8

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa.The owner recently recognized a $43,500 gain on sale of the figurine.Which of the following statements is false?

Accepted Answer

All the statements are true based on the context of how gains are classified for tax purposes: ordinary for business inventory and capital for personal property.

Question 9

Hugo Inc.,a calendar year taxpayer,sold two operating assets this year.The first sale generated a $38,700 Section 1231 gain,and the second sale generated a $59,400 Section 1231 loss.As a result of these sales,Hugo should recognize:

Accepted Answer

The net result of the Section 1231 transactions is a loss of $20,700 ($38,700 gain - $59,400 loss), which is treated as an ordinary loss.

Question 10

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Accepted Answer

The sale resulted in a $42,000 unfavorable temporary book/tax difference, as the book basis was higher than the selling price resulting in a loss for book purposes but no tax deduction. There is no indication in the question to suggest a permanent difference.

Question 11

Which of the following is a capital asset?

Accepted Answer

The answer of Which of the following is a capital...

Question 12

In 2019,Mary recognized a $45,000 gain on the sale of Section 1231 property.Over the previous five-year period,Mary recognized the following net Section 1231 gains and (losses): 2018 ($28,000)
2017 $16,000
2016 ($30,000)
Mary's 2019 gain is characterized as

Accepted Answer

The answer of In 2019,Mary recognized a $45,000 gain on...

Question 13

Fantino Inc.was incorporated in 2018 and adopted a calendar year for tax purposes.Here is a schedule of Fantino's taxable income for 2018 and (tax rate is 21% for 2019).  In 2020,Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss.Which of the following statements is true?

Accepted Answer

The answer of Fantino Inc.was incorporated in 2018 and adopted...

Question 14

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

Accepted Answer

The son's loss recognized on sale is $5,000, calculated as the difference between the selling price ($90,000) and the purchase price ($95,000). The father's tax basis does not affect the son's recognized loss.

Question 15

Schatz Corporation generated $8,083,000 ordinary business income and recognized a $73,900 net capital gain on the sale of assets.Which of the following statements is true?

Accepted Answer

Schatz must pay tax at the regular corporate rate on the total taxable income of $8,156,900, which includes both ordinary business income and net capital gain.

Question 16

Mrs.Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash.Two years later,the daughter sold the securities through her broker for $93,000.Compute the daughter's gain recognized on sale.

Accepted Answer

The daughter's gain is calculated as the selling price ($93,000) minus the purchase price ($79,600), resulting in a gain of $13,400.

Question 17

Which of the following is a capital asset?

Accepted Answer

The answer of Which of the following is a capital...

Question 18

Warsham Inc.sold land with a $300,000 basis to Sara Phillips for $117,000 cash.Sara owns 68 percent of Warsham's outstanding stock.Which of the following statements is true?

Accepted Answer

Warsham cannot recognize its $183,000 realized loss on the sale on its current year tax return because the transaction is between a company and a related party (Sara owns 68 percent of Warsham's outstanding stock). Tax laws generally disallow the recognition of losses on sales or exchanges of property between related parties to prevent tax avoidance strategies that involve shifting losses to reduce taxable income.

Question 19

Norbett Inc.generated $15,230,000 ordinary taxable income and realized a $238,000 net capital loss on the sale of marketable securities this year.Which of the following statements is false?

Accepted Answer

The $238,000 net capital loss is an unfavorable book/tax difference, as it reduces taxable income but does not reduce book income. Therefore, statement C is false.

Question 20

Mr.Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash.Which of the following statements is true?

Accepted Answer

The sale is between related parties (Mr. Quick and his 100% owned corporation), so the loss is not recognized for tax purposes. The corporation's tax basis in the securities is the purchase price of $95,000, not the original tax basis of $112,900.

Quiz 8: Property Dispositions

Andrew sold IBM stock to his sister Susan for $6,000.Andrew purchased the stock two years ago for $8,000.Susan sold the stock through her broker for $7,300.How much gain or loss did Susan recognize on the sale?

Acme Inc.sold three capital assets this year.The corporation realized an $18,900 gain on the first sale,a $93,000 loss on the second sale,and a $40,000 gain on the third sale.If Acme's ordinary taxable income from operations was $250,000,compute Acme's taxable income.

R&T Inc.made the following sales of capital assets this year. What is the effect of the three sales on R&T's taxable income this year?

Mr.and Mrs.Sykes operate a very profitable small business.This year,the Sykes recognized a $100,000 gain on sale of a trade name they had created and copyrighted for use in their business.Which of the following statements is true?

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

Gupta Company made the following sales of capital assets this year. What is the effect of the three sales on Gupta's taxable income?

"Tiny Dancer" is the name of a bronze figurine created by artist Diego Ossa.The owner recently recognized a $43,500 gain on sale of the figurine.Which of the following statements is false?

Hugo Inc.,a calendar year taxpayer,sold two operating assets this year.The first sale generated a $38,700 Section 1231 gain,and the second sale generated a $59,400 Section 1231 loss.As a result of these sales,Hugo should recognize:

Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Which of the following is a capital asset?

In 2019,Mary recognized a $45,000 gain on the sale of Section 1231 property.Over the previous five-year period,Mary recognized the following net Section 1231 gains and (losses) : 2018 ($28,000) 2017 $16,000 2016 ($30,000) Mary's 2019 gain is characterized as

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

Schatz Corporation generated $8,083,000 ordinary business income and recognized a $73,900 net capital gain on the sale of assets.Which of the following statements is true?

Mrs.Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash.Two years later,the daughter sold the securities through her broker for $93,000.Compute the daughter's gain recognized on sale.

Which of the following is a capital asset?

Warsham Inc.sold land with a $300,000 basis to Sara Phillips for $117,000 cash.Sara owns 68 percent of Warsham's outstanding stock.Which of the following statements is true?

Norbett Inc.generated $15,230,000 ordinary taxable income and realized a $238,000 net capital loss on the sale of marketable securities this year.Which of the following statements is false?

Mr.Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash.Which of the following statements is true?