Question 1

Verno Inc.purchased business equipment in March and sold it in November.Verno's gain or loss recognized on the sale is ordinary.

Accepted Answer

The answer of Verno Inc.purchased business equipment in March and...

Question 2

Langtry Corporation recognized $798,000 ordinary income,$13,000 net Section 1231 loss,and $6,000 net capital loss this year.Langtry's taxable income is $785,000.

Accepted Answer

The net Section 1231 loss and net capital loss can be used to offset the ordinary income, resulting in a taxable income of $785,000.

Question 3

Stone Company recognized a $7,700 loss on sale of depreciable equipment held for three years.If Stone's accumulated MACRS depreciation on the equipment is $7,700 or more,the entire loss is ordinary.

Accepted Answer

The answer of Stone Company recognized a $7,700 loss on...

Question 4

Milton Inc.recognized a $1,300 net Section 1231 loss in 2015.If Milton recognizes a $5,000 net Section 1231 gain in 2016,it must characterize $1,300 as ordinary income.

Accepted Answer

According to the tax code, any net Section 1231 losses recognized in the previous five years must first be applied against any net Section 1231 gains in the current year. The portion of the gain that exceeds the prior year losses is treated as a capital gain, but the amount of the prior year losses must be characterized as ordinary income. In this case, Milton recognized a net Section 1231 loss of $1,300 in 2015, so if it recognizes a net Section 1231 gain of $5,000 in 2016, $1,300 of that gain must be characterized as ordinary income.

Question 5

Ms.Cregg has a $43,790 basis in 2,460 shares of ABD Inc.common stock.ABD recently declared bankruptcy and announced that its common stock is worthless.As a result,Ms.Cregg can recognize a $43,790 ordinary loss.

Accepted Answer

Ms. Cregg would recognize a capital loss, not an ordinary loss, from the worthlessness of her ABD Inc. common stock.

Question 6

A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.

Accepted Answer

This is true because the Net Section 1231 gain or loss is calculated after all Section 1231 gains and losses for the year are totaled, and this cannot be done until the year has ended and all transactions during the year have been accounted for.

Question 7

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Accepted Answer

The answer of Both corporate and individual taxpayers may be...

Question 8

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains.

Accepted Answer

Both corporate and individual taxpayers can deduct capital losses to the extent of capital gains. If the losses exceed the gains, the excess can be used to offset up to $3,000 of ordinary income, and any remaining amount can be carried forward to future tax years.

Question 9

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Accepted Answer

According to IRS rules, if the accumulated MACRS depreciation on the equipment is equal to or more than the gain on sale, the entire gain is considered ordinary income. Therefore, if Milton's accumulated MACRS depreciation on the equipment is $16,900 or more, the entire gain will be considered ordinary income.

Question 10

Because land is nondepreciable,it is always a capital asset.

Accepted Answer

Land is nondepreciable, but not all land qualifies as a capital asset. Land used in a trade or business or held for investment qualifies as a capital asset, but land used for personal purposes does not.

Question 11

The general rule is that a net Section 1231 loss is treated as a capital loss and a net Section 1231 gain is treated as ordinary income.

Accepted Answer

The general rule is actually the opposite - a net Section 1231 gain is treated as a capital gain and a net Section 1231 loss is treated as ordinary income.

Question 12

Tullia Inc.recognized $500,000 ordinary income,$22,600 net Section 1231 gain,and $6,000 net capital loss this year.Tullia's taxable income is $522,600.

Accepted Answer

Tullia's taxable income would be $516,600 because the $6,000 net capital loss would be subtracted from the sum of the ordinary income and the net Section 1231 gain ($500,000 + $22,600 - $6,000).

Question 13

JG Inc.recognized $690,000 ordinary income,$48,000 net Section 1231 gain,and $77,000 net capital loss this year.JG's taxable income is $690,000.

Accepted Answer

The net Section 1231 gain and net capital loss are both taken into account in calculating taxable income, so JG's taxable income would be $690,000 - $77,000 + $48,000 = $661,000. However, the question asks whether JG recognized $690,000 ordinary income, which is a separate issue from taxable income.

Question 14

CBM Inc.realized a $429,000 gain on sale of a commercial office building that the corporation placed in service in 1994.Accumulated MACRS depreciation on the complex was $311,800.The entire gain is characterized as Section 1231 gain.

Accepted Answer

The answer of CBM Inc.realized a $429,000 gain on sale...

Question 15

Abada Inc.has a $925,000 basis in 100% of the stock of AbWest Inc.,which derives all its income from a manufacturing activity.If Abada determines that the AbWest stock is worthless,it can recognize a $925,000 ordinary loss.

Accepted Answer

If Abada determines that the AbWest stock is worthless, it can recognize a loss equal to its basis in the stock, which in this case is $925,000, and this loss would be treated as an ordinary loss.

Question 16

The sale of business inventory always generates ordinary income or loss.

Accepted Answer

The sale of business inventory is considered part of the ordinary income or loss of a business, and is not considered a capital gain or loss.

Question 17

The abandonment of business equipment with a $6,019 adjusted basis results in a $6,019 Section 1231 loss.

Accepted Answer

The answer of The abandonment of business equipment with a...

Question 18

Mr.Jason realized a gain on sale of a residential apartment complex that he had placed in service in 1994.Accumulated MACRS depreciation on the complex was $311,800.The entire gain is characterized as Section 1231 gain.

Accepted Answer

Section 1231 gain includes gains from the sale of real property used in a trade or business, such as a residential apartment complex. The accumulated MACRS depreciation is factored into the calculation of the gain, but does not change the character of the gain.

Question 19

Both corporate and individual taxpayers can carry back a net capital loss to the three prior taxable years.

Accepted Answer

Net capital losses can generally only be carried forward to offset capital gains in future years, not carried back to previous years, for both corporate and individual taxpayers.

Question 20

If a taxpayer sells business realty that was depreciated using the straightline method,the entire gain is characterized as Section 1231 gain.

Accepted Answer

The answer of If a taxpayer sells business realty that...

Quiz 8: Property Dispositions