Question 1

Six years ago,Alejo Company purchased real property by paying $250,000 cash and giving the seller its $1 million note for the balance of the purchase price.This year,Alejo deducted $30,800 depreciation on the property and made a $125,000 principal payment on the note.Which of the following statements is false?

Accepted Answer

A)  The depreciation deduction reduced Alejo's adjusted tax basis in the real property.
B)  The principal payment increased Alejo's equity in the real property.
C)  The principal payment reduced Alejo's tax basis in the real property and the balance due on the note.
D)  None of the above statements is false. C

Question 2

Four years ago,Mrs.Beights purchased marketable securities for $75,000 cash.At the end of the current year,the FMV of the securities had plummeted to $4,000.Mrs.Beights may elect to recognize her $71,000 loss this year,even though she still owns the securities.

Accepted Answer

A) True 
 B)False  False

Question 3

Dolzer Inc.sold a business asset with a $474,000 adjusted book and tax basis for $775,000.The purchaser paid $100,000 in cash and gave Dolzer a note for the $675,000 balance of the price.Dolzer will not receive a payment on the note until next year.Assuming that Dolzer uses the installment sale method,compute Dolzer's book and tax gain in the year of sale.

Accepted Answer

A)  Book gain $301,000; tax gain $100,000
B)  Book and tax gain $38,839
C)  Book gain $301,000; tax gain $38,839
D)  None of the above C

Question 4

Which of the following is a capital asset?

Accepted Answer

A)  Supplies used in a business
B)  Business inventory
C)  Land used in a business
D)  None of the above

Question 5

Mr.Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash.Which of the following statements is true?

Accepted Answer

A)  If Mr.Quick can offer evidence that the FMV of the securities is $95,000,he can recognize his $17,900 realized loss.
B)  If Mr.Quick and his corporation negotiated the terms of the sale at arm's length,Mr.Quick can recognize his $17,900 realized loss.
C)  The corporation's tax basis in the securities is $112,900.
D)  None of the above is true.

Question 6

A fire destroyed business equipment that was worth $160,000 and had a $118,100 adjusted tax basis.The equipment was uninsured.The owner can recognize a $160,000 ordinary casualty loss.

Accepted Answer

A) True 
 B)False

Question 7

Fantino Inc.was incorporated in 2015 and adopted a calendar year for tax purposes.Here is a schedule of Fantino's taxable income for 2015 and 2016.Use Corporate tax rate schedule.   In 2017,Fantino generated $297,300 ordinary income and recognized a $14,000 net capital loss.Which of the following statements is true?

Accepted Answer

A)  Fantino can deduct its $14,000 net capital loss only on a carryforward basis.
B)  Fantino can carry the net capital loss back to 2015 and receive a $4,760 refund of 2015 tax.
C)  Fantino can carry the net capital loss back to 2016 and receive a $5,460 refund of 2016 tax.
D)  Fantino can carry the net capital loss back to 2016 and receive a $2,262 refund of 2016 tax.

Question 8

Mrs.Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2006.This year,HiFli declared bankruptcy and announced that its stock has no value.What is the tax consequence to Mrs.Tinker of this bad news?

Accepted Answer

A)  $78,400 ordinary abandonment loss
B)  $78,400 capital loss
C)  No loss recognition until Mrs.Tinker actually disposes of the stock
D)  None of the above

Question 9

R&T Inc.made the following sales of capital assets this year.   What is the effect of the three sales on R&T's taxable income this year?

Accepted Answer

A)  $21,600 increase
B)  $12,900 increase
C)  No effect
D)  None of the choices are correct

Question 10

WQP Company generated $1,814,700 ordinary income from the sale of inventory to its customers.It also sold three noninventory assets during the year.Compute WQP's taxable income assuming that:
a.The first sale resulted in a $10,400 ordinary gain,the second sale resulted in a $23,900 capital loss,and the third sale resulted in a $44,000 capital gain.
b.The first sale resulted in a $79,100 capital loss,the second sale resulted in a $35,200 ordinary loss,and the third sale resulted in a $16,000 capital gain.

Accepted Answer

The answer of WQP Company generated $1,814,700 ordinary income from...

Question 11

Ficia Inc.owned investment land subject to a $294,500 recourse mortgage.Ficia failed to make timely mortgage payments,so the creditor foreclosed.At date of foreclosure,Ficia's basis in the land was $300,000,and the land's appraised FMV was $260,000.The creditor informed Ficia that it would not pursue collection of the $34,500 unpaid balance of the mortgage.Which of the following statements is true?

Accepted Answer

A)  Ficia recognizes $34,500 ordinary income and a $40,000 capital loss.
B)  Ficia recognizes only a $40,000 capital loss.
C)  Ficia recognizes only a $5,500 capital loss.
D)  None of the above

Question 12

In its current tax year,PRS Corporation generated $300,000 ordinary income from the performance of consulting services for its clients.PRS sold two assets,recognizing a $20,000 gain on the first sale and a $31,000 loss on the second sale.Which of the following statements is false?

Accepted Answer

A)  If the gain and loss were capital gain and loss,PRS's taxable income was $300,000.
B)  If the gain was capital gain and the loss was ordinary,PRS's taxable income was $269,000.
C)  If the gain and loss were ordinary,PRS's taxable income was $289,000.
D)  If the gain was ordinary and the loss was a capital loss,PRS's taxable income was $320,000.

Question 13

Kopel Company transferred an inventory asset to Cassim LLC in exchange for Cassim's $230,000 interest-bearing note.Kopel's tax basis in the note is its $230,000 face value.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is a capital asset?

Accepted Answer

A)  Accounts receivable of an accrual basis business
B)  Business equipment
C)  Self-created goodwill
D)  Purchased goodwill

Question 15

Murrow Corporation generated $285,700 income from the performance of services for its clients.Murrow also sold several operating assets during the year.Compute Murrow's taxable income under each of the following assumptions about the tax consequences of the asset sales.
a.Murrow recognized $6,800 recaptured ordinary income,a $23,200 net Section 1231 gain,and an $11,600 net capital loss.
b.Murrow recognized a $47,300 net Section 1231 loss and a $5,075 net capital loss.
c.Murrow recognized a $61,800 net Section 1231 gain and a $4,210 net capital gain.
d.Murrow recognized a $15,300 net Section 1231 loss and a $3,000 net capital gain.

Accepted Answer

The answer of Murrow Corporation generated $285,700 income from the...

Question 16

This year,Izard Company sold equipment purchased several years ago at a cost of $48,500.Accumulated depreciation through date of sale was $18,900.Which of the following statements is false?

Accepted Answer

A)  If the sale price was $25,000,Izard recognized $4,600 Section 1231 loss.
B)  If the sale price was $42,500,Izard recognized $18,900 Section 1231 gain.
C)  If the sale price was $50,000,Izard recognized $12,900 ordinary gain and $1,500 Section 1231 gain.
D)  None of the above is false.

Question 17

Which of the following is a Section 1231 asset?

Accepted Answer

A)  Business inventory
B)  Business accounts receivable
C)  Supplies used in a business
D)  None of the above is a Section 1231 asset

Question 18

The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.

Accepted Answer

A) True 
 B)False

Question 19

Delour Inc.was incorporated in 2011 and adopted a calendar year.Here is a schedule of Delour's net Section 1231 gains and (losses)reported on its tax returns through 2016.   In 2017,Delour recognized a $50,000 gain on the sale of business land.How is this gain characterized on Delour's tax return?

Accepted Answer

A)  $50,000 Section 1231 gain.
B)  $12,000 ordinary gain and $38,000 Section 1231 gain.
C)  $16,900 ordinary gain and $33,100 Section 1231 gain.
D)  $50,000 ordinary gain.

Question 20

Lenoci Inc.paid $310,000 for equipment three years ago.This year,it sold the equipment for $200,000.Through date of sale,accumulated book depreciation was $93,840 and accumulated tax depreciation was $147,327.Which of the following statements is true?

Accepted Answer

A)  The sale results in a $53,487 favorable temporary book/tax difference.
B)  The sale results in a $53,487 unfavorable temporary book/tax difference.
C)  The sale results in a $53,487 unfavorable permanent book/tax difference.
D)  None of the above is true.

Exam 8: Property Dispositions

Four years ago,Mrs.Beights purchased marketable securities for $75,000 cash.At the end of the current year,the FMV of the securities had plummeted to $4,000.Mrs.Beights may elect to recognize her $71,000 loss this year,even though she still owns the securities.

Which of the following is a capital asset?

Mr.Quick sold marketable securities with a $112,900 tax basis to his 100% owned corporation for $95,000 cash.Which of the following statements is true?

A fire destroyed business equipment that was worth $160,000 and had a $118,100 adjusted tax basis.The equipment was uninsured.The owner can recognize a $160,000 ordinary casualty loss.

Mrs.Tinker paid $78,400 to purchase 15,000 shares of HiFli common stock in 2006.This year,HiFli declared bankruptcy and announced that its stock has no value.What is the tax consequence to Mrs.Tinker of this bad news?

R&T Inc.made the following sales of capital assets this year. What is the effect of the three sales on R&T's taxable income this year?

In its current tax year,PRS Corporation generated $300,000 ordinary income from the performance of consulting services for its clients.PRS sold two assets,recognizing a $20,000 gain on the first sale and a $31,000 loss on the second sale.Which of the following statements is false?

Kopel Company transferred an inventory asset to Cassim LLC in exchange for Cassim's $230,000 interest-bearing note.Kopel's tax basis in the note is its $230,000 face value.

Which of the following is a capital asset?

This year,Izard Company sold equipment purchased several years ago at a cost of $48,500.Accumulated depreciation through date of sale was $18,900.Which of the following statements is false?

Which of the following is a Section 1231 asset?

The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.

Delour Inc.was incorporated in 2011 and adopted a calendar year.Here is a schedule of Delour's net Section 1231 gains and (losses) reported on its tax returns through 2016. In 2017,Delour recognized a $50,000 gain on the sale of business land.How is this gain characterized on Delour's tax return?

Lenoci Inc.paid $310,000 for equipment three years ago.This year,it sold the equipment for $200,000.Through date of sale,accumulated book depreciation was $93,840 and accumulated tax depreciation was $147,327.Which of the following statements is true?