Questions and Answers of Intellectual Property

The tax law provides four methods of cost recovery for assets:(1) Immediate deduction of the total cost when paid or incurred; (2) Deferral of cost until the property is sold or otherwise disposed
You are the resident tax expert forWetzel’s Pretzels, an international producer of junk food. The controller has come to you with the company’s capital expenditures budget for next year. The
Joan is interested in buying a special diagnostic machine for use in her medical practice. The machine will cost her $16,000 and will have a $2,000 salvage value at the end of its 8-year life. Joan
Steem Advertising Corporation acquires 100 laptop computers in 2010 for its account executives to use. Steem pays $300,000 for the computers and bundled software. You are the newly hired CPA and you
In determining the amount of a realized gain or loss to be recognized in the current year, certain types of gains and losses are deferred, whereas others are disallowed.What is the difference between
What effect does the assumption of a seller's debt have on the amount realized from the disposition of a property?
Are brokerage commissions paid on the sale of stock a current period expense? Explain.
In a transaction in which the seller of property agrees to take other property from the buyer as part of the sales price, why is the buyer's adjusted basis unimportant in determining the amount
What is the purpose of the capital gain-and-loss netting procedure?
Why is a distinction made between long-term capital gain (loss) property and short-term capital gain (loss) property?
What is (are) the current tax advantage(s) of selling an asset at a long-term capital gain?
Evaluate the following statement: Corporations can never deduct net capital losses.
Under what conditions may a taxpayer exclude a portion of a realized capital gain?
What basic tax-planning strategy should a taxpayer with a large net capital gain for the year pursue before the end of the year?
How should taxpayers determine the basis of securities sold when their portfolios contain several purchases of the same stock at different prices? Explain.
When does a taxpayer realize a loss on a worthless security? What is the amount of realized loss? What rules govern the recognition of a loss on a worthless security? Explain.
What is Section 1231 property?
What is the tax advantage of selling a Section 1231 property at a gain?
One primary problem in properly accounting for property dispositions is differentiating capital assets and Section 1231 property. Why is it important to correctly identify as either a capital asset
Explain the look back rule as it applies to the Section 1231 netting procedure.
The chapter noted that all depreciable property is subject to the depreciation recapture rules. What is the intent of the depreciation recapture rules?
How are the recapture provisions for Section 1245 and Section 1250 property different?
Are buildings always Section 1250 property? If not, explain the circumstances under which a building would not be Section 1250 property.
Some tax theorists have noted that in most cases, a sale of a depreciable asset will not be accorded capital gain treatment. What would prompt tax theorists to make this statement?
What is un-recaptured Section 1250 gain, and how is the gain taxed?
Determine the amount realized in each of the following property dispositions:a. Herbert sells some land he owns to Elroy in exchange for $23,000 in cash and 2 breeding hogs worth $1,500 each
Determine the amount realized in each of the following property dispositions:a. Umberto wants to buy Kevin's truck. Because Umberto has no cash and cannot obtain a loan to finance the purchase, Kevin
Tuyen is negotiating the sale of her lakefront property nearWabasha.Nils is offering Cash of $10,000A parcel of land near Red Wing valued at $5,000 with an adjusted basis of $3,000A ski boat valued
Determine the amount of gain or loss realized and the amount of gain or loss to be recognized in each of the following dispositions:a. On October 1, Rufus Partnership sells land to Gerald for which
Determine the amount of gain or loss realized and the amount of gain or loss to be recognized in each of the following dispositions:a. Jorge owns 800 shares of Archer Company stock. He had purchased
During the current year, James sells some land he purchased in 2006 as an investment. He had paid $4,000 in cash and borrowed $22,000 to buy the land.He had paid legal fees of $440 and commissions of
Elvira owns an office building, and Jared Partnership owns an apartment building. Each property is encumbered by a mortgage. Elvira and Jared Partnership agree to exchange their properties and
Guerda owns 1,500 shares of Ditchdirt common stock. During the current year, she sells 500 shares of the stock for $15 per share and pays a commission of $300 on the sale. Guerda had purchased the
Return to the facts of problem 29. Assume that Guerda later sells an additional 200 shares of the Ditchdirt stock for $20 per share, paying a commission of $600 on the sale. What is her gain or loss
Return to the facts of problem 29. Assume that Guerda sells the remaining 800 shares of Ditchdirt stock for $10 per share and pays a commission of $400 on the sale. What is her gain or loss on the
Return to the facts of problem 29. What tax-planning strategy can be used to achieve more favorable tax results? Use this strategy to determine Guerda’s gain or loss on the sale.
Classify each of the following assets as ordinary income property, capital asset property, Section 1231 property, or personal use property. If more than one classification is possible, explain the
Classify each of the following assets as ordinary income property, capital asset property, Section 1231 property, or personal use property. If more than one classification is possible, explain the
Spencer purchases 100 shares of Reality Virtual Corporation common stock for $1,200 on July 30, 2011. He sells 75 shares of this stock for $525 on December 27, 2011. On January 12, 2012, Spencer
Mort begins investing in stocks in 2010. Listed here are his stock transactions for 2010 and 2011. Determine Mortâ€™s gain or loss on his stock transactions for 2010 and 2011. In addition, for
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss on the disposition and whether that gain or loss is short-term or long-term.a. Ari
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss and whether that gain or loss is short-termor long-term:a. Larry’s aunt June dies on
Rudy has the following capital gains and losses for the current year. What is the effect of the capital asset transactions on his taxable income? Explain, and show any calculations.Short-term capital
Judith Corporation has the following gains and losses from sales of capital assets during the current year. What is the effect of the capital asset transactions on Judith’s taxable income? Explain
Return to the facts of problem 40. Assume that Judith is an individual taxpayer. What is the effect of the capital asset transactions on Judith’s taxable income? Compare this result with the result
Tate has the following gains and losses from sales of capital assets during the current year. What is the effect of the capital asset transactions on Tate’s taxable income? Explain, and show any
Troy has the following gains and losses from sales of capital assets during the current year. What is the effect of the capital asset transactions on his taxable income?Explain, and show any
Rollie has the following capital gains and losses during the current year:Short-term capital gain . $ 3,000Collectibles gain ..... 4,000Long-term capital gain ... 11,000Long-term capital loss ...
Loretta has the following capital gains and losses during the current year:Short-term capital loss ..... $ 4,000Collectibles gain ........ 10,000Long-term capital gain ...... 8,000Long-term capital
Samantha has the following capital gains and losses during the current year:Short-term capital loss . $ 7,000Short-term capital gain .. 5,000Collectibles loss .... 11,000Long-term capital gain ...
Jie has the following capital gains and losses during the current year:Short-term capital loss ....... $ 2,000Collectibles gain ........... 3,000Unrecaptured Section 1250 gain ... 8,000Long-term
Yorgi purchases qualified small business stock in Gnu Company, Inc., on September 15, 2005, for $50,000. She sells the shares for $400,000 on December 30, 2011. The stock retains its qualified small
Return to the facts of problem 48. Assume that Yorgi has a net capital loss of $80,000 from her other capital asset transactions in 2011. What is the effect of the sale of the stock on Yorgi’s tax
Return to the facts of problem 48. Assume that Yorgi purchased the qualified small business stock in Gnu Company, Inc., on September 15, 2009, and sells the shares for $400,000 on December 30,
Return to the facts of problem 50. How would your answer change if Yorgi purchased the qualified small business stock in Gnu Company, Inc., on September 15, 2011, and sells the shares for $400,000 on
During August 2008, Madeline invests $400,000 in Qual Company, Inc., buying 100,000 shares of stock. Her broker tells her this will be an excellent investment because the securities are qualified
In 2004, RAD Partnership was organized by 3 equal partners: 2 individuals (Rachael and Adam) and Depesh Corporation. On November 3, 2002, RAD Partnership purchases 18,000 shares of qualified small
Marnie buys 500 shares of qualified small business stock in H.R. Pizza, Inc., on September 10, 2006, for $20,000. She sells the 500 shares for $120,000 on October 2, 2011. Marnie’s other capital
Neila sells 500 shares of Bolero Corporation stock for $10,500 and pays $500 in sales commissions on September 23 of the current year. She acquired the stock for $4,700 plus $300 in commissions five
Ansel sells 400 shares of Sharpe, Inc., common stock on October 12, 2011, for $11,800 and pays $600 in commissions on the sale. He acquired the stock for $18,400 plus $800 in commissions on July 8,
Opal’s neighbor, Jilian, persuades her to invest in Schaake Corporation, a new venture, on March 4, 2010. Opal pays $15,000 for 3,000 shares of common stock. On February 6, 2011, Schaake
Fred’s Foam Foundations (FFF) is a sole proprietorship that Fred started in 2006. Before the current year, FFF had not disposed of any property it owned. During the current year, FFF has the
Refer to the facts in problem 58. In the following year, FFF has these gains and losses:Casualty gain on building . $ 5,000Section 1231 gains ..... 3,000Section 1231 losses ..... 17,000What is the
In 2011, Sondra Corporation recognizes $18,000 in Section 1231 gains and 10,000 in Section 1231 losses. In 2006, Sondra reported $12,000 in Section 1231 losses and no Section 1231 gains. No other
Dawn started her own rock band on January 2, 2009. She acquired all her equipment on January 2, 2009, and did not dispose of any of it before 2011. On April 15, 2011, the band’s amplifiers,
Rhinelander Corporation has the following net Section 1231 gains and losses for 2006 through 2010:2006 ...... $ 8,0002007 ...... (6,000)2008 .... (13,000)2009 ...... 11,0002010 ...... 15,000a. What
The Gladys Corporation buys office equipment costing $208,000 on May 12, 2011. In 2014, new and improved models of the equipment make it obsolete, and Gladys sells the old equipment for $34,000 on
Avalon, Inc., buys equipment costing $150,000 in 2008, and sells it in 2011. Avalon deducts $94,000 in depreciation on the equipment before the sale. What is the character of the gain or loss on the
Maria sells the automobile she uses in her job as a marketing representative for $3,000. The car cost $15,000 four years earlier. Maria uses the automobile 80% of the time in her job and 20% of the
Alex purchases a building in 1986 at a cost of $500,000. ACRS depreciation on the building totals $320,000, whereas straight-line depreciation would be $260,000 for the same period. Alex sells the
Manuel is negotiating the sale of two of his rental properties. He has an offer of $500,000 for each condo. Manuel bought one condo in 1986 for $400,000 and has deducted depreciation of $185,000
Anton purchases a building on May 4, 1993, at a cost of $270,000. The land is properly allocated $30,000 of the cost. Anton sells the building on October 18, 2011, for $270,000. What is the character
Assume that the building in problem 68 is an apartment building held for investment. In addition to the sale of the building, Anton has the following capital gains and losses during 2011:Short-term
Thuy bought a rental house in 2004 for $75,000. In 2011, she sells it for $86,000. Thuy properly deducted $22,000 in depreciation on the house before its sale. What is the amount and character of the
Nadia sells land for $4,000 and the buyer assumes her $13,000 mortgage. She pays $1,000 in real estate commissions on the sale.Identify the tax issue(s) posed by the facts presented. Determine the
Luke trades his baseball card collection for an automobile. The automobile is worth $11,000, and Luke assumes the $3,000 loan on the car. Luke has $3,500 invested in his baseball card
Marino inherits antique pottery from the estate of his grandmother on March 10, 2011. He immediately sells the pottery for $15,000 to a collector who had made the offer to the executor of the estate
Jackie receives 100 shares of stock as a birthday gift from her Uncle Horace. Horace acquired the shares 22 years ago for $4 each. The stock’s value on Jackie’s birthday is $36 per share. She
While snorkeling on spring break in Cancun, Melody finds a small bag containing several jewels lodged between some rocks about 25 yards offshore. She reports the find to the local authorities.
Carter owns 1,200 shares of Echo Corporation stock. He purchased 400 shares of the stock on December 23, 2009, for $48,000, and the other 800 shares on October 31, 2010, for $84,000. On August 14,
Martina purchases 10,000 shares of Monrovia Corporation stock for $90,000 on November 14, 2010. On June 18, 2011, Monrovia declares bankruptcy. Because the corporation’s assets are less than its
Deskjet Corporation sells equipment with an adjusted basis of $22,000 for $3,000. The corporation paid $43,000 for the equipment three years ago.Identify the tax issue(s) posed by the facts
Bostian Company reports a net Section 1231 gain of $31,000 during the current year.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that
Jammer, Inc., sells a building for $180,000. The company paid $135,000 for the building four years earlier and had taken $12,000 in depreciation on it up to the date of the sale.Identify the tax
Bernadero Corporation sells a construction crane with an adjusted basis of $32,000 for $37,000. The corporation paid $50,000 for the crane.Identify the tax issue(s) posed by the facts presented.
Harry sells the automobile he has used in his job as a salesman for $2,000. It cost $15,000 four years earlier. Harry used the automobile 70% of the time in his job and 30% of the time for personal
Tawana purchased real property in 2009 at a cost of $200,000. In 2011, she is experiencing cash-flow problems and sells the property for $220,000. The adjusted basis of the property is
In 2010, Nuts & Seeds Inc., purchased a new ‘‘high-tech’’ shelling machine from Soft-Core Corporation. Nuts and Seeds paid $1,000 in cash and gave Soft-Core a $29,000 note. The note is
As discussed in this chapter, planning for capital gains and losses is an important aspect of tax practice. Use the Internet to find information that provides year-end tax planning opportunities.
The Internal Revenue Service provides various types of help to taxpayers on its World Wide Web site (www.irs.gov/). Its publication series explains the tax treatment of many different transactions
Jeremiah owns farm land that he paid $20,000 for in 1999. In 2010, he planted a winter wheat crop on the land, incurring $35,000 of expenses. Jeremiah deducted the $20,000 of planting expenses that
In problem 89 in Chapter 9 and problem 74 in Chapter 10, the initial basis and the adjusted basis of Emelio and Charita’s assets were determined as of December 31, 2011. During 2012, they have the
Duke Plumbing and Wallpaper Company is a corporation that has been in business since 1992. During the current year, it has the following property transactions:a. A warehouse purchased in 2002 for
Barney is a farmer who has the following transactions during 2011:a. A barn that cost $36,000 in 2003 with an adjusted basis of $16,000 is destroyed by a tornado. Barney’s insurance pays him
As a gift for her granddaughter Ella’s 13th birthday, Melanie bought 500 shares of Soft’n Sales Corporation stock on September 25, 2006. Melanie bought the stock directly from the underwriter for
Christoffe sells 1,000 shares of HoTech Corporation preferred stock for $37 per share on August 3 of the current year. Sales commissions total $300. The stock€™s price has been falling
At the beginning of 2011, Heather owns the following stocks:In addition to these stocks, Heather received 400 shares of Poor Boy preferred stock from her grandfather as a gift on December 25, 2010.
Rosie has owned a successful luncheonette for several years. Tired of the long hours and eager to try another way of life, she decides to buy a fishing boat and start a charter service near Key West.
Twenty years ago, Consuela Guererro invented and patented a high-speed burritostuffing machine. Through the years, she has jealously guarded her invention, allowing its use only in El Consuela’s, a
You are a CPA who works for a local accounting firm. While having lunch at Willie's Communication Skills Diner last Thursday, you overheard Beth Murray describe how Bart (her spouse) was able to get

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