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Exam 8: Property Dispositions

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Question 41

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Twelve years ago,Mr.and Mrs.Bathgate purchased a business.This year,they sold the business for $750,000 lump-sum payment.The business had the following balance sheet assets. As a result of the sale,the Bathgates should recognize:

A) $324,900 ordinary gain.
B) $104,800 ordinary gain and $220,100 capital gain.
C) $51,000 ordinary gain and $273,900 Section 1231 gain.
D) None of the choices are correct.

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Question 42

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For tax purposes,every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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Question 43

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Rizzi Corporation sold a capital asset with a $692,000 book and tax basis for $650,000 cash.This was Rizzi's only asset sale during the year.The sale results in:

Several years ago,Nipher paid $70,000 to purchase equipment to use in its business.This year,it sold the equipment for $76,500.Accumulated MACRS depreciation through date of sale was $18,000.Determine the amount and character of Nipher's gain recognized.

Milton Inc.recognized a $16,900 gain on sale of depreciable equipment held for three years.If Milton's accumulated MACRS depreciation on the equipment is $16,900 or more,the entire gain is ordinary income.

Blitza Inc.owned real property used for 12 years in its business that was subject to a $294,500 nonrecourse mortgage.Blitza failed to make timely mortgage payments,so the creditor foreclosed.At date of foreclosure,Blitza's basis in the property was $300,000,and the property's appraised FMV was $260,000.Which of the following statements is true?

Nilex Company sold three operating assets this year.Nilex recognized a $14,100 Section 1231 loss on the first sale,a $20,000 Section 1231 loss on the second sale,and a $19,600 Section 1231 gain on the third sale.Which of the following statements is true?

Hugo Inc.,a calendar year taxpayer,sold two operating assets this year.The first sale generated a $38,700 Section 1231 gain,and the second sale generated a $59,400 Section 1231 loss.As a result of these sales,Hugo should recognize:

Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.

Benlow Company,a calendar year taxpayer,sold two operating assets this year.The first sale generated a $19,200 Section 1231 loss,and the second sale generated a $33,600 Section 1231 gain.As a result of these sales,Benlow should recognize:

This year,Adula Company sold equipment purchased in 2012 at a cost of $117,200.Accumulated depreciation through date of sale was $33,000.Which of the following statements is false?

McOwen Inc.reported $6,029,400 net income before tax on this year's financial statements prepared in accordance with GAAP.The corporation's records reveal the following information. A tornado destroyed an office building and its contents.McOwen's book basis in the building and contents was $4,100,000 and its tax basis in the building and contents was $1,539,000.McOwen's reimbursement from its insurance company was $1 million. Four years ago,McOwen realized a $90,000 gain on the sale of investment property and elected the installment sale method to report the gain for tax purposes.Its gross profit percentage is 37.45%,and it received a $40,000 principal payment on its installment note this year. Net income per books includes a $13,670 net capital gain.McOwen has a $63,000 capital loss carryforward into the current year. Depreciation expense per books was $111,400,and MACRS depreciation was $398,100. Compute McOwen's taxable income.

Mr.Quick sold marketable securities with a $112,900 tax basis to his son for $95,000 cash.Two years later,the son sold the securities through his broker for $90,000.Compute the son's loss recognized on sale.

The sale of business inventory always generates ordinary income or loss.

Ms.Cregg has a $43,790 basis in 2,460 shares of ABD Inc.common stock.ABD recently declared bankruptcy and announced that its common stock is worthless.As a result,Ms.Cregg can recognize a $43,790 ordinary loss.

Mrs.Lex realized a $78,400 gain on sale of investment land to S&T,which issued a 10-year note in full payment.Mrs.Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.

N&B Inc.sold land worth $385,000.The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land.N&B's amount realized on sale is $385,000.

Dender Company sold business equipment with a $386,000 initial cost basis and $171,000 accumulated tax depreciation.Compute Dender's recaptured ordinary income and Section 1231 gain or loss recognized if the amount realized on sale was: a.$200,000 b.$300,000 c.$400,000

Philp Inc.sold equipment with a $132,900 adjusted tax basis for $200,000.The purchaser paid $20,000 in cash and assumed Philp's $180,000 mortgage on the asset.Compute Philp's net cash flow from the sale assuming a 35% tax rate.

Mr.and Mrs.Marley operate a small business.This year,the Marleys sold a commercial office building used in their business for $1.1 million.They purchased the building in 2003 for a cost of $900,000 and have deducted $300,000 MACRS depreciation through date of sale.The Marleys should characterize the $500,000 gain recognized on sale as: