Question 1

Which of the following is a capital asset?

Accepted Answer

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

Question 2

Which of the following is a capital asset?

Accepted Answer

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

Question 3

In 2018, 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):
2017 ($28,000)
2016 $16,000
2015 ($30,000)
Mary's 2018 gain is characterized as

Accepted Answer

$16,000 of the 2015 loss was recaptured against the 2016 gain. The remaining $14,000 2015 loss and the 2017 loss of $28,000 must be recaptured against the 2018 gain, producing $42,000 of ordinary income. The remaining $3,000 2018 gain will be treated as a capital gain.

Question 4

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 answer of Nilex Company sold three operating assets this...

Question 5

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 answer of Hugo Inc., a calendar year taxpayer, sold...

Question 6

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

Mrs Beld's $19,600 disallowed loss on the related party sale to her daughter can be used by the daughter to reduce her $33,000 realized gain on sale.

Question 7

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 gain on sale of a trade name is considered ordinary business income and is not eligible for preferential tax rates or subject to capital loss deductions.

Question 8

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

Susan's realized gain on the sale is $1,300. However, she can reduce her gain by Andrew's disallowed loss of $2,000 of the original transfer. However, she cannot reduce her gain below zero. Therefore, Susan' recognized no gain or loss.

Question 9

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...

Question 10

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 sale of capital assets does not affect taxable income in the year of sale.

Question 11

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

Mr. Quick's $17,900 disallowed loss on the related party sale to his son can be used by the son only to reduce future gain on sale.

Question 12

"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

The answer of "Tiny Dancer" is the name of a...

Question 13

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 corporation's tax basis in the securities is $95,000.

Question 14

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 nondeductible net capital loss is an unfavorable book/tax difference.

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

The answer of Schatz Corporation generated $8,083,000 ordinary business income...

Question 16

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

The $183,000 nondeductible loss is an unfavorable permanent book/tax difference.

Question 17

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

ChaGo's gross profit percentage is 69.69% ($90,600 gain/$130,000). It has received $75,000 cash and recognized $52,268 gain ($75,000 × 69.69%). It must recognize its remaining $38,332 deferred gain when it sells the note.

Question 18

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 $42,000 nondeductible capital loss results in a temporary difference because Rizzi can carry the loss back and forward to other tax years.

Question 19

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 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...

Question 20

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

Gupta can deduct its $12,200 capital loss on the sale of asset 1 against the $12,900 total capital gain on the sales of assets 2 and 3.
 $$\begin{array} { l r r r r } 
& \text { Tax Basis } & & \text { Sale Price } \
\text { Asset 1 } & \$  60,000& &\$ 47,800 \
\text { Asset 2 } & 112,500 & & 116,000 \
\text { Asset 3 } & 13,000 & & 22,400
\end{array}$$

Quiz 8: Property Dispositions

Which of the following is a capital asset?

Which of the following is a capital asset?

In 2018, 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) : 2017 ($28,000) 2016 $16,000 2015 ($30,000) Mary's 2018 gain is characterized as

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?

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:

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.

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?

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 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.

"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?

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?

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?

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?

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?

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:

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 2019. In 2020, Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss. 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?