Property Dispositions

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Questions Bank

Taxes and Taxing Jurisdictions
Policy Standards for a Good Tax
Taxes as Transaction Costs
Maxims of Income Tax Planning
Tax Research
Taxable Income from Business Operations
Property Acquisitions and Cost Recovery Deductions
Property Dispositions
Nontaxable Exchanges
Sole Proprietorships
The Corporate Taxpayer
The Choice of Business Entity
Jurisdictional Issues in Business Taxation
The Individual Tax Formula
Compensation and Retirement Planning
Investment and Personal Financial Planning
Tax Consequences of Personal Activities
The Tax Compliance Process

All Questions

Question 1

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True/False

Gain or loss realized on the disposition of property is recognized unless the tax law provides a nonrecognition exception.

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Question 2

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True/False

According to the realization principle, an increase in the value of an asset is not accounted for as income unless the amount of the increase can be accurately measured.

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Question 3

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True/False

The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.

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Question 4

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True/False

Mr Hickem sold an investment asset worth $20,000. The purchaser paid Mr Hickem by giving him $12,500 cash and an oil painting worth $7,500. Mr Hickem's amount realized on sale is $12,500.

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Question 5

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N&B Inc. sold land worth $385,000. The purchaser paid $80,000 cash and assumed N&B's $305,000 mortgage on the land. N&B's amount realized on sale is $385,000.

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Question 6

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Four years ago, Mrs Beights purchased marketable securities for $75,000 cash. At the end of the current year, the FMV of the securities had plummeted to $4,000. Mrs Beights may elect to recognize her $71,000 loss this year, even though she still owns the securities.

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Question 7

True/False

Kopel Company transferred an inventory asset to Cassim LLC in exchange for Cassim's $230,000 interest-bearing note. Kopel's tax basis in the note is its $230,000 face value.

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Question 8

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Mrs Lex realized a $78,400 gain on sale of investment land to S&T, which issued a 10-year note in full payment. Mrs Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.

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Question 9

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A taxpayer that is using the installment sale method to recognize gain must recompute the gross profit percentage every year during the term of the installment note.

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Question 10

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The use of the installment sale method can result in an unfavorable difference between book income and taxable income in the year of sale.

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Question 11

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The installment sale method of accounting is not applicable to realized losses.

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Question 12

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A corporation can use the installment sale method of accounting for both book and tax purposes.

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Question 13

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Mr and Mrs Plame sold an investment asset to their grandson Leonard. Because Leonard is a related party, the Plames do not recognize any gain or loss realized on sale.

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Question 14

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Sandy Cole realized a loss on sale of an investment asset to her mother, Lynne. If the facts and circumstances prove that the selling price was an arm's length market price, Sandy can recognize the loss.

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Question 15

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The gain or loss recognized on any disposition of a capital asset is characterized as capital gain or loss.

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Question 16

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The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.

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Question 17

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The same asset may be an ordinary asset in the hands of one taxpayer and a capital asset in the hands of a different taxpayer.

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Question 18

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Inventory, accounts receivable, and machinery used in a business are examples of capital assets.

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Question 19

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For tax purposes, every asset is a capital asset unless it falls into one of eight categories of noncapital assets.

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Question 20

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Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.

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