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Chapter 11
1. The amount realized equals the gross selling price less any selling expenses.
a.
True
b.
False
2. A buyer's assumption of the seller's debt increases the gross sales price and any debt of the buyer assumed by the seller
in the transaction also increases the gross sales price.
a.
True
b.
False
3. Gains on the sale of certain types of business assets, referred to as Section 1231 property, are always treated as capital
gains.
a.
True
b.
False
4. Allie, a well-known artist, gave one of her paintings to her nephew Alfred. When Alfred sells the painting he will have
a capital gain.
a.
True
b.
False
5. Carlos received an antique dresser from his aunt. Since the dresser is worth $6,000 more than what his aunt paid for it,
the holding period begins with the date of the gift.
a.
True
b.
False
6. Net collectibles gains are taxed at a maximum rate of 28%.
a.
True
b.
False
7. All of the gain from the sale of qualified small business stock, purchased between 9/27/2010 and 1/1/2014, and held
more than five years is excluded from tax.
a.
True
b.
False
8. The gain from the sale of qualified small business stock held for more than six months can be rolled over if stock from
another qualified small business is purchased within 60 days.
a.
True
b.
False
9. When a taxpayer sells only a portion of the securities that they own, the average cost method is used to establish the
Chapter 11
cost basis for the shares sold.
a.
True
b.
False
10. Section 1231 assets are certain trade or business assets that are not capital assets but are treated as such when sold at a
gain or a loss.
a.
True
b.
False
11. The lookback recapture rule nets the current-year net Section 1231 gain against Section 1231 ordinary loss deductions
taken in the previous three years.
a.
True
b.
False
12. Section 1245 property is subject to a full recapture of all depreciation taken as ordinary income.
a.
True
b.
False
13. For depreciable real property, all depreciation taken must be recaptured and treated as ordinary income.
a.
True
b.
False
14. Unrecaptured Section 1250 gain is the amount of gain on the sale of personal assets by individuals not otherwise
treated as ordinary income.
a.
True
b.
False
15. Unrecaptured Section 1250 gain is taxed at a maximum rate of 25%.
a.
True
b.
False
16. Drew traded his office copier in for a new one. The old copier had an adjusted basis of $400. The new copier cost
$1,350, and he was given a trade-in allowance of $500.
I.
The amount realized is $400.
II.
Drew has a realized gain of $100.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
Chapter 11
17. Marilyn sells 200 shares of General Motors stock for $80 per share. She pays a $100 commission on the sale and has
an adjusted basis of $8,000 on the stock.
I.
The amount realized from the sale is $15,900.
II.
Marilyn has a recognized gain of $8,000.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
18. Gross selling price includes
I.
the amount of a seller's debt assumed by the buyer.
II.
the fair market value of services received by the seller from the buyer.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
19. Adjustments to gross selling price include
I.
the amount of a seller's expenses paid by the buyer.
II.
the amount of the buyer's debt assumed by the seller.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
20. Brock exchanges property with an adjusted basis of $40,000 subject to a mortgage of $20,000 for other property
owned by Reese with a fair market value of $80,000. Reese assumes the mortgage. No cash or other assets were part of
the trade. Brock's amount realized is
a.
$40,000
b.
$50,000
c.
$80,000
d.
$90,000
e.
$100,000
21. Cathy owns property subject to a mortgage of $5,000. Annual real estate taxes are $800 and are due and payable on
December 31. Cathy sells her property on July 1 of the current year. The buyer assumes her $5,000 mortgage, and Cathy
agrees to finance the sale by taking a mortgage note of $50,000 and property valued at $7,500. The buyer agrees to pay
the seller's portion of the property taxes. What is Cathy's amount realized?
a.
$50,000
Chapter 11
b.
$57,500
c.
$62,500
d.
$62,900
e.
$63,300
22. Courtney and Nikki each own investment realty that they would like to trade. Courtney's property is subject to
mortgage debt of $10,000, and its appraised fair market value is $25,000. Nikki's property is subject to mortgage debt of
$17,000, and its appraised fair market value is $25,000. Courtney and Nikki agree to exchange the properties and assume
each other's debt. To complete the exchange, who pays cash and how much will that person have to pay?
a.
Courtney pays $15,000.
b.
Nikki pays $7,000.
c.
Nikki pays $8,000.
d.
Courtney pays $7,000.
e.
Neither person pays anything.
23. When her property was fully depreciated and was still encumbered by a mortgage of $6,000, Jamelle sells it subject to
the mortgage to David for $1,000. What is Jamelle's realized gain or loss?
a.
$ - 0 -
b.
$1,000 gain
c.
$5,000 gain
d.
$6,000 gain
e.
$7,000 gain
24. Virginia and Dan each own investment realty that they would like to trade. Virginia's property is subject to mortgage
debt of $2,000 and has a net of mortgage value of $6,000. Dan's property is subject to mortgage debt of $30,000 and has a
net of mortgage value of $5,000. Virginia and Dan agree to exchange properties and assume each other's debt. Dan pays
Virginia $1,000 cash, and the exchange is completed. What is the gross selling price of Virginia's property?
a.
$2,000
b.
$6,000
c.
$8,000
d.
$5,000
e.
$35,000
25. A capital asset includes which of the following?
I.
real estate held as an investment in rental property.
II.
the copyright to a song held by its writer.
III.
real estate used in a trade or business.
IV.
accounts receivable.
a.
Only statement I is correct.
b.
Statements I and II are correct.
c.
Statements III and IV are correct.
d.
Statements I, II, and III are correct.
Chapter 11
e.
Statements I, II, III, and IV are correct.
26. All of the following are capital assets with the exception of
a.
Stocks and bonds.
b.
Office furniture used in a business
c.
Monet painting privately held.
d.
Apartment building held for investment.
e.
Personal residence.
27. Joyce receives investment property from her mother as a gift in 2015. Her mother paid $15,000 for the property in
2011, and it is valued at $18,000 on the date of the gift. Joyce sells the property eight months later for $16,000. Joyce's
realized gain or loss is
a.
$1,000 loss
b.
$2,000 loss
c.
$1,000 gain
d.
$2,000 gain
e.
$16,000 gain
28. Terry receives investment property from her mother as a gift in 2015. Her mother paid $15,000 for the property in
2011, and it is valued at $18,000 on the date of the gift. Terry sells the property eight months later for $16,000. Terry's
gain or loss is
a.
Short-term ordinary loss.
b.
Short-term capital gain.
c.
Short-term capital loss.
d.
Long-term ordinary gain.
e.
Long-term capital gain.
29. Corky receives a gift of property from her Aunt Cynthia. Cynthia purchased the property 17 years ago for $375,000.
On the date of the gift, the property is appraised at $500,000. What is Corky's holding period for the property if she sells it
one month after the gift was completed?
a.
Short-term.
b.
Long-term.
c.
Holding period is not relevant since the gain is ordinary.
d.
Holding period classification cannot be determined without knowing the selling price.
30. Long-term capital gain classification is advantageous to taxpayers because of which of the following?
I.
Long-term capital gains are generally taxed at a lower rate than ordinary income.
II.
Part of a long-term capital game is excluded from income.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
Chapter 11
d.
Neither statement is correct.
31. Morgan has the following capital gains and losses for the current tax year
Short-term capital gains
$12,000
Long-term capital gains
3,000
Short-term capital losses
(7,000)
Long-term capital losses
(6,000)
What is Morgan's net capital gain or loss position for the year?
a.
$5,000 net short-term capital gain.
b.
$2,000 net long-term capital loss.
c.
$2,000 net short-term capital gain.
d.
$3,000 net long-term capital loss.
e.
$4,000 net short-term capital loss.
32. Gabrielle has the following gains and losses for the current year:
Short-term capital loss
$(8,000)
Long-term capital gain
3,000
Section 1231 gain
3,000
Section 1231 loss
(5,000)
What is Gabrielle's net capital gain or loss position for the year?
a.
$7,000 net short-term capital loss.
b.
$3,000 net short-term capital gain.
c.
$5,000 net short-term capital loss.
d.
$3,000 net short-term capital gain.
33. William has the following capital gains and losses for the current year:
Short-term capital gain
$10,000
Short-term capital loss
(3,000)
Long-term capital gain
5,000
What is William's net capital gain or loss position for the year?
a.
Short-term capital gain $7,000; Long-term capital gain $5,000.
b.
Short-term capital gain $10,000; Long-term capital gain $2,000.
c.
Short-term capital gain $7,000; Long-term capital gain $2,000.
d.
Short-term capital gain $10,000; Long-term capital gain $5,000
34. Brenda sells stock she purchased in 2004 for a $7,500 gain in 2015. In August 2015, she also sells land she purchased
as an investment in December 2014 at a loss of $9,000.
I.
For 2015, Brenda's tax on the $7,500 gain is $1,125.
II.
Brenda can deduct $3,000 of the $9,000 loss in 2015.
III.
For 2015, Brenda has a net long-term capital loss of $9,000.
IV.
Brenda can only deduct a capital loss of $1,500 in 2015.
a.
Statements I and II are correct.
Chapter 11
b.
Statements I, II and IV are correct.
c.
Only statement II is correct.
d.
Only statement IV is correct.
e.
Statements I, II and III are correct.
35. Melissa sells stock she purchased in 2004 for a $7,500 gain in 2015. In August 2015, she also sells land she purchased
as an investment in December 2014 at a loss of $12,000.
I.
Melissa's tax on the $7,500 gain is $1,125.
II.
Melissa has a deductible capital loss of $3,000 in 2015.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
36. In September 2015, Eduardo sells stock he purchased in October 2012 at a gain of $5,000. If Eduardo is in the 10%
marginal tax rate bracket and he has no other capital asset sales in 2015, what is his tax on the sale of the stock?
a.
$- 0 -
b.
$500
c.
$750
d.
$1,000
e.
$1,250
37. In July 2015, Harriet sells a stamp from her stamp collection at a gain of $500. Harriet purchased the stamp in 2009. If
Harriet is in the 33% marginal tax rate bracket and has no other capital asset sales in 2015, what is her tax on the sale of
the stamp?
a.
$50
b.
$75
c.
$125
d.
$140
e.
$165
38. In July 2015, Hillary sells a stamp from her stamp collection at a gain of $500. Hillary purchased the stamp in 2010. If
Hillary is in the 25% marginal tax rate bracket and has no other capital asset sales in 2015, what is her tax on the sale of
the stamp?
a.
$- 0 -
b.
$25
c.
$50
d.
$75
e.
$125
39. LeRoy has the following capital gains and losses for the current year:
Chapter 11
Short-term capital gain
$10,000
Collectible loss
(3,000)
Long-term capital gain
5,000
If LeRoy is single and has taxable income from other sources of $52,000, what is the tax on his capital gains?
a.
$1,800
b.
$2,800
c.
$2,910
d.
$3,000
40. Serenity has the following capital gains and losses for the current year:
Short-term capital loss
$(8,000)
Long-term capital gain
3,000
Collectible gain
2,000
Collectible loss
(4,000)
If Serenity is single and has taxable income from other sources of $75,000, what is the impact of her capital gains and
losses on her income tax liability?
a.
$690 decrease.
b.
$750 decrease.
c.
$840 decrease.
d.
$1,050 decrease.
e.
$1,960 decrease.
41. Sigma Corporation had the following capital gains and losses for 2011 through 2015:
2011
2012
2013
2014
2015
$30,000
$(20,000)
$15,000
$(30,000)
$60,000
Sigma's net capital gain for 2015 is:
a.
$25,000
b.
$30,000
c.
$35,000
d.
$55,000
e.
$60,000
42. Omicron Corporation had the following capital gains and losses for 2013 through 2015:
2013
2014
2015
$15,000
$(30,000)
$60,000
Omicron's net capital gain for 2015 is:
a.
$20,000
b.
$30,000
c.
$45,000
d.
$60,000
43. Phi Corporation had the following capital gains and losses for 2013 through 2015:
2013
2014
2015
$15,000
$(40,000)
$10,000
I.
Phi can deduct a loss of $15,000 in 2015.
II.
Phi will carry forward a $15,000 capital loss to 2016.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
44. A taxable entity has the following capital gains and losses in 2015:
Short-term capital loss
$(22,000)
Long-term capital gain
15,000
I
If the entity is an individual, a $3,000 deduction is allowed in 2015.
II.
If the entity is a corporation, a $7,000 deduction is allowed in 2015.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
45. A taxable entity has the following capital gains and losses in 2015:
Short-term capital loss
$(20,000)
Long-term capital gain
13,000
I.
If the entity is an individual, a $7,000 deduction is allowed in 2015.
II.
If the entity is a corporation, no deduction is allowed in 2015.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
46. Sidney, a single taxpayer, has taxable income of $45,000 from all sources except capital gains. He has a long-term
capital gain of $1,000. What is the actual tax savings Sidney receives because of any special treatment of his $1,000 long-
term capital gain?
a.
$-0-
b.
$50
c.
$100
d.
$150
e.
$250
47. Dwight, a single taxpayer, has taxable income of $75,000 from all sources except capital gains. He has a collectibles
gain of $1,000. What is the actual tax saving Dwight receives because of any special treatment of his $1,000 collectibles
gain?
a.
$-0-
b.
$15
c.
$130
d.
$150
e.
$280
48. Raymond, a single taxpayer, has taxable income of $155,000 from all sources except capital gains. He has a $10,000
gain from the sale of qualified small business stock he acquired in 1995. What is the total tax saving Raymond receives
because of any special treatment of his $10,000 long-term capital gain on small business stock?
a.
$700
b.
$1,150
c.
$1,400
d.
$2,100
e.
$2,800
49. The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after
February 17, 2009, and before September 27, 2010, results in an effective tax rate on these capital gains of
a.
7.0%
b.
14.0%
c.
15.0%
d.
27.0%
e.
30.0%
50. The exclusion of a percentage of the capital gain realized on the sale of qualified small business stock acquired after
September 27, 2010, and before January 1, 2014, results in an effective tax rate on these capital gains of
a.
0%
b.
7.0%
c.
14.0%
d.
15.0%
e.
28.0%
51. Rachael purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2009. On
November 29, 2014, she sells the stock for $1,000,000. Rachael also sells 100 shares of stock she acquired two years ago
realizing a loss of $10,000. Which of the following explain(s) tax consequences of the QSB stock sale?
I.
The effective tax rate applied to the net gain on the sale of the QSB stock is 15%.
II.
Rachael nets her $10,000 loss with her $100,000 gain before applying her exclusion rate.
III.
Rachael is eligible for a 75% exclusion of the gain from the QSB stock sale.
IV.
The QSB stock is QSB stock partly because Rachael held the stock for the required 3-year
minimum.
Chapter 11
a.
Statements I and II are correct.
b.
Statements II and III are correct.
c.
Statements III and IV are correct.
d.
Statements I, II, and III are correct.
e.
Statements I, II, III, and IV are correct.
52. Cheryl purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2010. On November
29, 2015, she sells the stock for $1,000,000. Cheryl also sells 100 shares of stock she acquired two years ago realizing a
loss of $10,000. Cheryl has $100,000 of other income. Which of the following statements about the stock sale is/are true?
I.
The tax paid on Cheryl’s two stock sales is $6,300.
II.
Cheryl can only deduct $3,000 of the $10,000 loss on the sale of the stock.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
53. Pamela purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on October 2, 2012. On
November 29, 2017, she sells the stock for $1,000,000. Pamela also sells 100 shares of stock she acquired two years ago
realizing a loss of $10,000. Pamela has $100,000 of other income. Which of the following statements about the stock sale
is/are true?
I.
Pamela will pay no tax on the two stock sales.
II.
Pamela can only deduct $3,000 of the $10,000 loss on the sale of the stock.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
54. Sybil purchased 500 shares of Qualified Small Business Stock (QSB) for $25,000 on March 2, 2003. On November
29, 2014, she sells the stock for $125,000. Sybil also sells 100 shares of stock she acquired two years ago realizing a gain
of $20,000. Sybil has $100,000 of other income. Which of the following statements about the stock sale is/are true?
I.
The tax paid on Sybil’s two stock sales is $17,000.
II.
The tax rate on the $20,000 gain is 15%.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
55. Capital gain and loss planning strategies include
I.
the optimal action of using capital gains to reduce an individual taxpayer's net capital loss
for a year to zero.
II.
selling enough capital assets to create a $3,000 capital loss.
Chapter 11
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
56. Victor bought 100 shares of stock of Wabash Manufacturing Corporation from an unrelated individual paying $1 per
share on December 20, 2014. On April 17, 2015, the corporation is declared bankrupt and the shares are deemed
worthless. What is the amount and character of Victor's recognized loss as a result of the bankruptcy?
a.
$100 short-term capital loss.
b.
$100 long-term capital loss.
c.
$100 ordinary loss.
d.
No gain or loss until the stock is sold.
e.
The amount is $100, but the character is indeterminable from the information given.
57. When a security becomes worthless
I.
no loss can be deducted because a realization has not occurred.
II.
the measure of the loss is the adjusted basis of the securities.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
58. When securities are sold and the securities were purchased on different dates and at different prices
I.
the basis of the shares may be determined on a first-in, first-out basis.
II.
the basis of the shares may be determined on a last-in, first-out basis.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
59. Santana purchased 200 shares of Neffer, Inc. Common Stock on November 13, 2014, for $3,400 and paid a $200
commission. On December 28, 2014, Santana received a $2 per share cash dividend from Neffer. On June 17, 2015,
Neffer declares and distributes a 2 for 1 stock split. On August 4, 2015, Santana purchased an additional 300 shares of
Neffer, Inc. Common Stock for $4,200 plus a $300 commission. On November 22, 2015, Santana sells 500 shares of
Neffer, Inc. stock for $6,000 and pays a $400 commission on the sale. Santana's gain (loss) on the sale is
a.
$500 loss
b.
$500 gain
c.
$2,700 loss
d.
$2,000 gain
e.
$3,600 loss
60. Sally owns 700 shares of Fashion Styles Clothing common stock. Sally purchased the 700 shares as follows:
Purchase Date
Number of Shares
Total Cost
March 2012
200
$ 2,000
August 2012
300
$ 3,600
January 2013
200
$ 3,000
As of December 29, 2015, Sally has not sold any securities. She needs to send a tuition payment of $5,200 to her
daughter's boarding school in Zurich before year-end. Since the Fashion Styles Clothing stock is selling for $13 per share,
Sally plans to dispose of 400 shares to cover the tuition. Ignoring commissions and transaction costs, what is the optimal
tax result of selling 400 shares?
a.
$- 0 - gain or loss.
b.
$200 long-term capital loss.
c.
$100 long-term capital gain.
d.
$800 long-term capital loss
e.
$800 long-term capital gain
61. Tracey sells General Electric stock (owned 10 years) for a $40,000 gain in the current year. In addition, she has a loss
of $20,000 on the sale of one acre of land used in her trade or business. The land was purchased five years ago. Tracey's
net capital gain (loss) for the current year is:
a.
$(20,000)
b.
$- 0 -
c.
$20,000
d.
$40,000
62. Tory sells General Electric stock (owned 10 years) for a $40,000 gain in the current year. In addition, she had a loss of
$20,000 on the sale of one acre of land used in her trade or business. The land was purchased five years ago. Tory's net
Section 1231 gain (loss) for the current year is:
a.
$- 0 -
b.
$20,000
c.
$(20,000)
d.
$40,000
63. Tonya purchased 500 shares of Home Depot, Inc. common stock on December 13, 2012, at a cost of $3,600. She paid
a commission of $150 on the purchase. On February 18, 2014, she received 250 shares of Home Depot, Inc. common
stock as a tax-free dividend. Tonya sells 600 shares for $3,700 on January 8, 2015, and pays a $100 commission on the
sale. Tonya's gain (loss) on the sale is characterized as:
a.
Long-term capital gain of $600.
b.
Long-term capital gain of $500; short-term capital gain of $100.
c.
Long-term capital loss of $50.
d.
Short-term capital gain of $600.
64. Which of the following is not a capital asset?
a.
Office building used as a rental property by a real estate professional..
Chapter 11
b.
Antique automobile.
c.
Land held for investment.
d.
Stock held for investment.
65. Which of the following is not a capital asset?
a.
Office building used by a CPA firm.
b.
Antique automobile held by an antique automobile collector.
c.
Land held for investment.
d.
Stock held for investment.
66. Section 1231 assets include
a.
Inventory.
b.
Stocks and bonds.
c.
Personal residence.
d.
Business-use realty.
e.
Personal automobile.
67. Which of the following properties that was sold during January 2015 is Section 1231 property for Baylan Toy
Manufacturing Corporation?
I.
Automobile purchased in 2011.
II.
Land used in the business since 2012.
III.
Factory building purchased and placed into service in May 2014.
IV.
Office building purchased and placed into service in June 2011.
a.
Only statement I is correct.
b.
Statements I, II, and IV are correct.
c.
Statements III and IV are correct.
d.
Statements II and III are correct.
e.
Statements I, II, III, and IV are correct.
68. Assets eligible for preferential treatment under Section 1231 include
I.
Certain assets held for less than a year.
II.
Real estate used in a business held for more than a year.
III.
Horses held for more than two years.
IV.
Lumber held by a lumber store.
a.
Only statement I is correct.
b.
Statements II, III, and IV are correct.
c.
Statements I, III, and IV are correct.
d.
Statements II and III are correct.
e.
Statements I, II, III, and IV are correct.
69. Section 1231 property receives preferential tax treatment. The preference(s) include(s)
I.
Net Section 1231 losses are deductible as short-term capital losses.
II.
Net Section 1231 gains are reportable as long-term capital gains.
III.
Net Section 1231 losses are deductible as long-term capital losses.
IV.
Net Section 1231 losses are deductible as ordinary losses.
a.
Statements I and II are correct.
b.
Only statement I is correct.
c.
Statements II and IV are correct.
d.
Only statement III is correct.
e.
Statements II and III are correct.
70. The Section 1231 netting procedure involves several steps. What is the proper order of these steps?
I.
All Section 1231 gains and losses for the year are netted.
II.
All casualty (theft) gains and losses on Section 1231 property are netted.
III.
Current-year net Section 1231 gain is netted against any Section 1231 ordinary loss
deductions taken in the previous 5 years.
a.
Statements I, III, and II.
b.
Statements II, I, and III.
c.
Statements III, I, and II.
d.
Statements III, II, and I.
e.
Statements I, II, and III.
71. During 2015, Silverado Corporation has the following Section 1231 gains and losses:
Casualty loss
$(10,000)
Section 1231 gains
12,000
Section 1231 losses
(3,000)
During the period 2010 - 2014, the corporation recognized $8,000 of net Section 1231 losses as ordinary losses that have
not been recaptured. How much of the 2015 Section 1231 gains and losses are recognized as long-term capital gains?
a.
$- 0 -
b.
$1,000
c.
$9,000
d.
$10,000
e.
$12,000
72. Davidson Corporation has the following gains and losses from Section 1231 property during 2015:
Casualty losses
$(6,000)
Casualty gains
7,000
Section 1231 gains
6,000
Section 1231 losses
(9,000)
No net Section 1231 losses have been deducted as ordinary losses in prior years. How much of the 2015 Section 1231
gains and losses are recognized as long-term capital gains?
a.
$- 0 -
Chapter 11
b.
$1,000
c.
$2,000
d.
$3,000
e.
$6,000
73. Knox Cable Corporation has the following gains and losses from Section 1231 property during 2015:
Casualty losses
$(14,000)
Casualty gains
5,000
Section 1231 gains
9,000
Section 1231 losses
(6,000)
No net Section 1231 losses have been deducted as ordinary losses in prior years. How will this information affect Knox's
2015 taxable income?
a.
Knox will report a net section 1231 loss of $6,000.
b.
Knox will report a capital loss of $9,000 and ordinary income of $3,000.
c.
The transactions have no effect on Knox's 2015 taxable income.
d.
Knox will deduct a $3,000 capital loss and have ordinary income of $3,000.
e.
Knox will report an ordinary loss of $9,000 and a long-term capital gain of $3,000.
74. Stan sells a piece of land he used in his auto repair business at a gain of $13,000 in 2015. In addition, Stan sells
equipment he purchased in 2012 for $8,000. He paid $20,000 for the equipment that had an adjusted basis of $12,000
when it was sold. He also sells some stock in 2015 at a loss of $11,000. No losses on the disposition of assets were
recognized in prior years. The effect of these transactions on Stan's 2015 taxable income is:
a.
Decrease of $2,000.
b.
Decrease of $3,000.
c.
Increase of $6,000.
d.
Increase of $10,000.
75. Stan sells a piece of land he used in his auto repair business at a gain of $9,000 in 2015. In addition, Stan sells
equipment he purchased in 2012 for $8,000. He paid $20,000 for the equipment that had an adjusted basis of $12,000
when it was sold. He also sells some stock in 2015 at a loss of $11,000. No losses on the disposition of assets were
recognized in prior years. The effect of these transactions on Stan's 2015 taxable income is:
a.
Decrease of $6,000.
b.
Decrease of $3,000.
c.
Increase of $6,000.
d.
Zero, with a long-term capital loss carryback of $2,000.
e.
Zero, with a long-term capital loss carryback of $6,000.
76. Pidgeon, Inc. has the following gains and losses from Section 1231 property during 2015:
Casualty losses
$(4,000)
Casualty gains
5,000
Section 1231 gains
6,000
Section 1231 losses
(3,000)
