Question 1

Sigma Corporation had the following capital gains and losses for 2014 through 2018:
?
$$\begin{array} { c c c c c } 
2014 & 2015 & 2016 & 2017 & 2018 \
\$ 30,000 & \$ ( 20,000 ) & \$ 15,000 & \$ ( 30,000 ) & \$ 60,000
\end{array}$$
Sigma's net capital gain for 2018 is:

Accepted Answer

Sigma Corporation's net capital gain for 2018 is calculated by offsetting the capital losses from previous years against the capital gains. The net capital gain for 2018 is $60,000 - $5,000 (remaining loss from 2017 after offsetting with 2016 gain) = $55,000.

Question 2

Victor bought 100 shares of stock of Wabash Manufacturing Corporation from an unrelated individual paying $1 per share on December 20, 2017. On April 17, 2018, the corporation is declared bankrupt and the shares are deemed worthless. What is the amount and character of Victor's recognized loss as a result of the bankruptcy?

Accepted Answer

Victor's loss is considered a long-term capital loss because the stock was held for more than one year (from December 20, 2017, to April 17, 2018) before it was deemed worthless due to the bankruptcy of Wabash Manufacturing Corporation. The amount of the loss is $100, which is the cost basis of the stock ($1 per share for 100 shares).

Question 3

Phi Corporation had the following capital gains and losses for 2016 through 2018:
?
$$\begin{array} { c c c } 
2016 & 2017 & 2018 \
\$ 15,000 & \$ ( 40,000 ) & \$ 10,000
\end{array}$$
I.Phi can deduct a loss of $\$ 15,000$ in 2018 .
II.Phi will carry forward a $\$ 15,000$ capital loss to 2019 .

Accepted Answer

Phi Corporation can carry forward the net capital loss of $15,000 ($15,000 gain in 2016 - $40,000 loss in 2017 + $10,000 gain in 2018) to 2019. Corporations can carry forward capital losses indefinitely to offset future capital gains. Statement I is incorrect because the net loss of $15,000 is not deducted in 2018 but carried forward.

Question 4

A taxable entity has the following capital gains and losses in 2018:
?
$\begin{array}{lr}
\text { Short-term capital loss } & \$(20,000) \
\text { Long-term capital gain } & 13,000
\end{array}$

I.If the entity is an individual, $ a \$ 7,000 $ deduction is all owed in 2018 .
II.If the entity is a corporation, no deduction is allowed in 2018.

Accepted Answer

The answer of A taxable entity has the following capital...

Question 5

Omicron Corporation had the following capital gains and losses for 2016 through 2018:
?
$$\begin{array} { c c c } 
2016 & 2017 & 2018 \
\$ 15,000 & \$ ( 30,000 ) & \$ 60,000
\end{array}$$
Omicron's net capital gain for 2018 is:

Accepted Answer

To calculate the net capital gain, we first need to add up the total gains and losses separately:

Capital gains in 2016: $15,000 
Capital gains in 2017: $25,000 
Capital gains in 2018: $40,000

Capital losses in 2016: -$10,000 
Capital losses in 2017: -$20,000 
Capital losses in 2018: -$20,000

To find the net capital gain, we subtract the total capital losses from the total capital gains:

Net capital gain for 2016-2018 = [(15,000 + 25,000 + 40,000) - (10,000 + 20,000 + 20,000)] 
Net capital gain for 2016-2018 = $50,000 - $50,000 
Net capital gain for 2016-2018 = $0

Therefore, the net capital gain for 2018 is simply the capital gain for 2018: $40,000.

Therefore, the correct answer is C) $45,000.

Question 6

When securities are sold and the securities were purchased on different dates and at different prices
I.the basis of the shares may be determined on a first-in, first-out basis.
II.the basis of the shares may be determined on a last-in, first-out basis.
​

Accepted Answer

Both statements are correct. The basis of the shares may be determined on a first-in, first-out basis or a last-in, first-out basis.

Question 7

When a security becomes worthless
I.no loss can be deducted because a realization has not occurred.
II.the measure of the loss is the adjusted basis of the securities.
​

Accepted Answer

Statement II is correct - when a security becomes worthless, the measure of the loss is the adjusted basis of the securities.
Statement I is incorrect - even though there is no realization of the loss in the sale of the securities, the loss can still be deducted as a worthless security.

Question 8

A taxable entity has the following capital gains and losses in 2018:
?
$\begin{array}{lr}
\text { Short-term capital loss } & \$(22,000) \
\text { Long-term capital gain } & 15,000
\end{array}$

I.If the entity is an individual, a $\$ 3,000$ deduction is allowed in 2018 .
II. If the entity is a corporation, a $\$ 7,000$ deduction is allowed in 2018 .

Accepted Answer

For individuals, the IRS allows a deduction of up to $3,000 of net capital losses against ordinary income per year. Corporations, however, do not have a specific dollar deduction limit for capital losses; they can only use capital losses to offset capital gains.

Question 9

Sidney, a single taxpayer, has taxable income of $45,000 from all sources except capital gains. He has a long-term capital gain of $1,000. What is the actual tax savings Sidney receives because of any special treatment of his $1,000 long-term capital gain?

Accepted Answer

The long-term capital gain of $1,000 is subject to special tax rates that are lower than ordinary income tax rates. In 2021, the tax rate on long-term capital gains for taxpayers in the 22% tax bracket (which Sidney falls into with taxable income of $45,000) is 15%.

Therefore, the tax savings for Sidney would be 15% of $1,000, which is $150.

Question 10

Cheryl purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2010. On November 29, 2018, she sells the stock for $1,000,000. Cheryl also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Cheryl has $180,000 of other income. Which of the following statements about the stock sale is/are true?
I.The tax paid on Cheryl's two stock sales is $4,200.
II.Cheryl can only deduct $3,000 of the $10,000 loss on the sale of the stock.
​

Accepted Answer

The answer of Cheryl purchased 500 shares of Qualified Small...

Question 11

Rachael purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2009. On November 29, 2018, she sells the stock for $1,000,000. Rachael also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Which of the following explain(s) tax consequences of the QSB stock sale?
I.The effective tax rate applied to the net gain on the sale of the QSB stock is 15%.
II.Rachael nets her $10,000 loss with her $100,000 gain after applying her exclusion rate.
III.Rachael is eligible for a 75% exclusion of the gain from the QSB stock sale.
IV.The QSB stock is QSB stock partly because Rachael held the stock for the required 3-year minimum.
​

Accepted Answer

Rachael is eligible for a 100% exclusion of the gain on the sale of QSB stock because she acquired the stock after February 17, 2009, and held it for more than 5 years. Therefore, statement III is incorrect as it mentions a 75% exclusion, which does not apply in this case. The effective tax rate and the specifics of netting losses against gains are not directly related to the unique tax benefits of QSB stock, making statements I and II incorrect. Statement IV is incorrect because the required holding period for QSB stock to qualify for exclusion is more than 5 years, not 3.

Question 12

Capital gain and loss planning strategies include
I.the optimal action of using capital gains to reduce an individual taxpayer's net capital loss for a year to zero.
II.selling enough capital assets to create a $3,000 capital loss.
​

Accepted Answer

The answer of Capital gain and loss planning strategies include
I.the...

Question 13

Raymond, a single taxpayer, has taxable income of $210,000 from all sources except capital gains. He has a $10,000 gain from the sale of qualified small business stock he acquired in 1995. What is the total tax saving Raymond receives because of any special treatment of his $10,000 long-term capital gain on small business stock?

Accepted Answer

The gain from the sale of qualified small business stock (QSBS) acquired in 1995 and held for more than five years is eligible for a 50% exclusion under IRC Section 1202. Therefore, Raymond can exclude $5,000 (50% of $10,000) of his gain. Assuming he is in the 28% tax bracket for his taxable income level, the tax saving on the excluded portion would be $5,000 x 28% = $1,400.

Question 14

Dwight, a single taxpayer, has taxable income of $75,000 from all sources except capital gains. He has a collectibles gain of $1,000. What is the actual tax saving Dwight receives because of any special treatment of his $1,000 collectibles gain?

Accepted Answer

Collectibles gains are taxed at a maximum rate of 28%. However, if Dwight's other income places him in a tax bracket lower than 28%, the collectibles gain would be taxed at his ordinary income tax rate. Since Dwight's taxable income is $75,000, he falls within the 22% tax bracket for a single filer in the current tax year. Therefore, his $1,000 collectibles gain is taxed at the same rate as his other income, resulting in no additional tax savings.

Question 15

Pamela purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on October 2, 2012. On November 29, 2018, she sells the stock for $1,000,000. Pamela also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Pamela has $100,000 of other income. Which of the following statements about the stock sale is/are true?
I.Pamela will pay no tax on the two stock sales.
II.Pamela can only deduct $3,000 of the $10,000 loss on the sale of the stock.
​

Accepted Answer

Pamela will pay no tax on the sale of the QSB stock because it qualifies for the 100% exclusion. The loss on the sale of the other stock is limited to $3,000 because of the annual capital loss deduction limit.

Question 16

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after September 27, 2010, results in an effective tax rate on these capital gains of

Accepted Answer

The answer of The exclusion of a percentage of the...

Question 17

Santana purchased 200 shares of Neffer, Inc. Common Stock on November 13, 2017, for $3,400 and paid a $200 commission. On December 28, 2017, Santana received a $2 per share cash dividend from Neffer. On June 17, 2018, Neffer declares and distributes a 2 for 1 stock split. On August 4, 2018, Santana purchased an additional 300 shares of Neffer, Inc. Common Stock for $4,200 plus a $300 commission. On November 22, 2018, Santana sells 500 shares of Neffer, Inc. stock for $6,000 and pays a $400 commission on the sale. Santana's gain (loss) on the sale is

Accepted Answer

First, let's calculate Santana's cost basis for the 500 shares sold on November 22, 2018:

- The 200 original shares purchased on November 13, 2017, for $3,400 + $200 commission = $3,600
- The 300 additional shares purchased on August 4, 2018, for $4,200 + $300 commission = $4,500
- Total cost basis = $3,600 + $4,500 = $8,100
- Cost basis per share = $8,100 / 500 shares = $16.20

Now, let's calculate Santana's proceeds from the sale:

- 500 shares sold for $6,000 - $400 commission = $5,600
- Proceeds per share = $5,600 / 500 shares = $11.20

Santana's gain (loss) per share = $11.20 - $16.20 = -$5.00

Therefore, Santana's total gain (loss) on the sale is:

- 500 shares x (-$5.00) = -$2,500
- However, Santana received a $2 per share cash dividend, so that reduces the loss to -$1,500
- Santana also benefited from the 2 for 1 stock split, which doubled the number of shares owned and halved the cost basis per share. This doesn't affect the gain (loss) per share on the sale, but it does increase the original cost basis per share to $18.00 ($16.20 / 0.9).
- Santana's gain (loss) on the sale is a $1,500 loss, which is a $500 gain compared to the total cost basis of $8,100. Therefore, the answer is B) $500 gain.

Question 18

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after February 17, 2009, and before September 27, 2010, results in an effective tax rate on these capital gains of

Accepted Answer

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after February 17, 2009, and before September 27, 2010, allows for a 75% exclusion. Given the maximum capital gains rate of 28% for such gains, the effective tax rate is 28% of the 25% not excluded, which is 7% (0.28 * 0.25 = 0.07).

Question 19

Sally owns 700 shares of Fashion Styles Clothing common stock. Sally purchased the 700 shares as follows:
?
$$\begin{array} { c c c } 
\text { Purchase Date } & \text { Number of Shares } & \text { Total Cost } \
\text { March } 2014 & 200 & \$ 2,000 \
\text { August } 2014 & 300 & \$ 3,600 \
\text { January } 2015 & 200 & \$ 3,000
\end{array}$$
As of December 29, 2018, Sally has not sold any securities. She needs to send a tuition payment of $5,200 to her daughter's boarding school in Zurich before year-end. Since the Fashion Styles Clothing stock is selling for $13 per share, Sally plans to dispose of 400 shares to cover the tuition. Ignoring commissions and transaction costs, what is the optimal tax result of selling 400 shares?

Accepted Answer

Sally purchased the shares over a year ago, therefore the 400 shares sold will result in a long-term capital loss. The calculation for the gain or loss is as follows:

400 shares x ($13 - cost basis per share) = 400 shares x ($13 - $10) = $1,200 loss

Since the loss is a capital loss, it can be used to offset any capital gains from other investments or up to $3,000 of ordinary income. The remaining loss can be carried forward to future tax years. Therefore, the optimal tax result of selling 400 shares is a $1,200 long-term capital loss, resulting in choice B.

Question 20

Sybil purchased 500 shares of Qualified Small Business Stock (QSB) for $25,000 on March 2, 2003. On November 29, 2018, she sells the stock for $125,000. Sybil also sells 100 shares of stock she acquired two years ago realizing a gain of $20,000. Sybil has $100,000 of other income. Which of the following statements about the stock sale is/are true?
I.The tax paid on Sybil's two stock sales is $17,000.
II.The tax rate on the $20,000 gain is 15%.
​

Accepted Answer

The answer of Sybil purchased 500 shares of Qualified Small...

Quiz 11: Property Dispositions

Sigma Corporation had the following capital gains and losses for 2014 through 2018: ? $\begin{array} { c c c c c } 2014 & 2015 & 2016 & 2017 & 2018 \\\$ 30,000 & \$ ( 20,000 ) & \$ 15,000 & \$ ( 30,000 ) & \$ 60,000\end{array}$ Sigma's net capital gain for 2018 is:

Phi Corporation had the following capital gains and losses for 2016 through 2018: ? $\begin{array} { c c c } 2016 & 2017 & 2018 \\\$ 15,000 & \$ ( 40,000 ) & \$ 10,000\end{array}$ I.Phi can deduct a loss of $\$ 15,000$ in 2018 . II.Phi will carry forward a $\$ 15,000$ capital loss to 2019 .

Omicron Corporation had the following capital gains and losses for 2016 through 2018: ? $\begin{array} { c c c } 2016 & 2017 & 2018 \\\$ 15,000 & \$ ( 30,000 ) & \$ 60,000\end{array}$ Omicron's net capital gain for 2018 is:

When securities are sold and the securities were purchased on different dates and at different prices I.the basis of the shares may be determined on a first-in, first-out basis. II.the basis of the shares may be determined on a last-in, first-out basis.

When a security becomes worthless I.no loss can be deducted because a realization has not occurred. II.the measure of the loss is the adjusted basis of the securities.

Sidney, a single taxpayer, has taxable income of $45,000 from all sources except capital gains. He has a long-term capital gain of $1,000. What is the actual tax savings Sidney receives because of any special treatment of his $1,000 long-term capital gain?

Capital gain and loss planning strategies include I.the optimal action of using capital gains to reduce an individual taxpayer's net capital loss for a year to zero. II.selling enough capital assets to create a $3,000 capital loss.

Dwight, a single taxpayer, has taxable income of $75,000 from all sources except capital gains. He has a collectibles gain of $1,000. What is the actual tax saving Dwight receives because of any special treatment of his $1,000 collectibles gain?

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after September 27, 2010, results in an effective tax rate on these capital gains of

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after February 17, 2009, and before September 27, 2010, results in an effective tax rate on these capital gains of

Quiz 11: Property Dispositions

When securities are sold and the securities were purchased on different dates and at different prices I.the basis of the shares may be determined on a first-in, first-out basis. II.the basis of the shares may be determined on a last-in, first-out basis. ​

When a security becomes worthless I.no loss can be deducted because a realization has not occurred. II.the measure of the loss is the adjusted basis of the securities. ​

Sidney, a single taxpayer, has taxable income of $45,000 from all sources except capital gains. He has a long-term capital gain of $1,000. What is the actual tax savings Sidney receives because of any special treatment of his $1,000 long-term capital gain?

Capital gain and loss planning strategies include I.the optimal action of using capital gains to reduce an individual taxpayer's net capital loss for a year to zero. II.selling enough capital assets to create a $3,000 capital loss. ​

Dwight, a single taxpayer, has taxable income of $75,000 from all sources except capital gains. He has a collectibles gain of $1,000. What is the actual tax saving Dwight receives because of any special treatment of his $1,000 collectibles gain?

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after September 27, 2010, results in an effective tax rate on these capital gains of

The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after February 17, 2009, and before September 27, 2010, results in an effective tax rate on these capital gains of

When securities are sold and the securities were purchased on different dates and at different prices I.the basis of the shares may be determined on a first-in, first-out basis. II.the basis of the shares may be determined on a last-in, first-out basis.

When a security becomes worthless I.no loss can be deducted because a realization has not occurred. II.the measure of the loss is the adjusted basis of the securities.

Capital gain and loss planning strategies include I.the optimal action of using capital gains to reduce an individual taxpayer's net capital loss for a year to zero. II.selling enough capital assets to create a $3,000 capital loss.