___________________________________________________________________________
1.
When ch7
Student: the buyer assumes the seller's liability, the seller includes this amount in computing the amount realized from the sale. True False
2.
The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale. True False
3.
Property owned by a taxpayer and used either for personal purposes, investment, or in a trade or business is a capital asset. True False
4.
A computer used exclusively in a sole proprietor's business is a capital asset. True False
5.
Real property held for investment is a capital asset. True False
6.
Inventory on hand at the end of the year is Section 1231 property. True False
7.
Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year. True False
8.
The donee's basis in depreciated property (when the FMV at the time of the gift is less than the donor's basis) is FMV at the time of the gift. True False
9.
The holding period for property acquired by inheritance begins on the date of the decedent's death. True False
10. The holding period of an asset starts on the date acquired and ends on the day the asset is sold. True False
11. Short-term capital losses first reduce 28% gains, then 25% gains, and then regular long-term capital gains. True False
12. If the property's fair market value at the date of the gift is lower than the adjusted basis, then the property's basis for determining loss is its fair market value on that date. True False
13. Unused capital losses in any one year carry forward indefinitely to offset any future short-term or long-term gains. True False
14. For assets sold after December 31, 2007, the maximum gain rate applied to a taxpayer in the 15% regular tax bracket is 0%. True False
15. To qualify as Section 1231 property, the property must be used in a taxpayer's trade or business and must be held for more than one year. True False
16. If Section 1231 losses exceed Section 1231 gains, the excess is treated as an ordinary loss. True False
17. The purpose of Code Sections 1245 and 1250 recapture provisions is to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions. True False
18. If the taxpayer's aggregate Section 1231 gains for the year exceed aggregate Section 1231 losses for the year, all such gains and losses are considered to be ordinary. True False
19. If a taxpayer has a net Section 1231 loss for the year, all Section 1231 gains and losses are treated as being capital gains and losses. True False
20. The basis of inherited property to the beneficiary is the FMV at the date of death or alternate valuation date. True False
21. If a taxpayer cannot specifically identify which shares of stock were sold, the average cost of all shares held is used as the adjusted basis of the shares that were sold. True False
22. The taxpayer reports a worthless security as a long-term capital loss in the year the security becomes worthless. True False
23. If the taxpayer has capital gain distributions from a mutual fund and no other capital gain transactions for the year, a Schedule D is not required to be prepared. True False
24. The double-category average cost method can be used to calculate the basis of shares held in a mutual fund. True False
25. To figure the gain or loss from the sale of property received as a gift, the donor's adjusted basis at the time of the gift is the basis to the donee. True False
26. Before the tax implications of asset sales can be determined, which of the following must be determined? A. B. C. D. Assets must be classified as either personal, trade or business, or investment assets. The length of time the taxpayer owned the property. Whether the assets are subject to depreciation. All of the above.
27. Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land. Patrice's basis in the land is $40,000. What is the gain or loss she will recognize on the sale? A. B. C. D. $3,000 gain. $10,000 gain. $17,000 loss. $17,000 gain.
28. A taxpayer purchased land in 2004 for $85,000 and sold it in 2009 for $65,000 cash. The buyer also assumed the mortgage of $30,000. What is the amount of gain on the sale of the land? A. B. C. D. $10,000. $20,000. $95,000. $115,000.
29. The gain or loss on land sold within one year of purchase is recorded on which one of the following forms or schedules? A. Form 4797 if the sale was an asset held for investment purposes by a taxpayer who is a sole proprietor. B. Form 4797 if the sale was an asset used in a trade or business by a sole proprietor. C. Schedule D if the sale was an asset used in a trade or business by a sole proprietor who also files a Schedule C. D. Schedule C if the sale was an asset used in a trade or business of a sole proprietorship. 30. Which one of the following is Section 1231 property? A. B. C. D. Accounts receivable. Copyright owned by an author. Inventory. A building used in a trade or business.
31. Which one of the following is a capital asset? A. B. C. D. Household furnishings. Business inventory. A non-musical copyright created by the taxpayer. Rental property.
32. What is the basis of artistic works that have been gifted to another by the creator? A. Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift. B Artistic works are not capital assets for the creator but are capital assets in the hands of the recipient if the . creator gave the artistic works as a gift. C. Artistic works are capital assets to the creator if they are sold to an unrelated person. D. Artistic works are capital assets if they were available for sale in an art gallery. 33. Section 1231 property is: A. Property used in a trade or business that is subject to depreciation and is held for more than one year. B. Property used in a trade or business that may or may not be subject to depreciation and held for less than one year. C. All property used in a trade or business regardless of how long the asset is held. D. Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year. 34. Juanita is a sole proprietor who has some outstanding receivables she wishes to sell. The receivables have a $16,000 FMV and a basis of $10,000. Juanita sells the receivables for $12,500. What gain or loss does Juanita recognize on the sale? A. B. C. D. $3,500 capital loss. $3,500 ordinary loss. $2,500 capital gain. $2,500 ordinary gain.
35. Marquez purchased some equipment for $48,750 on August 15, 2008. He decided he did not need the equipment so he sold it on June 13, 2009 for $46,500. The equipment was subject to depreciation of $6,964 for 2008 and 2009. What gain or loss will Marquez recognize on the sale of the equipment? A. B. C. D. $2,250 ordinary loss. $2,250 capital loss. $4,714 ordinary gain. $4,714 capital gain.
36. Lourdes, a sole proprietor, collected $8,650 on November 21, 2009 on some of her outstanding receivables. Her basis in these receivables was $0. What is the gain or loss Lourdes recognizes for 2009? A. B. C. D. No gain or loss as the payments are within the normal course of business. A short-term gain as the payments are from receivables that are always considered short-term. A short-term loss as the FMV is greater than the payments received on the receivables. An ordinary gain because the receivables had a FMV greater than the basis of the receivables.
37. Which of the following statements is correct regarding the sale of ordinary assets? A. The sale of inventory for a profit is considered to be a sale of an ordinary asset. B. The sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset. C. The sale of business property held for more than a year is a sale of an ordinary asset. D. The sale of any business property regardless of holding period is a sale of an ordinary asset. 38. On which form or schedule is the selling of inventory related to the course of business recorded for a sole proprietor? A. B. C. D. Form 4797. Schedule SE. Schedule C. Schedule D.
39. In 2001, Susan purchased 200 shares of Hi-Style stock as an investment. The stock cost $11,000. In 2009 when the fair market value was $13,000, Susan gave the stock to her daughter, Daniele. If no gift tax is paid and Daniele sells the stock for $14,000, she will recognize: A. B. C. D. no gain or loss. a $1,000 gain. a $2,000 gain. a $3,000 gain.
40. Brenda gave her son, Christopher 700 shares of Creative Marketing, Inc. common stock on May 26, 2008. Brenda originally paid $9,000 for the stock on April 15, 2008. At the date of the gift, the fair market value of the stock was $8,500. If no gift tax is paid and Christopher sells the stock for $5,500 on May 26, 2009, he will recognize: A. B. C. D. a short-term capital loss. a long-term capital loss. an ordinary loss. no loss because Brenda already recognized the loss when she gave the stock to Christopher.
41. Hiroko, a single taxpayer, has wage income of $50,000. In addition, she has $6,000 in long-term capital losses, $5,000 in long-term capital gains, and $3,000 in short-term capital gains. What is Hiroko's AGI for 2009? A. B. C. D. $38,000. $48,000. $52,000. $55,000.
42. Diane gifted 100 shares of Runners Link common stock with a FMV of $8,000 to her brother, Sean. The stock originally cost Diane $11,000. Sean later sells the stock on the open market for $9,000. Sean recognizes: A. B. C. D. no gain or loss. a $1,000 gain. a $2,000 loss. a $2,000 gain.
43. For capital assets sold after December 31, 2007, the applicable rates for calculating the tax due on a gain are: A. B. C. D. 0%, 15%, 25% and 28%. 5%, 15%, 25% and 28%. 5%, 25%, 28% and 35%. 15%, 25%, 28% and 35%.
44. Maysoon, a single taxpayer, has wage income of $50,000. She also has a short-term capital loss of $5,000, a short-term capital gain of $2,000, and a long-term capital gain of $3,000. What is Maysoon's AGI for 2009? A. B. C. D. $47,000. $50,000. $52,000. $53,000.
45. Gilberto invested in a mid-size local company with gross assets of $16,000,000. Gilberto purchased 1,000 shares for $48,000 in 1997. In 2009, Gilberto sold the stock for $78,000. How is the gain treated for tax purposes? A. $30,000 capital gain, taxed at preferential rates. B. $15,000 excluded from gross income under Section 1202 with the remaining gain recognized and taxed at regular tax rates. C. $15,000 excluded from gross income under Section 1202 and $15,000 taxed at 28%. D. $15,000 excluded from gross income under Section 1202 and $15,000 taxed at preferential rates. 46. The top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles, sold after May 5, 2003 are: A. B. C. D. 0%, 15%. 15%, 25%. 15%, 28%. 25%, 28%.
47. Glenn sells a piece of equipment used in his business for $31,500. The equipment was purchased on July 1, 2007, at a cost of $22,000. Glenn has taken $6,600 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Glenn? A. B. C. D. $6,600 ordinary income under Section 1245 and $9,500 Section 1231 gain. $9,500 Section 1231 gain. $16,100 ordinary income under Section 1245. $16,100 Section 1231 gain.
48. Matthew bought a 4-unit apartment building in July 2000 for $360,000 and sold it for $480,000 in 2009. There was $116,712 of accumulated straight-line depreciation on the apartment building. Assuming that Matthew is in the 33% tax bracket, how much of his gain is taxed at 25%? A. B. C. D. $0. $116,712. $120,000. $236,712.
49. Patel buys a piece of sculpture from a collector for resale in his gallery. He purchased the sculpture for $5,000 and sold it 18 months later for $9,000. What is the nature and amount of the gain on the sale? A. B. C. D. $4,000 Section 1245 gain. $4,000 gain subject to a 28% tax rate. $4,000 ordinary income. $5,000 ordinary gain and $4,000 Section 1231 gain.
50. Jake purchased a $300,000 earthmover for his business. He sold the earthmover for $245,000 after taking $210,000 of depreciation. What is the nature and amount of the gain or loss on the sale? A. B. C. D. $55,000 Section 1245 ordinary income and $100,000 Section 1231 gain. $90,000 Section 1245 ordinary income and $65,000 Section 1231 gain. $155,000 Section 1231 gain. $155,000 Section 1245 ordinary income.
51. In 2003, Indira purchased land for $87,000 for use in her landscape business. She sold it in 2009 for $93,000. If Indira has no other sales of business or trade property, how will this gain be taxed? A. B. C. D. $6,000 short-term capital gain. $6,000 long-term capital gain. $6,000 ordinary income. $6,000 Section 1231 gain.
52. On May 1, 2008, Kelalani purchased land for $93,000 for use in her business. She sold it on May 2, 2009, for $87,000. If there are no other sales of business or trade property, how is this loss treated for tax purposes on Kelalani's return? A. B. C. D. $6,000 short-term capital loss. $6,000 long-term capital loss. $6,000 ordinary loss. $6,000 Section 1231 loss.
53. Sylvio purchased an apartment building as an investment in 2003 for $383,500 and sold it for $475,000 in 2009. He reported $40,436 of allowed accumulated straight-line depreciation. If Sylvio is in the highest tax bracket for ordinary income, how much of his gain is taxed at 25%? A. B. C. D. $0. $40,436. $91,500. $131,936.
54. Keisha sold 200 shares of Chico's stock in 2009 for $22,500 and received a 1099-B to record the sale of the shares. Keisha's investment portfolio includes the following purchases of Chico's stock: 2000 100 shares at $100 per share 2001 50 shares at $110 per share 2002 125 shares at $130 per share 2005 75 shares at $125 per share Assuming Keisha does not identify which shares she sold, she will recognize A. B. C. D. no gain or loss. $500 gain. $1,000 loss. $3,125 loss.
55. Kwon-Lee sold 200 shares held in FNP Mutual Fund in 2009 for $22,500 and received a 1099-B to record the sale of the shares. Kwon-Lee's investment portfolio includes the following purchases of FNP Mutual Fund stock: 1999 100 shares at $100 per share 2002 50 shares at $110 per share 2004 125 shares at $130 per share 2005 75 shares at $125 per share Assuming Kwon-Lee uses the single category average cost method, he will recognize A. B. C. D. no gain or loss. $500 gain. $1,000 loss. $3,125 loss.
56. Anike received property as part of an inheritance from her father who passed away on March 10, 2009. The property was purchased by her father on July 3, 2008, for $156,000. Anike sold the property on June 30, 2009, for $168,000. At the date of his death the property had a FMV of $154,000. What gain, if any, will Anike pick up on her return for 2009? A. B. C. D. no gain is recognized on the sale of property sold within 1 year of inheritance. $3,000 long-term gain. $12,000 long-term gain. $14,000 long-term gain.
57. Renita purchased 500 shares in Prompt Messenger Services for $12,000 on November 21, 2008. The company went bankrupt on June 13, 2009, with no hope of recovery for the shareholders. On what date is the stock deemed to be worthless and what is the nature of the loss? A. B. C. D. December 31, 2008, short- term loss in 2008. December 31, 2009, short- term loss in 2009. December 31, 2009, long- term loss in 2009. June 13, 2009, short- term loss in 2009.
58. Dan sold 200 shares (assume 100 are long-term) of Elite Mutual Fund on July 26, 2009 for $22,500 and received a 1099-B to record the sale of the shares. Dan's investment portfolio includes the following purchases of Elite Mutual Fund: May 20, 2007 50 shares at $100 per share March 29, 2008 50 shares at $110 per share October 21, 2008 50 shares at $130 per share February 22, 2009 100 shares at $125 per share Assuming Dan uses the double-category average cost method, and the shares purchased in 2008 are longterm, Dan will recognize: A. B. C. D. no short- term gain or loss but a $667 long- term loss. no short- term gain or loss but a $667 long- term gain. no long- term gain or loss but a $667 short- term gain. no long- term gain or loss but a $667 short- term loss.
59. Which of the following statements is incorrect regarding the gain or loss from the sale of property received as a gift? A. If the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the gain is the donor's basis. B. If the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the loss is the FMV of the asset. C. If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the FMV of the asset. D.If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the donor's adjusted basis. 60. Joe received a parcel of land as a gift from his sister, Lisa, in 2004. At the time of the gift, the land had a FMV of $10,000. Lisa purchased the land in 2000 for $13,000. If Joe sells the land in 2009 for $22,450, he will report a A. B. C. D. $9,450 ordinary gain. $9,450 capital gain. $12,450 capital gain. $19,540 capital gain.
61. In 2009, Marty has a net short-term capital loss of $1,000, a net long-term capital loss of $22,000, and wage income of $58,000. a. What is Marty's capital loss deduction for 2009? b. What amount of the capital loss qualifies as a carryover? c. What is Marty's total income for 2009 before additions/deductions for adjusted gross income?
62. Otis, the taxpayer, has the following capital gains and losses for the year: Short-term capital loss $2,500 Short-term capital gain $1,000 Long-term capital loss $3,000 Long-term capital gain $2,000 a. What is his net short-term gain/loss? b. What is his net long-term gain/loss? c. What amount of the gain/loss is entered on his 1040, (line 13) Capital gain or (loss) from Schedule D?
63. Mikeala has taxable income of $96,000, without consideration of capital gain or loss transactions. Mikeala has a short-term capital gain of $10,000, a short-term capital gain of 4,000, and a long-term capital loss of $2,000. a. What is the effect of the capital gain or loss transactions on taxable income? b. What is the amount and nature of any carryover? c. Assuming none of the gains or losses are from collectibles or unrecaptured Section 1250 property, at what tax rate will the gains or losses be taxed to Mikeala? (Mikeala is in the 33% tax bracket for ordinary income.)
64. Santresa sells depreciable equipment for $68,000, the property's FMV. The adjusted basis for the equipment was $41,000, and she had originally purchased the equipment for $72,000. What are the tax consequences of this sale on Santresa's 1040 tax return?
65. Sara owns an automobile for personal use. The adjusted basis is $14,000 and the FMV is $12,500. Sara has owned the car for two years. a. Calculate the realized and recognized gain or loss if Sara sells the vehicle for $12,500. b. Calculate the realized and recognized gain or loss if Sara sells the vehicle for $15,000
66. Jess sold a piece of equipment she used in her business. The equipment cost Jess $51,500 several years ago and had accumulated depreciation taken in the amount of $20,300. Jess sold the equipment for $35,000. a. What is her Section 1245 property gain? b. How much of the gain is subject to recapture at the 25% tax rate? c. How much of the gain is ordinary income?
67. Dancing Feet Company, a sole proprietorship, acquired a building for use in the business on April 15, 2007, for $475,000. Straight-line depreciation allowed was $25,386. Dancing Feet Company sold the building for $380,000 on May 1, 2009. a. What is the adjusted basis of the property at the time of the sale? b. What is the amount and nature of the gain (loss) upon the sale of the building?
68. Jim, the owner of a sole proprietorship, sold the following assets in 2009:
Determine the amount and the character of the realized and recognized gain or loss from the sale of each asset.
69. Jeffery, the owner of a remodeling company and a sole proprietor, sold a commercial building he used in his business. He acquired the building on February 15, 2006 for $420,000 and sold it December 30, 2009, for $480,000. Jeffery had taken $41,294 in depreciation. Assume Jeffery is in the 33% tax bracket. a. Determine the adjusted basis, the amount and the character of the realized and recognized gain or loss from the sale of the building. Round calculations. b. At what tax rate is the gain or loss taxed?
70. Stephanie sold the following stock in 2009. She received a 1099-B from each of the companies to record the sale.
a. Determine the amount and the character of the realized and recognized gain or loss from the sale of each stock. b. How would the gains and losses be netted?
71. Keeley purchased 1,000 shares in FAM, Inc. for $10,000 on December 19, 2008. The company went bankrupt on July 10, 2009 with no hope of recovery for the shareholders. a. On what date is the stock deemed to be worthless? b. What is the nature of the loss?
72. Greg received a gift of 300 shares of stock from his sister, Terri. The stock cost Terri $30,000 five years ago. At the date of the gift, the stock is worth $22,500. a. If the stock is sold for $34,000, calculate the amount and nature of the gain or loss. b. If the stock is sold for $20,000, calculate the amount and nature of the gain or loss. c. If the stock is sold for $28,000, calculate the amount and nature of the gain or loss.
73. Majoo inherited property from his uncle on August 15, 2009. His uncle purchased the property on December 10, 2007 for $100,000. At the date of his death, the property's FMV was $102,000. Majoo sold the property on September 30, 2009 for $105,000. a. What is the gain on the sale of the property? b. What is the nature of the gain? Explain your answer.
74. Genevieve sold 300 shares of stock on June 13, 2009 for $52,400. She purchased the shares on the following dates: December 19, 2006 130 shares @ $90 per share February 13, 2007 80 shares @ $80 per share November 21, 2008 140 shares @ $70 per share a. Determine the amount and character of the recognized gain or loss on the sale of the stock. b. Assuming Genevieve is in the 33% tax bracket, at what tax rate is the gain or loss taxed in 2009? c. If Genevieve was in the 15% tax bracket, at what tax rate is the gain or loss taxed in 2009?
75. Anupay sold 900 shares of Stay-Rich Mutual fund for $85,600. She purchased shares in the mutual fund in the following years. 2004 200 shares @ $105 2005 300 shares @ $100 2006 200 shares @ $110 2007 300 shares @ $88 2008 100 shares @ $95 (all 2008 shares are considered to be held for > 1 year) a. Determine the amount of the gain or loss assuming Anupay uses the single category average cost method. b. Assuming there are no other Schedule D transactions, how much of a gain or loss will Anupay recognize on her Form 1040 for 2009?
ch7 Key
1. When the buyer assumes the seller's liability, the seller includes this amount in computing the amount realized from the sale. TRUE
Cruz - Chapter 07 #1 Learning Objective: 1
2.
The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale. FALSE
Cruz - Chapter 07 #2 Learning Objective: 1
3.
Property owned by a taxpayer and used either for personal purposes, investment, or in a trade or business is a capital asset. FALSE
Cruz - Chapter 07 #3 Learning Objective: 2
4.
A computer used exclusively in a sole proprietor's business is a capital asset. FALSE
Cruz - Chapter 07 #4 Learning Objective: 2
5.
Real property held for investment is a capital asset. TRUE
Cruz - Chapter 07 #5 Learning Objective: 2
6.
Inventory on hand at the end of the year is Section 1231 property. FALSE
Cruz - Chapter 07 #6 Learning Objective: 2
7.
Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year. FALSE
Cruz - Chapter 07 #7 Learning Objective: 2
8.
The donee's basis in depreciated property (when the FMV at the time of the gift is less than the donor's basis) is FMV at the time of the gift. FALSE
Cruz - Chapter 07 #8 Learning Objective: 4
9.
The holding period for property acquired by inheritance begins on the date of the decedent's death. FALSE
Cruz - Chapter 07 #9 Learning Objective: 4
10.
The holding period of an asset starts on the date acquired and ends on the day the asset is sold. FALSE
Cruz - Chapter 07 #10 Learning Objective: 4
11.
Short-term capital losses first reduce 28% gains, then 25% gains, and then regular long-term capital gains. TRUE
Cruz - Chapter 07 #11 Learning Objective: 4
12.
If the property's fair market value at the date of the gift is lower than the adjusted basis, then the property's basis for determining loss is its fair market value on that date. TRUE
Cruz - Chapter 07 #12 Learning Objective: 4
13.
Unused capital losses in any one year carry forward indefinitely to offset any future short-term or longterm gains. TRUE
Cruz - Chapter 07 #13 Learning Objective: 4
14.
For assets sold after December 31, 2007, the maximum gain rate applied to a taxpayer in the 15% regular tax bracket is 0%. TRUE
Cruz - Chapter 07 #14 Learning Objective: 4
15.
To qualify as Section 1231 property, the property must be used in a taxpayer's trade or business and must be held for more than one year. TRUE
Cruz - Chapter 07 #15 Learning Objective: 5
16.
If Section 1231 losses exceed Section 1231 gains, the excess is treated as an ordinary loss. TRUE
Cruz - Chapter 07 #16 Learning Objective: 5
17.
The purpose of Code Sections 1245 and 1250 recapture is provisions to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions. TRUE
Cruz - Chapter 07 #17 Learning Objective: 5
18.
If the taxpayer's aggregate Section 1231 gains for the year exceed aggregate Section 1231 losses for the year, all such gains and losses are considered to be ordinary. FALSE
Cruz - Chapter 07 #18 Learning Objective: 5
19.
If a taxpayer has a net Section 1231 loss for the year, all Section 1231 gains and losses are treated as being capital gains and losses. FALSE
Cruz - Chapter 07 #19 Learning Objective: 5
20.
The basis of inherited property to the beneficiary is the FMV at the date of death or alternate valuation date. TRUE
Cruz - Chapter 07 #20 Learning Objective: 6
21.
If a taxpayer cannot specifically identify which shares of stock were sold, the average cost of all shares held is used as the adjusted basis of the shares that were sold. FALSE
Cruz - Chapter 07 #21 Learning Objective: 6
22.
The taxpayer reports a worthless security as a long-term capital loss in the year the security becomes worthless. FALSE
Cruz - Chapter 07 #22 Learning Objective: 6
23.
If the taxpayer has capital gain distributions from a mutual fund and no other capital gain transactions for the year, a Schedule D is not required to be prepared. TRUE
Cruz - Chapter 07 #23 Learning Objective: 6
24.
The double-category average cost method can be used to calculate the basis of shares held in a mutual fund. TRUE
Cruz - Chapter 07 #24 Learning Objective: 6
25.
To figure the gain or loss from the sale of property received as a gift, the donor's adjusted basis at the time of the gift is the basis to the donee. FALSE
Cruz - Chapter 07 #25 Learning Objective: 6
26.
Before the tax implications of asset sales can be determined, which of the following must be determined? A. B. C. D. Assets must be classified as either personal, trade or business, or investment assets. The length of time the taxpayer owned the property. Whether the assets are subject to depreciation. All of the above.
Cruz - Chapter 07 #26 Learning Objective: 1
27.
Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land. Patrice's basis in the land is $40,000. What is the gain or loss she will recognize on the sale? A. B. C. D. $3,000 gain. $10,000 gain. $17,000 loss. $17,000 gain.
Cruz - Chapter 07 #27 Learning Objective: 1
28.
A taxpayer purchased land in 2004 for $85,000 and sold it in 2009 for $65,000 cash. The buyer also assumed the mortgage of $30,000. What is the amount of gain on the sale of the land? A. B. C. D. $10,000. $20,000. $95,000. $115,000.
Cruz - Chapter 07 #28 Learning Objective: 1
29.
The gain or loss on land sold within one year of purchase is recorded on which one of the following forms or schedules? A. Form 4797 if the sale was an asset held for investment purposes by a taxpayer who is a sole proprietor. B. Form 4797 if the sale was an asset used in a trade or business by a sole proprietor. C. Schedule D if the sale was an asset used in a trade or business by a sole proprietor who also files a Schedule C. D. Schedule C if the sale was an asset used in a trade or business of a sole proprietorship.
Cruz - Chapter 07 #29 Learning Objective: 1
30.
Which one of the following is Section 1231 property? A. B. C. D. Accounts receivable. Copyright owned by an author. Inventory. A building used in a trade or business.
Cruz - Chapter 07 #30 Learning Objective: 2
31.
Which one of the following is a capital asset? A. B. C. D. Household furnishings. Business inventory. A non-musical copyright created by the taxpayer. Rental property.
Cruz - Chapter 07 #31 Learning Objective: 2
32.
What is the basis of artistic works that have been gifted to another by the creator? A. Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift. B Artistic works are not capital assets for the creator but are capital assets in the hands of the recipient if . the creator gave the artistic works as a gift. C. Artistic works are capital assets to the creator if they are sold to an unrelated person. D. Artistic works are capital assets if they were available for sale in an art gallery.
Cruz - Chapter 07 #32 Learning Objective: 2
33.
Section 1231 property is: A. Property used in a trade or business that is subject to depreciation and is held for more than one year. B. Property used in a trade or business that may or may not be subject to depreciation and held for less than one year. C. All property used in a trade or business regardless of how long the asset is held. D. Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.
Cruz - Chapter 07 #33 Learning Objective: 2
34.
Juanita is a sole proprietor who has some outstanding receivables she wishes to sell. The receivables have a $16,000 FMV and a basis of $10,000. Juanita sells the receivables for $12,500. What gain or loss does Juanita recognize on the sale? A. B. C. D. $3,500 capital loss. $3,500 ordinary loss. $2,500 capital gain. $2,500 ordinary gain.
Cruz - Chapter 07 #34 Learning Objective: 3
35.
Marquez purchased some equipment for $48,750 on August 15, 2008. He decided he did not need the equipment so he sold it on June 13, 2009 for $46,500. The equipment was subject to depreciation of $6,964 for 2008 and 2009. What gain or loss will Marquez recognize on the sale of the equipment? A. B. C. D. $2,250 ordinary loss. $2,250 capital loss. $4,714 ordinary gain. $4,714 capital gain.
Cruz - Chapter 07 #35 Learning Objective: 3
36.
Lourdes, a sole proprietor, collected $8,650 on November 21, 2009 on some of her outstanding receivables. Her basis in these receivables was $0. What is the gain or loss Lourdes recognizes for 2009? A. B. C. D. No gain or loss as the payments are within the normal course of business. A short-term gain as the payments are from receivables that are always considered short-term. A short-term loss as the FMV is greater than the payments received on the receivables. An ordinary gain because the receivables had a FMV greater than the basis of the receivables.
Cruz - Chapter 07 #36 Learning Objective: 3
37.
Which of the following statements is correct regarding the sale of ordinary assets? A. B. C. D. The sale of inventory for a profit is considered to be a sale of an ordinary asset. The sale of an asset outside the normal course of a trade or business is a sale of an ordinary asset. The sale of business property held for more than a year is a sale of an ordinary asset. The sale of any business property regardless of holding period is a sale of an ordinary asset.
Cruz - Chapter 07 #37 Learning Objective: 3
38.
On which form or schedule is the selling of inventory related to the course of business recorded for a sole proprietor? A. B. C. D. Form 4797. Schedule SE. Schedule C. Schedule D.
Cruz - Chapter 07 #38 Learning Objective: 3
39.
In 2001, Susan purchased 200 shares of Hi-Style stock as an investment. The stock cost $11,000. In 2009 when the fair market value was $13,000, Susan gave the stock to her daughter, Daniele. If no gift tax is paid and Daniele sells the stock for $14,000, she will recognize: A. B. C. D. no gain or loss. a $1,000 gain. a $2,000 gain. a $3,000 gain.
Cruz - Chapter 07 #39 Learning Objective: 6
40.
Brenda gave her son, Christopher 700 shares of Creative Marketing, Inc. common stock on May 26, 2008. Brenda originally paid $9,000 for the stock on April 15, 2008. At the date of the gift, the fair market value of the stock was $8,500. If no gift tax is paid and Christopher sells the stock for $5,500 on May 26, 2009, he will recognize: A. B. C. D. a short-term capital loss. a long-term capital loss. an ordinary loss. no loss because Brenda already recognized the loss when she gave the stock to Christopher.
Cruz - Chapter 07 #40 Learning Objective: 6
41.
Hiroko, a single taxpayer, has wage income of $50,000. In addition, she has $6,000 in long-term capital losses, $5,000 in long-term capital gains, and $3,000 in short-term capital gains. What is Hiroko's AGI for 2009? A. B. C. D. $38,000. $48,000. $52,000. $55,000.
Cruz - Chapter 07 #41 Learning Objective: 4
42.
Diane gifted 100 shares of Runners Link common stock with a FMV of $8,000 to her brother, Sean. The stock originally cost Diane $11,000. Sean later sells the stock on the open market for $9,000. Sean recognizes: A. B. C. D. no gain or loss. a $1,000 gain. a $2,000 loss. a $2,000 gain.
Cruz - Chapter 07 #42 Learning Objective: 6
43.
For capital assets sold after December 31, 2007, the applicable rates for calculating the tax due on a gain are: A. B. C. D. 0%, 15%, 25% and 28%. 5%, 15%, 25% and 28%. 5%, 25%, 28% and 35%. 15%, 25%, 28% and 35%.
Cruz - Chapter 07 #43 Learning Objective: 4
44.
Maysoon, a single taxpayer, has wage income of $50,000. She also has a short-term capital loss of $5,000, a short-term capital gain of $2,000, and a long-term capital gain of $3,000. What is Maysoon's AGI for 2009? A. B. C. D. $47,000. $50,000. $52,000. $53,000.
Cruz - Chapter 07 #44 Learning Objective: 4
45.
Gilberto invested in a mid-size local company with gross assets of $16,000,000. Gilberto purchased 1,000 shares for $48,000 in 1997. In 2009, Gilberto sold the stock for $78,000. How is the gain treated for tax purposes? A. $30,000 capital gain, taxed at preferential rates. B. $15,000 excluded from gross income under Section 1202 with the remaining gain recognized and taxed at regular tax rates. C. $15,000 excluded from gross income under Section 1202 and $15,000 taxed at 28%. D. $15,000 excluded from gross income under Section 1202 and $15,000 taxed at preferential rates.
Cruz - Chapter 07 #45 Learning Objective: 4
46.
The top tax rates for an individual with long-term capital gains on the sale of stock and on the sales of collectibles, sold after May 5, 2003 are: A. B. C. D. 0%, 15%. 15%, 25%. 15%, 28%. 25%, 28%.
Cruz - Chapter 07 #46 Learning Objective: 4
47.
Glenn sells a piece of equipment used in his business for $31,500. The equipment was purchased on July 1, 2007, at a cost of $22,000. Glenn has taken $6,600 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Glenn? A. B. C. D. $6,600 ordinary income under Section 1245 and $9,500 Section 1231 gain. $9,500 Section 1231 gain. $16,100 ordinary income under Section 1245. $16,100 Section 1231 gain.
Cruz - Chapter 07 #47 Learning Objective: 5
48.
Matthew bought a 4-unit apartment building in July 2000 for $360,000 and sold it for $480,000 in 2009. There was $116,712 of accumulated straight-line depreciation on the apartment building. Assuming that Matthew is in the 33% tax bracket, how much of his gain is taxed at 25%? A. B. C. D. $0. $116,712. $120,000. $236,712.
Cruz - Chapter 07 #48 Learning Objective: 5
49.
Patel buys a piece of sculpture from a collector for resale in his gallery. He purchased the sculpture for $5,000 and sold it 18 months later for $9,000. What is the nature and amount of the gain on the sale? A. B. C. D. $4,000 Section 1245 gain. $4,000 gain subject to a 28% tax rate. $4,000 ordinary income. $5,000 ordinary gain and $4,000 Section 1231 gain.
Cruz - Chapter 07 #49 Learning Objective: 5
50.
Jake purchased a $300,000 earthmover for his business. He sold the earthmover for $245,000 after taking $210,000 of depreciation. What is the nature and amount of the gain or loss on the sale? A. B. C. D. $55,000 Section 1245 ordinary income and $100,000 Section 1231 gain. $90,000 Section 1245 ordinary income and $65,000 Section 1231 gain. $155,000 Section 1231 gain. $155,000 Section 1245 ordinary income.
Cruz - Chapter 07 #50 Learning Objective: 5
51.
In 2003, Indira purchased land for $87,000 for use in her landscape business. She sold it in 2009 for $93,000. If Indira has no other sales of business or trade property, how will this gain be taxed? A. B. C. D. $6,000 short-term capital gain. $6,000 long-term capital gain. $6,000 ordinary income. $6,000 Section 1231 gain.
Cruz - Chapter 07 #51 Learning Objective: 5
52.
On May 1, 2008, Kelalani purchased land for $93,000 for use in her business. She sold it on May 2, 2009, for $87,000. If there are no other sales of business or trade property, how is this loss treated for tax purposes on Kelalani's return? A. B. C. D. $6,000 short-term capital loss. $6,000 long-term capital loss. $6,000 ordinary loss. $6,000 Section 1231 loss.
Cruz - Chapter 07 #52 Learning Objective: 5
53.
Sylvio purchased an apartment building as an investment in 2003 for $383,500 and sold it for $475,000 in 2009. He reported $40,436 of allowed accumulated straight-line depreciation. If Sylvio is in the highest tax bracket for ordinary income, how much of his gain is taxed at 25%? A. B. C. D. $0. $40,436. $91,500. $131,936.
Cruz - Chapter 07 #53 Learning Objective: 5
54.
Keisha sold 200 shares of Chico's stock in 2009 for $22,500 and received a 1099-B to record the sale of the shares. Keisha's investment portfolio includes the following purchases of Chico's stock: 2000 100 shares at $100 per share 2001 50 shares at $110 per share 2002 125 shares at $130 per share 2005 75 shares at $125 per share Assuming Keisha does not identify which shares she sold, she will recognize A. B. C. D. no gain or loss. $500 gain. $1,000 loss. $3,125 loss.
Cruz - Chapter 07 #54 Learning Objective: 6
55.
Kwon-Lee sold 200 shares held in FNP Mutual Fund in 2009 for $22,500 and received a 1099-B to record the sale of the shares. Kwon-Lee's investment portfolio includes the following purchases of FNP Mutual Fund stock: 1999 100 shares at $100 per share 2002 50 shares at $110 per share 2004 125 shares at $130 per share 2005 75 shares at $125 per share Assuming Kwon-Lee uses the single category average cost method, he will recognize A. B. C. D. no gain or loss. $500 gain. $1,000 loss. $3,125 loss.
Cruz - Chapter 07 #55 Learning Objective: 6
56.
Anike received property as part of an inheritance from her father who passed away on March 10, 2009. The property was purchased by her father on July 3, 2008, for $156,000. Anike sold the property on June 30, 2009, for $168,000. At the date of his death the property had a FMV of $154,000. What gain, if any, will Anike pick up on her return for 2009? A. B. C. D. no gain is recognized on the sale of property sold within 1 year of inheritance. $3,000 long-term gain. $12,000 long-term gain. $14,000 long-term gain.
Cruz - Chapter 07 #56 Learning Objective: 6
57.
Renita purchased 500 shares in Prompt Messenger Services for $12,000 on November 21, 2008. The company went bankrupt on June 13, 2009, with no hope of recovery for the shareholders. On what date is the stock deemed to be worthless and what is the nature of the loss? A. B. C. D. December 31, 2008, short- term loss in 2008. December 31, 2009, short- term loss in 2009. December 31, 2009, long- term loss in 2009. June 13, 2009, short- term loss in 2009.
Cruz - Chapter 07 #57 Learning Objective: 6
58.
Dan sold 200 shares (assume 100 are long-term) of Elite Mutual Fund on July 26, 2009 for $22,500 and received a 1099-B to record the sale of the shares. Dan's investment portfolio includes the following purchases of Elite Mutual Fund: May 20, 2007 50 shares at $100 per share March 29, 2008 50 shares at $110 per share October 21, 2008 50 shares at $130 per share February 22, 2009 100 shares at $125 per share Assuming Dan uses the double-category average cost method, and the shares purchased in 2008 are long-term, Dan will recognize: A. B. C. D. no short- term gain or loss but a $667 long- term loss. no short- term gain or loss but a $667 long- term gain. no long- term gain or loss but a $667 short- term gain. no long- term gain or loss but a $667 short- term loss.
Cruz - Chapter 07 #58 Learning Objective: 6
59.
Which of the following statements is incorrect regarding the gain or loss from the sale of property received as a gift? A. If the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the gain is the donor's basis. B. If the FMV is less than the donor's adjusted basis at the time of the gift, the basis for figuring the loss is the FMV of the asset. C. If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the FMV of the asset. D. If the FMV is equal to or more than the donor's adjusted basis, the basis for any gain or loss on a sale is the donor's adjusted basis.
Cruz - Chapter 07 #59 Learning Objective: 6
60.
Joe received a parcel of land as a gift from his sister, Lisa, in 2004. At the time of the gift, the land had a FMV of $10,000. Lisa purchased the land in 2000 for $13,000. If Joe sells the land in 2009 for $22,450, he will report a A. B. C. D. $9,450 ordinary gain. $9,450 capital gain. $12,450 capital gain. $19,540 capital gain.
Cruz - Chapter 07 #60 Learning Objective: 6
61.
In 2009, Marty has a net short-term capital loss of $1,000, a net long-term capital loss of $22,000, and wage income of $58,000. a. What is Marty's capital loss deduction for 2009? b. What amount of the capital loss qualifies as a carryover? c. What is Marty's total income for 2009 before additions/deductions for adjusted gross income? a. $3,000 b. $20,000 c. $55,000
Cruz - Chapter 07 #61 Learning Objective: 4
62.
Otis, the taxpayer, has the following capital gains and losses for the year: Short-term capital loss $2,500 Short-term capital gain $1,000 Long-term capital loss $3,000 Long-term capital gain $2,000 a. What is his net short-term gain/loss? b. What is his net long-term gain/loss? c. What amount of the gain/loss is entered on his 1040, (line 13) Capital gain or (loss) from Schedule D? a. $1,500 loss b. $1,000 loss c. $2,500 loss
Cruz - Chapter 07 #62 Learning Objective: 4
63.
Mikeala has taxable income of $96,000, without consideration of capital gain or loss transactions. Mikeala has a short-term capital gain of $10,000, a short-term capital gain of 4,000, and a long-term capital loss of $2,000. a. What is the effect of the capital gain or loss transactions on taxable income? b. What is the amount and nature of any carryover? c. Assuming none of the gains or losses are from collectibles or unrecaptured Section 1250 property, at what tax rate will the gains or losses be taxed to Mikeala? (Mikeala is in the 33% tax bracket for ordinary income.) a. Increase of $12,000 short-term capital gain b. None c. 33%
Cruz - Chapter 07 #63 Learning Objective: 4
64.
Santresa sells depreciable equipment for $68,000, the property's FMV. The adjusted basis for the equipment was $41,000, and she had originally purchased the equipment for $72,000. What are the tax consequences of this sale on Santresa's 1040 tax return? Depreciation in the amount of $31,000 was taken on the equipment. The $27,000 gain is subject to Section 1245 recapture provisions because the gain is less than the depreciation taken. The entire $27,000 is considered Section 1245 ordinary income.
Cruz - Chapter 07 #64 Learning Objective: 5
65.
Sara owns an automobile for personal use. The adjusted basis is $14,000 and the FMV is $12,500. Sara has owned the car for two years. a. Calculate the realized and recognized gain or loss if Sara sells the vehicle for $12,500. b. Calculate the realized and recognized gain or loss if Sara sells the vehicle for $15,000 a. $12,500-$14,000 = $1,500 realized loss that is not deductible. b. $15,000- $14,000 = $1,000 realized and recognized taxable capital gain.
Cruz - Chapter 07 #65 Learning Objective: 4
66.
Jess sold a piece of equipment she used in her business. The equipment cost Jess $51,500 several years ago and had accumulated depreciation taken in the amount of $20,300. Jess sold the equipment for $35,000. a. What is her Section 1245 property gain? b. How much of the gain is subject to recapture at the 25% tax rate? c. How much of the gain is ordinary income? a. $3,800 b. $0 c. $3,800
Cruz - Chapter 07 #66 Learning Objective: 5
67.
Dancing Feet Company, a sole proprietorship, acquired a building for use in the business on April 15, 2007, for $475,000. Straight-line depreciation allowed was $25,386. Dancing Feet Company sold the building for $380,000 on May 1, 2009. a. What is the adjusted basis of the property at the time of the sale? b. What is the amount and nature of the gain (loss) upon the sale of the building? a. Adjusted basis: $475,000 - $25,386 = $449,614 b. $380,000 - $449,614 = $69,614 loss; Section 1231 ordinary loss
Cruz - Chapter 07 #67 Learning Objective: 5
68.
Jim, the owner of a sole proprietorship, sold the following assets in 2009:
Determine the amount and the character of the realized and recognized gain or loss from the sale of each asset. Truck: $48,000-$7,737 = $40,263 adjusted basis $35,000 - $40,263 = ($5,263) Section 1231 ordinary loss Trailer: $31,000 - $19,096 = $11,904 adjusted basis $24,000 - $11,904 = $12,096 gain subject to Section 1245 provisions taxed at ordinary rates to the amount of depreciation taken. Lathe: $75,000 - $35,645 = $39,355 adjusted basis $67,000 - $39,355 = $27,645 gain subject to Section 1245 provisions taxed at ordinary rates to the amount of depreciation taken.
Cruz - Chapter 07 #68 Learning Objective: 5
69.
Jeffery, the owner of a remodeling company and a sole proprietor, sold a commercial building he used in his business. He acquired the building on February 15, 2006 for $420,000 and sold it December 30, 2009, for $480,000. Jeffery had taken $41,294 in depreciation. Assume Jeffery is in the 33% tax bracket. a. Determine the adjusted basis, the amount and the character of the realized and recognized gain or loss from the sale of the building. Round calculations. b. At what tax rate is the gain or loss taxed?
b. Unrecaptured 1250 gain of $41,294 is taxed at 25% and the long-term capital gain of $60,000 is taxed at the 15% capital gain rate.
Cruz - Chapter 07 #69 Learning Objective: 5
70.
Stephanie sold the following stock in 2009. She received a 1099-B from each of the companies to record the sale.
a. Determine the amount and the character of the realized and recognized gain or loss from the sale of each stock. b. How would the gains and losses be netted?
Cruz - Chapter 07 #70 Learning Objective: 4 Learning Objective: 6
71.
Keeley purchased 1,000 shares in FAM, Inc. for $10,000 on December 19, 2008. The company went bankrupt on July 10, 2009 with no hope of recovery for the shareholders. a. On what date is the stock deemed to be worthless? b. What is the nature of the loss? a. Stock is deemed to be worthless on the last day of the year, 12/31/09 b. The loss is considered to be long-term, as the stock was deemed to be worthless on the last day of the year in which case Keeley held it for more than one year.
Cruz - Chapter 07 #71 Learning Objective: 6
72.
Greg received a gift of 300 shares of stock from his sister, Terri. The stock cost Terri $30,000 five years ago. At the date of the gift, the stock is worth $22,500. a. If the stock is sold for $34,000, calculate the amount and nature of the gain or loss. b. If the stock is sold for $20,000, calculate the amount and nature of the gain or loss. c. If the stock is sold for $28,000, calculate the amount and nature of the gain or loss. a. $4,000 long-term gain b. $2,500 long-term loss c. No gain/loss
Cruz - Chapter 07 #72 Learning Objective: 4 Learning Objective: 6
73.
Majoo inherited property from his uncle on August 15, 2009. His uncle purchased the property on December 10, 2007 for $100,000. At the date of his death, the property's FMV was $102,000. Majoo sold the property on September 30, 2009 for $105,000. a. What is the gain on the sale of the property? b. What is the nature of the gain? Explain your answer. a. The gain on the sale of the property is $3,000 ($105,000 - $102,000). b. The gain is considered to be long-term. The holding period of inherited property is considered to be held longer than one year regardless of how long the property was actually held.
Cruz - Chapter 07 #73 Learning Objective: 6
74.
Genevieve sold 300 shares of stock on June 13, 2009 for $52,400. She purchased the shares on the following dates: December 19, 2006 130 shares @ $90 per share February 13, 2007 80 shares @ $80 per share November 21, 2008 140 shares @ $70 per share a. Determine the amount and character of the recognized gain or loss on the sale of the stock. b. Assuming Genevieve is in the 33% tax bracket, at what tax rate is the gain or loss taxed in 2009? c. If Genevieve was in the 15% tax bracket, at what tax rate is the gain or loss taxed in 2009? a. $18,580 is a long-term gain and $9,420 is a short-term gain. b. The $18,580 is taxed at 15% and the $9,420 is taxed at 33%. c. The $9,420 is taxed at 25% but the $18,580 is not subject to tax for sales after 12/31/07.
Cruz - Chapter 07 #74 Learning Objective: 4
75.
Anupay sold 900 shares of Stay-Rich Mutual fund for $85,600. She purchased shares in the mutual fund in the following years. 2004 200 shares @ $105 2005 300 shares @ $100 2006 200 shares @ $110 2007 300 shares @ $88 2008 100 shares @ $95 (all 2008 shares are considered to be held for > 1 year) a. Determine the amount of the gain or loss assuming Anupay uses the single category average cost method. b. Assuming there are no other Schedule D transactions, how much of a gain or loss will Anupay recognize on her Form 1040 for 2009? a. Average cost: $108,900 /1,100 shares = $99 per share $99 per share 900 shares sold = $89,100 Cost Basis. $89,100 - $85,600 = $3,500 loss. b. $3,000 for 2009 with a carryover of $500 to 2010.
Cruz - Chapter 07 #75 Learning Objective: 6
ch7 Summary
Category Cruz - Chapter 07 Learning Objective: 1 Learning Objective: 2 Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Learning Objective: 6 # of Questions 75 6 9 5 19 17 21