Reference no: EM132340119

Taxation Questions -

Question No. 1 - In year 0, Longworth Partnership purchased a machine for $43,000 to use in its business. In year 3, Longworth sold the machine for $35,900. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $28,600. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. What is the amount and character of the gain (loss) Longworth will recognize on the sale?

b. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are increased to $67,750?

c. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are decreased to $11,700 (before the §1231 netting process, if applicable)?

Question No. 2 - On August 1 of year 0, Dirksen purchased a machine for $39,250 to use in its business. On December 4 of year 0, Dirksen sold the machine for $29,750. Use MACRS Table. (Loss amounts should be indicated by a minus sign. Do not round percentages used for calculations. Round other intermediate computations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

Table 1 MACRS Half-Year Convention

Depreciation Rate for Recovery Period
	3-Year	5-Year	7-Year	10-Year	15-Year	20-Year
Year 1	33.33%	20.00%	14.29%	10.00%	5.00%	3.750%
Year 2	44.45	32	24.49	18	9.5	7.219
Year 3	14.81	19.2	17.49	14.4	8.55	6.677
Year 4	7.41	11.52	12.49	11.52	7.7	6.177
Year 5		11.52	8.93	9.22	6.93	5.713
Year 6		5.76	8.92	7.37	6.23	5.285
Year 7			8.93	6.55	5.9	4.888
Year 8			4.46	6.55	5.9	4.522
Year 9				6.56	5.91	4.462
Year 10				6.55	5.9	4.461
Year 11				3.28	5.91	4.462
Year 12					5.9	4.461
Year 13					5.91	4.462
Year 14					5.9	4.461
Year 15					5.91	4.462
Year 16					2.95	4.461
Year 17						4.462
Year 18						4.461
Year 19						4.462
Year 20						4.461
Year 21						2.231

a. What is the amount and character of the gain or loss Dirksen will recognize on the sale?

b. What is the amount and character of the gain or loss Dirksen will recognize on the sale if the machine is sold on January 15 of year 1 instead?

Question No. 3 - Moran owns a building he bought during year 0 for $164,000. He sold the building in year 6. During the time he held the building he depreciated it by $50,250.

What is the amount and character of the gain or loss Moran will recognize on the sale in each of the following alternative situations? (Loss amounts should be indicated by a minus sign. Enter NA if a situation is not applicable. Leave no answer blank. Enter zero if applicable.)

a. Moran received $150,000.

b. Moran received $210,000.

c. Moran received $106,200.

Question No. 4 - Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp., at fair market value. The fair market value of the building was determined to be $545,000; Luke built the building several years ago at a cost of $447,500. Luke had claimed $70,500 of depreciation expense on the building. The fair market value of the land was determined to be $251,000 at the time of the sale; Luke purchased the land many years ago for $183,750.

a. What is the amount and character of Luke's recognized gain or loss on the building?

b. What is the amount and character of Luke's recognized gain or loss on the land?

Question No. 5 - Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2018, she sells the following long-term assets used in her business:

Asset	Sales Price	Cost	Accumulated Depreciation
Building	$230,600	$200,600	$52,600
Equipment	80,600	148,600	23,600

Lily's taxable income before these transactions is $161,100.

What are Lily's taxable income and tax liability for the year? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Question No. 6 - Shimmer Inc. is a calendar-year-end, accrual-method corporation. This year, it sells the following long-term assets:

Asset	Sales Price	Cost	Accumulated Depreciation
Building	$728,000	$709,000	$35,500
Sparkle Corporation stock	210,000	269,000	n/a

Shimmer does not sell any other assets during the year, and its taxable income before these transactions is $809,000.

What are Shimmer's taxable income and tax liability for the year? (New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.)

Question No. 7 - Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $12,500 §1231 loss on the sale. The second is land that will generate a $9,900 §1231 gain on the sale. Aruna's ordinary marginal tax rate is 32 percent. (Input all amounts as positive values.)

a. Assuming she sells both assets in December of year 1 (the current year), what effect will the sales have on Aruna's tax liability?

b. Assuming that Aruna sells the land in December of year 1 and the machinery in January of year 2, what effect will the sales have on Aruna's tax liability for each year?

Question No. 8 - Bourne Guitars, a corporation, reported a $221,000 net §1231 gain for year 6.

a. Assuming Bourne reported $56,250 of nonrecaptured net §1231 losses during years 1-5, what amount of Bourne's net §1231 gain for year 6, if any, is treated as ordinary income?

b. Assuming Bourne's nonrecaptured net §1231 losses from years 1-5 were $232,000, what amount of Bourne's net §1231 gain for year 6, if any, is treated as ordinary income?

Question NO. 9 - Kase, an individual, purchased some property in Potomac, Maryland, for $207,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase's Maryland property. Kase agrees to the exchange.

What is Kase's realized gain or loss, recognized gain or loss, and basis in the North Carolina property in each of the following alternative scenarios? (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. The transaction qualifies as a like-kind exchange and the fair market value of each property is $702,500.

Realized gain/ Realized loss -----------?

Realized gain/ Realized loss -----------?

Adjusted Basis in new property ------------?

b. The transaction qualifies as a like-kind exchange and the fair market value of each property is $176,000.

Realized gain/ Realized loss -----------?

Realized gain/ Realized loss -----------?

Adjusted Basis in new property ------------?

Question No. 10 - Prater Inc. enters into an exchange in which it gives up its warehouse on 10 acres of land and receives a tract of land. A summary of the exchange is as follows:

Transferred	FMV	Original Basis	Accumulated Depreciation
Warehouse	$475,000	$320,000	$53,500
Land	61,500	61,500
Mortgage on warehouse	43,750
Cash	14,250	14,250

 

Assets Received	FMV
Land	$507,000

What is Prater's realized and recognized gain on the exchange and its basis in the assets it received in the exchange?

Question No. 11 - Ken sold a rental property for $947,000. He received $191,000 in the current year and $189,000 each year for the next four years. Of the sales price, $700,000 was allocated to the building and the remaining $247,000 was allocated to the land. Ken purchased the property several years ago for $681,000. When he initially purchased the property, he allocated $595,000 of the purchase price to the building and $86,000 to the land. Ken has claimed $18,100 of depreciation deductions over the years against the building. Use Dividends and Capital Gains Tax Rates for reference.

Ken had no other sales of §1231 or capital assets in the current year.

a. For the current year, determine the amount of Ken's total recognized gain or loss.

b. For the current year, determine the character of the gain or loss and calculate Ken's total tax due because of the sale (assuming his marginal ordinary tax rate is 32 percent).

Question No. 12 - Deirdre sold 153 shares of stock to her brother, James, for $4,131. Deirdre purchased the stock several years ago for $5,661. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

a. What gain or loss does Deirdre recognize on the sale?

Recognized gain/loss -------------------------?

b. What amount of gain or loss does James recognize if he sells the stock for $5,967?

Recognized gain/loss -------------------------?

c. What amount of gain or loss does James recognize if he sells the stock for $4,896?

Recognized gain/loss -------------------------?

d. What amount of gain or loss does James recognize if he sells the stock for $3,366?

Recognized gain/loss -------------------------?

Attachment:- Taxation Questions.rar