Question 1

Robin Corporation has ordinary income from operations of $30,000,net long-term capital gain of $10,000,and net short-term capital loss of $15,000.What is the taxable income for 2015?
A)$25,000
B)$27,000
C)$28,500
D)$30,000
E)None of the above

Accepted Answer

The answer of Robin Corporation has ordinary income from operations...

Question 2

Which of the following comparisons is correct?
A)Corporations may carryback capital losses;individuals may not.
B)Both corporation and individual long-term capital losses carryover as short-term capital losses.
C)Corporations may carryforward capital losses indefinitely;individuals may only carryforward capital losses for five years.
D)Both corporations and individuals may use an alternative tax rate on net capital gains.
E)None of the above.

Accepted Answer

The answer of Which of the following comparisons is correct?
A)Corporations...

Question 3

In 2015,an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?
A)All of the LTCG will be taxed at 0%.
B)All of the LTCG will be taxed at 15%.
C)All of the LTCG will be taxed at 20%.
D)Some of the LTCG will be taxed at 15% and some at 20%.
E)None of the above.

Accepted Answer

The answer of In 2015,an individual taxpayer has $863,000 of...

Question 4

Gold Company signs a 13-year franchise agreement with Silver.Silver retained significant powers,rights,and a continuing interest.Gold Company (the franchisee) makes noncontingent payments of $18,000 per year for the first four years of the franchise.Gold Company also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?
A)Gold Company may deduct the $18,000 per year noncontingent payments in full as they are made.
B)Gold Company may deduct the monthly contingent fee as it is paid.
C)Gold Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid.
D)Gold Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid.
E)None of the above.

Accepted Answer

The answer of Gold Company signs a 13-year franchise agreement...

Question 5

Sara is filing as head of household and has 2015 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.
A)$0
B)$8,573
C)$8,273
D)$8,373
E)None of the above

Accepted Answer

The tax on ordinary income ($54,000) is calculated using the head of household tax rate schedule. The $2,000 0%/15%/20% gain is taxed at 15% since Sara's income falls within the 15% capital gains bracket. The $1,000 25% gain is taxed at 25%. The total tax is $8,373.

Question 6

Which of the following assets held by a manufacturing business is a § 1231 asset?
A)Inventory.
B)Office furniture used in the business and held less than one year.
C)A factory building used in the business and held more than one year.
D)Accounts receivable.
E)All of the above.

Accepted Answer

Only assets that are used in a trade or business and are held for more than one year are considered § 1231 assets. Inventory (A) and office furniture held less than one year (B) are not § 1231 assets. Accounts receivable (D) are not considered tangible assets and are not § 1231 assets.

Question 7

White Company acquires a new machine for $75,000 and uses it in White's manufacturing operations.A few months after White places the machine in service,it discovers that the machine is not suitable for White's business.White had fully expensed the machine in the year of acquisition using § 179.White sells the machine for $60,000 in the tax year after it was acquired,but held the machine only for a total of 10 months.What was the tax status of the machine when it was disposed of and the amount of the gain or loss?
A)A capital asset and $60,000 gain.
B)An ordinary asset and $60,000 gain.
C)A § 1231 asset and $60,000 gain.
D)A § 1231 asset and $60,000 loss.
E)None of the above.

Accepted Answer

The answer of White Company acquires a new machine for...

Question 8

Martha has both long-term and short-term 2014 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also,Martha's 2014 taxable income puts her in the 28% tax bracket.Which of the following is correct?
A)Martha will use Parts I,II,and III of 2014 Form 1040 Schedule D.
B)Martha will not benefit from the special treatment for long-term capital gains.
C)Martha will have a capital loss deduction.
D)All of the above.
E)None of the above.

Accepted Answer

Martha will use Parts I, II, and III of Schedule D to report her capital gains and losses. She will not benefit from the special treatment for long-term capital gains because she has a net long-term capital loss. She will have a capital loss deduction, which can offset ordinary income up to $3,000.

Question 9

In 2015,Mark has $18,000 short-term capital loss,$7,000 28% gain,and $6,000 0%/15%/20% gain.Which of the statements below is correct?
A)Mark has a $5,000 capital loss deduction.
B)Mark has a $3,000 capital loss deduction.
C)Mark has a $13,000 net capital gain.
D)Mark has a $5,000 net capital gain.
E)Mark has a $18,000 net capital loss.

Accepted Answer

Individual taxpayers are allowed to deduct up to $3,000 of excess capital losses against ordinary income each year. In this case, Mark has a net capital loss of $18,000 - $7,000 + $6,000 = $17,000. Since the maximum deduction allowed is $3,000, Mark can deduct $3,000 of this loss against ordinary income in 2015, leaving a carryover of $14,000 to future tax years. Therefore, choice B is correct.

Question 10

Ryan has the following capital gains and losses for 2015: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15%/20% gain.Which of the following is correct:
A)The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.
B)The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain.
C)The net capital gain is composed of $3,000 28% gain,$2,000 25% gain,and $2,000 0%/15%/20% gain.
D)The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain.
E)None of the above.

Accepted Answer

The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain.

Question 11

On June 10,2015,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?
A)The holding period of the factory building includes the holding period of the office building.
B)The holding period of the office building starts on June 11,2015.
C)The holding period of the office building starts on June 10,2015.
D)The holding period of the office building includes the holding period of the factory building.
E)None of the above.

Accepted Answer

According to the tax regulations, the holding period of the acquired property (office building) includes the holding period of the relinquished property (factory building) in a like-kind exchange. Therefore, the holding period of the office building starts on the date Ebon acquired the factory building, which is the date Ebon first held the factory building. Hence, the correct statement is that the holding period of the office building includes the holding period of the factory building. Choice D is the only option that correctly reflects this rule.

Question 12

In 2014,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2015,Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?
A)Jenny has a 2015 $18,000 net capital gain.
B)Jenny has a 2015 $9,000 net capital gain.
C)Jenny has a 2015 $9,000 net capital loss.
D)Jenny has a 2015 $3,000 capital loss deduction.
E)Jenny has a 2015 $9,000 capital loss deduction.

Accepted Answer

First, we need to apply the $3,000 capital loss deduction from 2014 to Jenny's 2015 long-term capital gain. This reduces the taxable long-term capital gain to $15,000 ($18,000 - $3,000). Next, we need to net the remaining $15,000 long-term capital gain with the $12,000 short-term capital loss from 2014. The net capital gain for 2015 is then $3,000 ($15,000 - $12,000). Therefore, Jenny has a 2015 $3,000 net capital gain.

Question 13

Vertigo,Inc. ,has a 2015 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2014.For 2015,Vertigo's net § 1231 loss is treated as:
A)Ordinary loss.
B)Ordinary gain.
C)Capital loss.
D)Capital gain.
E)None of the above.

Accepted Answer

Net § 1231 losses are treated as ordinary losses, so Vertigo's 2015 net § 1231 loss of $64,000 would be treated as an ordinary loss. The fact that they had a net § 1231 gain in 2014 is not relevant for determining the treatment of the 2015 loss.

Question 14

A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:
A)Ordinary income of $45,000.
B)Long-term capital gain of $45,000.
C)Short-term capital gain of $45,000.
D)Neither gain nor loss.
E)None of the above.

Accepted Answer

Lease cancellation fees are generally treated as ordinary income and taxed at the lessor's regular income tax rate. Since the lessor had a zero tax basis for the lease, they do not have any basis to offset the income from the lease cancellation fee. Therefore, the entire $45,000 would be considered ordinary income.

Question 15

Cason is filing as single and has 2015 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.
A)$0
B)$200
C)$4,954
D)$300
E)None of the above

Accepted Answer

Cason's taxable income includes $34,000 of long-term capital gains, which are taxed at 0% up to the 15% tax bracket threshold. The remaining $2,000 of ordinary income is taxed at the 10% rate, resulting in $200 tax.

Question 16

Virgil was leasing an apartment from Marple,Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:
A)Virgil has a $1,000 capital gain.
B)Virgil has a $1,000 capital loss.
C)Marple has a $1,000 capital loss.
D)Marple has a $1,000 capital gain.
E)None of the above.

Accepted Answer

Virgil received $1,000 from Marple to cancel his lease and move out. This $1,000 is considered a capital gain for Virgil because he received money in exchange for giving up his lease.

Question 17

Which of the following is correct concerning short sales of stock?
A)At the time the short sale is made,the taxpayer does not deliver to the purchaser the shares sold short.
B)At the time the short sale is made,the taxpayer delivers to the purchaser the shares sold short.
C)At the time the short sale is made,the taxpayer may already own the shares sold short.
D)At the time the short sale is made,the taxpayer always already owns the shares sold short.
E)None of the above.

Accepted Answer

The answer of Which of the following is correct concerning...

Question 18

Tan,Inc. ,sold a forklift on April 12,2015,for $8,000 (its FMV) to its 100% shareholder,Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:
A)Includes Tan's holding period for the forklift.
B)Begins on April 12,2015.
C)Begins on April 13,2015.
D)Does not begin until Ashley sells the forklift.
E)None of the above.

Accepted Answer

The answer of Tan,Inc. ,sold a forklift on April 12,2015,for...

Question 19

In 2015,Satesh has $5,000 short-term capital loss,$13,000 0%/15%/20% long-term capital gain,and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?
A)No more than $13,000 of Satesh's taxable income is taxed at 0%.
B)No more than $7,000 of Satesh's taxable income is taxed at 0%.
C)No more than $15,000 of Satesh's taxable income is taxed at 0%.
D)None of Satesh's taxable income is taxed at 0%.
E)All of Satesh's taxable income is taxed at 0%.

Accepted Answer

The answer of In 2015,Satesh has $5,000 short-term capital loss,$13,000...

Question 20

Violet,Inc. ,has a 2015 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?
A)Violet will benefit from an alternative tax on net capital gains computation.
B)Violet's regular tax on taxable income will be the same as its tax using an alternative tax on net capital gains approach.
C)Violet's $80,000 net capital gain is not taxable.
D)Violet's regular tax on taxable income will be greater than its tax using an alternative tax on net capital gain approach.
E)None of the above.

Accepted Answer

The answer of Violet,Inc. ,has a 2015 $80,000 long-term capital...

Quiz 14: Property Transactions: Capital Gains and Losses, section 1231 and Recapture Provisions

Robin Corporation has ordinary income from operations of $30,000,net long-term capital gain of $10,000,and net short-term capital loss of $15,000.What is the taxable income for 2015?

Which of the following comparisons is correct?

In 2015,an individual taxpayer has $863,000 of taxable income that includes $48,000 of 0%/15%/20% long-term capital gain.Which of the following statements is correct?

Which of the following assets held by a manufacturing business is a § 1231 asset?

Martha has both long-term and short-term 2014 capital gains and losses.The result of netting these gains and losses is a net long-term capital loss.Martha has no qualified dividend income.Also,Martha's 2014 taxable income puts her in the 28% tax bracket.Which of the following is correct?

In 2015,Mark has $18,000 short-term capital loss,$7,000 28% gain,and $6,000 0%/15%/20% gain.Which of the statements below is correct?

Ryan has the following capital gains and losses for 2015: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15%/20% gain.Which of the following is correct:

On June 10,2015,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?

In 2014,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2015,Jenny has a $18,000 0%/15%/20% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Vertigo,Inc. ,has a 2015 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2014.For 2015,Vertigo's net § 1231 loss is treated as:

Cason is filing as single and has 2015 taxable income of $36,000 which includes $34,000 of 0%/15%/20% net long-term capital gain.What is his tax on taxable income using the alternative tax method? Note: Use the tax rate schedule rather than the tax table.

Virgil was leasing an apartment from Marple,Inc.Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building.As a result:

Which of the following is correct concerning short sales of stock?

Tan,Inc. ,sold a forklift on April 12,2015,for $8,000 (its FMV) to its 100% shareholder,Ashley.Tan's adjusted basis for the forklift was $12,000.Ashley's holding period for the forklift:

In 2015,Satesh has $5,000 short-term capital loss,$13,000 0%/15%/20% long-term capital gain,and $7,000 qualified dividend income.Satesh is single and has other taxable income of $15,000.Which of the following statements is correct?

Violet,Inc. ,has a 2015 $80,000 long-term capital gain included in its $285,000 taxable income.Which of the following is correct?