Question 1

The only things that the grantee of an option may do with the option are exercise it or let it expire.

Accepted Answer

A) True 
 B)False

Question 2

Blue Company signs a 12-year franchise agreement with Fast Taco.Fast Taco retained significant powers,rights,and a continuing interest.Blue (the franchisee)makes noncontingent payments of $15,000 per year for the first five years of the franchise.Blue Company also pays a contingent fee of 2% of gross sales every month.Which of the following statements is correct?

Accepted Answer

A) Blue Company may deduct the $15,000 per year noncontingent payments in full as they are made. 
B) Blue Company may deduct the monthly contingent fee as it is paid. 
C) Blue Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid. 
D) Blue Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid. 
E) None of the above. 
A) Blue Company may deduct the $15,000 per year noncontingent payments in full as they are made. 
B) Blue Company may deduct the monthly contingent fee as it is paid. 
C) Blue Company may deduct both the noncontingent annual fee and the contingent monthly fees as they are paid. 
D) Blue Company may not deduct either the noncontingent annual fee or the contingent monthly fees as they are paid. 
E) None of the above.

Question 3

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

Accepted Answer

A) True 
 B)False

Question 4

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Accepted Answer

A) True 
 B)False

Question 5

Ryan has the following capital gains and losses for 2010: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15% gain.Which of the following is correct:

Accepted Answer

A) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15% gain. 
B) The net capital gain is composed of $5,000 28% gain and $2,000 0%/15% gain. 
C) The net capital gain is composed of $3,000 28% gain,$2,000 25% gain,and $2,000 0%/15% gain. 
D) The net capital gain is composed of $1,000 28% gain and $6,000 0%/15% gain. 
E) None of the above. 
A) The net capital gain is composed of $1,000 25% gain and $6,000 0%/15% gain. 
B) The net capital gain is composed of $5,000 28% gain and $2,000 0%/15% gain. 
C) The net capital gain is composed of $3,000 28% gain,$2,000 25% gain,and $2,000 0%/15% gain. 
D) The net capital gain is composed of $1,000 28% gain and $6,000 0%/15% gain. 
E) None of the above.

Question 6

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Accepted Answer

A) True 
 B)False

Question 7

Real property subdivided for resale into lots,even if no substantial physical improvements have been made to the property,always causes the gain from sale of the lots to be treated as ordinary income.

Accepted Answer

A) True 
 B)False

Question 8

On January 10,2010,Wally sold an option for $1,000 on vacant land he held as an investment.He had purchased the land in 2006 for $66,000.The option allowed the option holder to purchase the property for $132,000 plus the cost of the option.On March 1,2010,the option holder exercised the option.What is the amount and nature of Wally's gain or loss from disposition of the land?

Accepted Answer

Wally's proceeds from selling the land a

Question 9

Seamus had $16,000 of net short-term capital loss in 2009.In 2010,Seamus has $15,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

Accepted Answer

A) Seamus had a $13,000 short-term capital loss carryover to 2010. 
B) Seamus has an $11,000 2010 net long-term capital gain. 
C) Seamus has a $2,000 2010 net short-term capital loss. 
D) a.and c. 
E) None of the above. 
A) Seamus had a $13,000 short-term capital loss carryover to 2010. 
B) Seamus has an $11,000 2010 net long-term capital gain. 
C) Seamus has a $2,000 2010 net short-term capital loss. 
D) a.and c. 
E) None of the above.

Question 10

Section 1231 applies to the sale or exchange of business properties,but not to business casualties.

Accepted Answer

A) True 
 B)False

Question 11

An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has an ordinary loss.

Accepted Answer

A) True 
 B)False

Question 12

To compute the holding period,start counting on the day the property was acquired and include the day of disposition.

Accepted Answer

A) True 
 B)False

Question 13

Samuel,head of household with two dependents,has 2010 wages of $26,000,paid alimony of $3,000,has taxable interest income of $2,000,and a $12,000 0%/15% net long-term capital gain.Samuel uses the standard deduction and is age 38.What is his 2010 taxable income and the tax on the taxable income?

Accepted Answer

Samuel has $17,650 taxable income and th

Question 14

A worthless security had a holding period of 11 months when it became worthless on November 10,2010.The investor who had owned the security had a basis of $10,000 for it.Which of the following statements is correct?

Accepted Answer

A) The investor has a long-term capital loss of $10,000. 
B) The investor has a short-term capital loss of $10,000. 
C) The investor has a nondeductible loss of $10,000. 
D) The investor has a long-term capital gain of $10,000. 
E) None of the above. 
A) The investor has a long-term capital loss of $10,000. 
B) The investor has a short-term capital loss of $10,000. 
C) The investor has a nondeductible loss of $10,000. 
D) The investor has a long-term capital gain of $10,000. 
E) None of the above.

Question 15

Red Company had an involuntary conversion on December 23,2010.The machinery had been acquired on April 1,2008,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it.This was Red's only casualty or theft event for the year.As a result of this event,Red initially has:

Accepted Answer

A) $10,000 § 1231 loss. 
B) $10,000 § 1245 recapture gain. 
C) $4,200 casualty loss. 
D) $4,200 § 1231 loss. 
E) None of the above. 
A) $10,000 § 1231 loss. 
B) $10,000 § 1245 recapture gain. 
C) $4,200 casualty loss. 
D) $4,200 § 1231 loss. 
E) None of the above.

Question 16

Karla owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?

Accepted Answer

The real estate was used in business and

Question 17

An individual had the following gains and losses during 2010 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain);sale of real property used in the taxpayer's business ($1,800 loss);destruction of real property used in the taxpayer's business by fire ($1,000 loss).Which of the following is correct?

Accepted Answer

A) The fire loss would reduce the real property sale loss. 
B) The fire loss would reduce the stock sale gain. 
C) The sale of real property loss would be netted against the stock sale gain. 
D) The sale of real property is a § 1231 loss. 
E) None of the above. 
A) The fire loss would reduce the real property sale loss. 
B) The fire loss would reduce the stock sale gain. 
C) The sale of real property loss would be netted against the stock sale gain. 
D) The sale of real property is a § 1231 loss. 
E) None of the above.

Question 18

A business machine purchased April 10,2009,for $62,000 was fully depreciated in 2009 using § 179 immediate expensing.On August 15,2010,the sole proprietor who owned the machine gave it to his son.On that date,the machine's fair market value was $57,000.The son did not use the machine in business or hold it as inventory and the machine was sold on November 22,2010,for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?

Accepted Answer

A gift does not extinguish potential § 1

Question 19

In 2009,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2010,Jenny has a $16,000 0%/15% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

Accepted Answer

A) Jenny has a 2010 $18,000 net capital gain. 
B) Jenny has a 2010 $7,000 net capital gain. 
C) Jenny has a 2010 $7,000 net capital loss. 
D) Jenny has a 2010 $3,000 capital loss deduction. 
E) Jenny has a 2010 $7,000 capital loss deduction. 
A) Jenny has a 2010 $18,000 net capital gain. 
B) Jenny has a 2010 $7,000 net capital gain. 
C) Jenny has a 2010 $7,000 net capital loss. 
D) Jenny has a 2010 $3,000 capital loss deduction. 
E) Jenny has a 2010 $7,000 capital loss deduction.

Question 20

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:

Accepted Answer

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. 
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.

Exam 14: Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions

The only things that the grantee of an option may do with the option are exercise it or let it expire.

The tax law requires that capital gains and losses be separated from other types of gains and losses because an alternative tax calculation may be used when taxable income includes net long-term capital gain.

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Ryan has the following capital gains and losses for 2010: $6,000 STCL,$5,000 28% gain,$2,000 25% gain,and $6,000 0%/15% gain.Which of the following is correct:

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Real property subdivided for resale into lots,even if no substantial physical improvements have been made to the property,always causes the gain from sale of the lots to be treated as ordinary income.

Seamus had $16,000 of net short-term capital loss in 2009.In 2010,Seamus has $15,000 of long-term capital loss and $26,000 of long-term capital gain.Which of the following statements is correct?

Section 1231 applies to the sale or exchange of business properties,but not to business casualties.

An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating.The taxpayer immediately sells the note to a bank for less than the note's stated value.The taxpayer has an ordinary loss.

To compute the holding period,start counting on the day the property was acquired and include the day of disposition.

Samuel,head of household with two dependents,has 2010 wages of $26,000,paid alimony of $3,000,has taxable interest income of $2,000,and a $12,000 0%/15% net long-term capital gain.Samuel uses the standard deduction and is age 38.What is his 2010 taxable income and the tax on the taxable income?

A worthless security had a holding period of 11 months when it became worthless on November 10,2010.The investor who had owned the security had a basis of $10,000 for it.Which of the following statements is correct?

In 2009,Jenny had a $12,000 net short-term capital loss and deducted $3,000 as a capital loss deduction.In 2010,Jenny has a $16,000 0%/15% long-term capital gain and no other capital gain or loss transactions.Which of the statements below is correct?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation,cost Recovery,amortization,and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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