ACC_4301_Solutions_to_Problems_(Chapter_17)

ACC_4301_Solutions_to_Problems_(Chapter_17) - PROBLEMS 31....

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PROBLEMS 31. Since Sue-Jen elected to treat the cutting as a sale, the recognized gain and loss are calculated as follows: a. and b. 2007: $0 recognized gain or loss. 2008: A § 1231 gain of $30,000 is recognized. The contract had been held for the long-term holding period when the timber was cut in November 2008. FMV at January 1, 2008 $130,000 Adjusted basis (100,000) § 1231 gain recognized $ 30,000 2009: A gain of $2,000 is recognized. FMV at January 30, 2009 $132,000 FMV at January 1, 2008 (130,000) Ordinary gain recognized $ 2,000 c. The $2,000 ordinary gain would be recognized in 2008 if the sale occurred in 2008. d. 2007: $0 recognized gain or loss. 2008: A § 1231 loss of $52,000 and an ordinary gain of $1,000 are recognized . FMV at January 1, 2008 $ 48,000 Adjusted basis (100,000) § 1231 loss recognized ($ 52,000) FMV at sale in December 2008 $ 49,000 FMV at January 1, 2008 (48,000) Ordinary gain recognized $ 1,000 2009: No gain or loss realized or recognized. pp. 17-3, 17-5, and Example 3 32. Cattle and horses must be held 24 months or more to qualify as § 1231 assets. Since the cow was held only 15 months, it is an ordinary asset and the $3,000 loss ($25,000 sales price – $28,000 adjusted basis) is an ordinary loss. The workhorse was held 66 months, so it is a § 1231 asset. The $3,250 gain ($4,000 sales price – $750 adjusted basis) is a § 1231 gain. Since there is only a § 1231 gain for the year, the net § 1231 gain is $3,250 and that gain is treated as an ordinary gain because the $5,000 of prior nonrecaptured losses causes application of the § 1231 lookback rule . None of the $3,250 net § 1231 gain is treated as a long-term capital gain; so the $200 long-term capital gain is included in AGI. Section 1231 gain from sale of horse (treated as an ordinary gain) $ 3,250 Long-term capital gain from corporate stock sale 200 Ordinary loss from sale of milk cow (3,000) Other adjusted gross income 167,000 Adjusted gross income $167,450
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p. 17-6 and Concept Summary 17.1 33. Kwan has had two nonpersonal use property casualties. The $55,000 gain is netted against the $17,000 loss and results in a $38,000 net gain. The $38,000 net gain is treated as a § 1231 gain. Since there are no other property transaction gains or losses, and because Kwan has no lookback losses, he has a $38,000 net § 1231 gain for the year. That gain is treated as a long-term capital gain since both assets had been held more than 12 months when the flood occurred. p. 17-6 and Concept Summary 17.1
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Hoffman, Smith, and Willis, CPAs 5191 Natorp Boulevard Mason, OH 45040 November 23, 2009 Mr. Kwan Lee 2367 Meridian Road Hannibal Point, MO 34901 Dear Mr. Lee: Thank you for the opportunity to discuss the tax effect of the two casualties you suffered this year. Both the painting and the vase were assets you were holding for investment. The painting casualty resulted in a $55,000 gain because it was insured. The vase
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ACC_4301_Solutions_to_Problems_(Chapter_17) - PROBLEMS 31....

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