Question 1

Winchester LLC sold the following business assets during the current year: (1)automobile,$30,000 cost basis,$12,000 depreciation,$20,000 proceeds; (2)machinery,$25,000 cost basis,$20,000 depreciation,$10,000 proceeds; (3)furniture,$15,000 cost basis,$10,000 depreciation,$4,000 proceeds; (4)computer equipment,$25,000 cost basis,$6,000 depreciation,$10,000 proceeds; (5)Winchester had unrecaptured §1231 losses of $3,000 in the prior five years.What are the amount and character of Winchester's gains and losses before the §1231 netting process? Assume all assets were held for more than one year.

Accepted Answer

A) $3,000 ordinary loss,$0 §1231 loss. 
B) $7,000 ordinary gain,$10,000 §1231 loss. 
C) $7,000 ordinary loss,$4,000 §1231 gain. 
D) $1,000 ordinary gain,$4,000 §1231 loss. 
E) None of the choices are correct.

Question 2

Brandon,an individual,began business four years ago and has never sold a §1231 asset.Brandon owned each of the assets for several years.In the current year,Brandon sold the following business assets:  Assuming Brandon's marginal ordinary income tax rate is 32 percent,what effect do the gains and losses have on Brandon's tax liability?

Accepted Answer

A) $7,000 ordinary income,$1,000 §1231 loss,and $1,920 tax liability. 
B) $6,000 ordinary income and $1,920 tax liability. 
C) $7,000 §1231 gain and $2,240 tax liability. 
D) $7,000 §1231 gain and $1,050 tax liability. 
E) None of the choices are correct.

Question 3

All tax gains and losses are ultimately characterized as either ordinary or capital.

Accepted Answer

A) True 
 B)False

Question 4

For an installment sale,the gross profit percentage is the gain recognized divided by the gain realized.

Accepted Answer

A) True 
 B)False

Question 5

After application of the look-back rule,net §1231 gains become capital while net §1231 losses become ordinary.

Accepted Answer

A) True 
 B)False

Question 6

Only accelerated depreciation is recaptured for §1245 assets.

Accepted Answer

A) True 
 B)False

Question 7

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

Accepted Answer

A) $25,000 §1231 gain. 
B) $20,000 ordinary gain,and $5,000 §1231 gain. 
C) $5,000 ordinary gain,and $20,000 §1231 gain. 
D) $25,000 capital gain. 
E) None of the choices are correct.

Question 8

Which one of the following is not a requirement of a deferred like-kind exchange?

Accepted Answer

A) The like-kind property to be received must be identified within 45 days. 
B) The exchange must be completed within the taxable year. 
C) The like-kind property must be received within 180 days. 
D) The exchanged property must be like-kind. 
E) All of the choices are correct.

Question 9

Brandy sold a rental house that she owned for $150,000.Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Brandy's gain or loss?

Accepted Answer

The answer of Brandy sold a rental house that she...

Question 10

Manassas purchased a computer several years ago for $2,200.On November 10^th of the current year,the computer was worth $800.If $1,000 of depreciation deductions had been taken,what is Manassas's tax-adjusted basis for the computer?

Accepted Answer

The answer of Manassas purchased a computer several years ago...

Question 11

Sarah sold 1,000 shares of stock to her brother,David,for $18,000 more than a year ago.Sarah had purchased the stock for $20,000 several years earlier.What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for either $15,000 or $25,000?

Accepted Answer

The answer of Sarah sold 1,000 shares of stock to...

Question 12

Luke sold land valued at $210,000.His original basis in the land was $180,000.For the land,Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year.What is Luke's recognized gain in the current and subsequent year,respectively?

Accepted Answer

The answer of Luke sold land valued at $210,000.His original...

Question 13

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Accepted Answer

A) The like-kind property to be received must be identified within 45 days. 
B) The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer's taxable year. 
C) The like-kind property to be received must be identified within 180 days. 
D) There is no deadline for the identification of replacement property. 
E) All of the choices are correct.

Question 14

Which of the following may qualify as an installment sale?

Accepted Answer

A) Sale of inventory at a gain. 
B) Sale of securities. 
C) Sale of asset used in a business at a gain. 
D) Land sold at a loss. 
E) All of the choices qualify for installment sale treatment.

Question 15

Which of the following does not ultimately result in a capital gain or loss?

Accepted Answer

A) Sale of a personal use asset. 
B) Sale of inventory. 
C) Gain on equipment used in a trade or business and held for more than one year,if it is the only asset sale during the year. 
D) Sale of capital stock in another company. 
E) None of the choices are correct.

Question 16

Losses on sales between related parties are realized but not recognized.

Accepted Answer

A) True 
 B)False

Question 17

Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?

Accepted Answer

A) $7,500 §1231 loss. 
B) $5,000 §1231 loss. 
C) $7,500 ordinary gain. 
D) $7,500 capital gain. 
E) None of the choices are correct.

Question 18

Why does §1250 recapture generally no longer apply?

Accepted Answer

A) Congress repealed the code section. 
B) Real property is depreciated using the straight-line method after 1986. 
C) §1245 recapture trumps §1250 recapture. 
D) Because unrecaptured §1250 gains now apply to all taxpayers instead. 
E) None of the choices are correct.

Question 19

Buzz Corporation sold an office building that it used in its business for $500,000.Buzz bought the building 10 years ago for $650,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Buzz's gain or loss?

Accepted Answer

The answer of Buzz Corporation sold an office building that...

Question 20

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

Accepted Answer

A) True 
 B)False

Exam 11: Property Dispositions

All tax gains and losses are ultimately characterized as either ordinary or capital.

For an installment sale,the gross profit percentage is the gain recognized divided by the gain realized.

After application of the look-back rule,net §1231 gains become capital while net §1231 losses become ordinary.

Only accelerated depreciation is recaptured for §1245 assets.

Bozeman sold equipment that it uses in its business for $80,000.Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense.What is the amount and character of Bozeman's gain or loss?

Which one of the following is not a requirement of a deferred like-kind exchange?

Brandy sold a rental house that she owned for $150,000.Brandy bought the house four years ago for $140,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Brandy's gain or loss?

Manassas purchased a computer several years ago for $2,200.On November 10th of the current year,the computer was worth $800.If $1,000 of depreciation deductions had been taken,what is Manassas's tax-adjusted basis for the computer?

Sarah sold 1,000 shares of stock to her brother,David,for $18,000 more than a year ago.Sarah had purchased the stock for $20,000 several years earlier.What is the amount and character of David's recognized gain or loss in the current year if he sells the stock for either $15,000 or $25,000?

Luke sold land valued at $210,000.His original basis in the land was $180,000.For the land,Luke received $60,000 in cash in the current year and a note providing $150,000 in the subsequent year.What is Luke's recognized gain in the current and subsequent year,respectively?

How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?

Which of the following may qualify as an installment sale?

Which of the following does not ultimately result in a capital gain or loss?

Losses on sales between related parties are realized but not recognized.

Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?

Why does §1250 recapture generally no longer apply?

Buzz Corporation sold an office building that it used in its business for $500,000.Buzz bought the building 10 years ago for $650,000 and has claimed $200,000 of depreciation expense.What is the amount and character of Buzz's gain or loss?

The gain or loss realized on the sale of an asset is always recognized for tax purposes.

Manassas purchased a computer several years ago for $2,200.On November 10^th of the current year,the computer was worth $800.If $1,000 of depreciation deductions had been taken,what is Manassas's tax-adjusted basis for the computer?