ACC_4301_Solutions_to_Problems_(Chapter_16)

ACC_4301_Solutions_to_Problems_(Chapter_16) - PROBLEMS 19....

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
PROBLEMS 19. All the assets are capital assets because they do not fit any of the items listed in § 1221 as not capital assets. The antique truck is a ‘‘collectible. Therefore, the $12,000 loss ($35,000 sale price – $47,000 basis) is a long-term capital loss that would first be netted against any 28% long-term capital gain. The Blue Growth Fund $11,000 gain ($23,000 sale price – $12,000 basis) is a long-term capital gain that is potentially taxable at 0% and/or 15%. The Orange bonds are sold for a $7,250 gain ($42,000 proceeds – $750 interest income – $34,000 basis). The gain is a long-term capital gain potentially taxable at 0% and/or 15%. The sale of the Green stock results in a $2,000 ($11,000 sale price – $13,000 basis) short-term capital loss because the stock was held one year or less. The $750 interest income is includible in Eric’s gross income pp. 16-4, 16-5, and 16-20 to 1625 20. Since Revez is a dealer in antiques, the clock is presumed to be an item of inventory and, therefore, an ordinary asset. The $2,750 gain [$4,000 (amount realized) – $1,250 (basis)] would be an ordinary gain. If Revez wants the $2,750 gain to be a long-term capital gain, he would have to show objective evidence that he held the clock as an investment and, therefore, a capital asset. Such objective evidence might include not listing it as an inventory item on his books and records and not having a sale price on it in his shop. Nonetheless, achieving Revez’s objective would be quite difficult in these circumstances. pp. 16-4 to 16-7 21. Section 1221 defines what is not a capital asset. Included on the list is depreciable property or real estate used in a business. Renting real estate is treated as a business. Therefore, even though Gladwin is holding the property for appreciation (an investment motive), it is not a capital asset. See Chapter 17 for further details on the proper characterization of the $2,500,000 gain from disposition of the building. pp. 16-4 and 16- 5 22. All of the assets are capital assets because they are all either personal use or investment activity assets. The common stock (a.) is a typical investment activity capital asset. The note (b.) to Charisa received from a friend is not a business asset because Charisa is not in the business of lending money. The personal use automobile (c.) is a capital asset, but most likely will be sold at a loss and the loss will not be usable. The letter written by Teddy Roosevelt (d.) was not written to Charisa, so it is not excluded from being a capital asset by § 1221. pp. 16-4 to 16-6 23. Since the steam engine was originally depreciated, it was a fixed asset used in Brown’s business and, therefore, is not a capital asset. The gain of $330,000 ($330,000 proceeds – $0 adjusted basis) is not a long-term capital gain and cannot be used to offset the company’s capital losses. However, part of the gain may qualify for beneficial long-term capital gain treatment as § 1231 gain. p. 16-5 and Chapter 17
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/19/2010 for the course ACC 3300 taught by Professor Lae during the Spring '10 term at Alabama A&M University.

Page1 / 10

ACC_4301_Solutions_to_Problems_(Chapter_16) - PROBLEMS 19....

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online