Question 1

Sandra sold some equipment for $10,000 in cash, $1,000 of office products, the buyer assumption of her $1,500 loan, and incurred selling expenses of $500. What is the Sandra's amount realized in the transaction?

Accepted Answer

The answer of Sandra sold some equipment for $10,000 in...

Question 2

Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?

Accepted Answer

The answer of Explain whether the sale of a machine...

Question 3

Which of the following is not True regarding installment sales?

Accepted Answer

Depreciation recapture is not eligible for installment sale treatment and must be reported as ordinary income in the year of sale.

Question 4

Which of the following is True regarding disallowed losses between related taxpayers?

Accepted Answer

The tax laws essentially treat related parties as the same taxpayer, which means that disallowed losses between related taxpayers are not recognized until the related parties are not related anymore. This is done to prevent related parties from transferring losses to each other and reducing their overall tax liability. The holding period and basis of the seller do not carry over to the buyer, and the seller's realized loss is not deferred until the buyer sells the assets.

Question 5

Alexandra sold equipment that she uses in her business for $100,000. Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense. What is the amount and character of Alexandra's gain or loss?

Accepted Answer

The answer of Alexandra sold equipment that she uses in...

Question 6

Which of the following may qualify as an installment sale?

Accepted Answer

Assets used in a business qualify for installment sale treatment, although depreciation recapture is ineligible.

Question 7

Frederique sold furniture that she uses in her business for $15,000. Frederique bought the furniture a few years ago for $40,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Frederique's gain or loss?

Accepted Answer

The answer of Frederique sold furniture that she uses in...

Question 8

Gainesville LLC sold the following business assets during the current year: 
(1) machinery, $20,000 cost basis, $4,000 depreciation, proceeds $22,000; 
(2) automobile, $15,000 cost basis, $12,000 depreciation, proceeds $7,000; 
(3) equipment, $15,000 cost basis, $10,000 depreciation, proceeds $4,000; 
(4) computer equipment, $35,000 cost basis, $16,000 depreciation, proceeds $15,000; 
(5) Winchester had unrecaptured §1231 losses of $5,000 in the prior 5 years. 
What is the amount and character of Winchester's gains and losses before the 1231 netting process?

Accepted Answer

The answer of Gainesville LLC sold the following business assets...

Question 9

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Accepted Answer

The gain recognized in each year is calculated as follows; the gross profit percentage is multiplied by the amount realized in each year to determine the recognized gain. The gross profit percentage is the gain realized over the total amount realized. The $50,000 gain realized is the $300,000 amount realized ($150,000 cash plus $150,000 note) less the $250,000 adjusted basis. In the current year, the $150,000 proceeds (cash) is multiplied by the 16.67 percent gross profit percentage to determine the $25,000 gain recognized.

Question 10

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 11

Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten 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 12

Silver sold machinery to Gold, a related entity, which it used in its business for $55,000. Silver bought the equipment a few years ago for $50,000 and has claimed $15,000 of depreciation expense. What is the amount and character of Silver's gain?

Accepted Answer

The answer of Silver sold machinery to Gold, a related...

Question 13

Sunshine LLC sold furniture for $75,000. Sunshine bought the furniture for $90,000 several years ago and has claimed $25,000 of depreciation expense on the machine. What is the amount and character of Sunshine's gain or loss?

Accepted Answer

The answer of Sunshine LLC sold furniture for $75,000. Sunshine...

Question 14

Jessie sold a piece of land held for investment for $250,000. Jessie bought the land two years ago for $195,000. What is the amount and character of Jessie's gain?

Accepted Answer

The answer of Jessie sold a piece of land held...

Question 15

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

Accepted Answer

The answer of Suzanne, an individual, began business four years...

Question 16

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

Accepted Answer

The answer of Andrew, an individual, began business four years...

Question 17

Andrea sold a piece of machinery she used in her business for 9 months. The amount realized was $50,000 and the adjusted basis was $55,000. What is Andrea's gain or loss realized and what is the character of the gain or loss?

Accepted Answer

The answer of Andrea sold a piece of machinery she...

Question 18

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' tax adjusted basis for the computer?

Accepted Answer

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

Question 19

Sadie sold 10 shares of stock to her brother, George, for $500 sixteen months ago. Sadie had purchased the stock for $600 two years earlier. If George sells the stock for $700, what is the amount and character of his recognized gain or loss in the current year?

Accepted Answer

Sadie's loss of $100 is deferred and her brother receives a dual basis in the stock. If he sells the stock at a gain, he receives a $600 carryover basis from Sadie. If he sells the stock at a loss he receives a $500 cost basis in the stock. George's holding period begins when he buys the stock, so he receives a $100 ($700 proceed less $600 basis) long-term gain on the sale.

Question 20

Bull Run sold a computer for $1,200 on November 10ᵗʰ of the current year. The computer was purchased for $2,800. Bull Run had taken $1,000 of depreciation deductions. What is Bull Run's gain or loss realized on the computer?

Accepted Answer

The answer of Bull Run sold a computer for $1,200...

Quiz 11: Property Dispositions