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Homework answers / question archive / 1)Aviary Corp
1)Aviary Corp. sold a building for $600,000. Aviary received a down payment of $120,000 as well as annual principal payments of $120,000 for each of the subsequent four years. Aviary purchased the building for $500,000 and claimed depreciation of $80,000. What amount of gain should Aviary report in the year of sale using the installment method?
2. Wynn, a single individual age 60, sold Wynn's personal residence for $450,000. Wynn had owned Wynn's residence, which had a basis of $250,000, for six years. Within eight months of the sale, Wynn purchased a new residence for $400,000. What is Wynn's recognized gain from the sale of Wynn's personal residence?
3. Winkler, a CPA, provided accounting services to a client, Thompson. On December 15 of the same year, Thompson gave Winkler 100 shares of Foster Corp. as compensation for services. The adjusted basis of the stock was $4,000, and its fair market value at the time of transfer was $5,000. Two months later, Winkler sold the stock on February 15 for $7,500. What is the amount that Winkler should recognize as gain on the sale of stock?
4. On February 1, year 1, a taxpayer purchased an option to buy 1,000 shares of XYZ Co. for $200 per share. The taxpayer purchased the option for $50,000, which was to remain in effect for six months. The market declined, and the taxpayer let the option lapse on August 1, year 1. The taxpayer would report which of the following as a capital loss on the year 1 income tax return?
5. A taxpayer lived in an apartment building and had a two-year lease that began 16 months ago. The taxpayer's landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer's lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord's offer, the gain or loss would be which of the following?
6. In year 1, a taxpayer sold real property for $200,000, receiving $100,000 at closing and $100,000 plus accrued interest at the prime rate in the next year. The buyer also assumed a $50,000 mortgage on the property. The taxpayer's adjusted basis was $75,000, and the taxpayer incurred $10,000 of selling expenses. If this transaction qualifies for installment sale treatment, what is the gross profit on the sale?
7. Upon her grandfather's death, Jordan inherited 10 shares of Universal Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1995 for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Universal for $7,500. What was Jordan's recognized gain in the year of sale?
8. For an individual business owner, which of the following would typically be classified as a capital asset for federal income tax purposes?
9. Simmons gives her child a gift of publicly-traded stock with a basis of $40,000 and a fair market value of $30,000. No gift tax is paid. The child subsequently sells the stock for $36,000. What is the child’s recognized gain or loss, if any?
10. An individual entered into several exchanges during the current tax year. Which of the following exchanges is classified as like-kind?
11. Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under Code Sec. 1245?
12. What is the amount and character of the losses to be reported on Lobster's tax return?
13. Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property?
I. |
The property must be purchased for use in the taxpayer's active trade or business. |
II. |
The property must be purchased from an unrelated party. |
14. A taxpayer purchased five acres of land for $20,000 and placed in service other tangible business assets that cost $100,000. Disregarding business income limitations and assuming that the annual Section 179 (Election to Expense Certain Depreciable Business Assets) limit is $108,000, what maximum amount of cost recovery can the taxpayer claim this year?
15. Bent Corp., a calendar-year C corporation, purchased and placed into service residential real property during February, Year 8. No other property was placed into service during Year 8. What convention must Bent use to determine the depreciation deduction for the alternative minimum tax?
16. Data Corp., a calendar year corporation, purchased and placed into service office equipment during November Year 1. No other equipment was placed into service during Year 1. Under the general MACRS depreciation system, what convention must Data use?
17. On August 1, Year 1, Graham purchased and placed into service an office building costing $264,000 including $30,000 for the land. What was Graham's MACRS deduction for the office building in Year 1?
18. How is the depreciation deduction of nonresidential real property determined for regular tax purposes using MACRS?
19. Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers. With regard to capital assets and Section 1231 assets, how should these assets be classified?
20. Which of the following statements regarding this adjustment is correct?
21. The sale of which of the following types of business property should be reported as Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) property?
22. A taxpayer sold for $200,000 equipment that had an adjusted basis of $180,000. Through the date of the sale, the taxpayer had deducted $30,000 of depreciation. Of this amount, $17,000 was in excess of straight-line depreciation. What amount of gain would be recaptured under Section 1245 (Gain from Dispositions of Certain Depreciable Property)?
23. Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer's depreciation deductions totaled $20,700. What part of the gain is taxed as long-term capital gain?
24. Dove Corp. began operating a hardware store in the current year after constructing a building at a total cost of $100,000 on land previously acquired for $50,000. In the current year, the land had a fair market value of $60,000. Dove paid real estate taxes of $5,000 in the current year. What is the total depreciable basis of Dove's business property?
25. What should be reported as the cost basis for MACRS five-year property?
26. Aviary Corp. sold a building for $600,000. Aviary received a down payment of $120,000 as well as annual principal payments of $120,000 for each of the subsequent four years. Aviary purchased the building for $500,000 and claimed depreciation of $80,000. What amount of gain should Aviary report in the year of sale using the installment method?
27. Wynn, a single individual age 60, sold Wynn's personal residence for $450,000. Wynn had owned Wynn's residence, which had a basis of $250,000, for six years. Within eight months of the sale, Wynn purchased a new residence for $400,000. What is Wynn's recognized gain from the sale of Wynn's personal residence?
28. Sands purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sands sold 50 shares of Eastern for $7,000. Fifteen days later, Sands purchased 25 shares of Eastern for $3,750. What is the amount of Sand's recognized gain or loss?
29. Winkler, a CPA, provided accounting services to a client, Thompson. On December 15 of the same year, Thompson gave Winkler 100 shares of Foster Corp. as compensation for services. The adjusted basis of the stock was $4,000, and its fair market value at the time of transfer was $5,000. Two months later, Winkler sold the stock on February 15 for $7,500. What is the amount that Winkler should recognize as gain on the sale of stock?
30. On February 1, Year 4, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in Year 1. Fair market value of the stock on February 1, Year 4, the date of his father's death, was $4,000 and had increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 4, the date that the executor distributed the stock to him. How much income should Hall include in his Year 4 individual income tax return for the inheritance of the 500 shares of stock, which he received from his father's estate? [Assume that the estate tax rules in effect for 2011 and forward apply].
31. In the current year, Essex sold land with a basis of $80,000 to Yarrow for $100,000. Yarrow paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Essex include in gross income for the year of sale?
32. Hogan exchanged a business-use machine having an original cost of $100,000 and accumulated depreciation of $30,000 for business-use equipment owned by Baker having a fair market value of $80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the machine. What taxable gain should Hogan recognize?
33. A married couple purchased their principal residence for $300,000. They spent $40,000 on improvements. After living in it for 10 years, the couple sold the home for $650,000 and paid $36,000 in real estate commissions. What gain should the couple recognize on their joint return?
34. Each stock was held for over 12 months. What amount should be reported on their current year tax return for capital gain/loss?
35. What is the amount of the capital loss carryover to Year 10?
36. David Dickens sold a piece of land on an installment sale basis to Chuck Quarters on October 1, Year 1. David's basis in the land was $150,000 and Chuck purchased it for $1,500,000; payable in three annual installments of $500,000 on Dec. 31, Year 1, Year 2 and Year 3. How much gain should David report in his Year 1 tax return?
37. Chris and Jennifer purchased their home in California on January 15, Year 1, for $160,000. During their ownership they made no capital improvements. On August 1, Year 4, the couple moved to Virginia from California and rented out that home. On June 30, Year 6; the couple contracted to sell the California rental home for $437,500. For the calendar Year 6, the couple will file a joint tax return. Disregarding any depreciation recapture rules, how should they treat the sale of the home for tax purposes?
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