Concepts In Federal Taxation 19th Edition Kevin E. Murphy, Mark Higgins, Tonya K. Flesher - Solutions

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 of; (3) Deduction based on a percentage of income from the property over its life; and (4) Deduction
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 budget shows that Wetzel’s Pretzels plans to spend $1,000,000 next year on personal property. 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 would like to know the actual cost of the machine after considering the effect of the present value
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 expect to advise Steem on tax issues regarding tax years 2011 and 2012. Upon examining the firm’s
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 deferring a gain or loss realized in the current period and disallowing the recognition of a
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 realized by the seller?
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 or a Section 1231 property an asset that has been disposed of? Explain.
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 (adjusted basis of $500 each). In closing the sale, Herbert incurs legal fees of $600, title search costs of
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 agrees to let Umberto pay him $320 a month for 6 months. In addition, Umberto agrees to put a new
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 at $9,000 with an adjusted basis of $15,000Installation of new heating and air conditioning in
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 it had paid $32,000. Gerald agrees to pay Rufus $15,000 and to assume Rufus's $13,000 mortgage on the
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 300 of the shares for $9,000 and 500 of the shares for $10,000. During the current year, Jorge
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 $560 on the purchase. He sells the land on October 1 to DeWayne, who gives James 200 shares 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 mortgages, with any difference to be paid in cash. The fair market values, mortgages, and adjusted bases
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 1,500 shares as follows:What is Guerdaâ€™s gain or loss on the sale of thestock?
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 on the sale of the stock?
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 sale?
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 circumstances that would determine the proper classification.a. Sarah is a sculptor. During 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 circumstances that would determine the proper classification.a. Letters written by then–Vice
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 purchases 300 shares of Reality Virtual stock for $2 per share.a. What are the tax effects of these
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 each sale of stock, determine whether the gain or loss is short-term orlong-term.
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 receives some stock from his grandfather Stephan for Christmas. Stephan paid $4,300 for the stock 3
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 May 4, 2011. He inherits some land that she purchased in 1992 for $2,000. On May 4, 2011, the land
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 loss ... $15,500Long-term capital gain .. 11,600Long-term capital loss .... 4,500
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 and show any calculations.Short-term capital gain .. $2,700Short-term capital loss ....
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 in problem 40.
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 calculations.Short-term capital gain .. $3,600Long-term capital gain .. 8,400Long-term capital loss
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 calculations.Short-term capital gain . $7,800Short-term capital loss ... 9,000Long-term capital gain ...
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 ... 6,000Rollie is married and has a taxable income of $145,000 before considering the effect of his
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 loss carryover . 2,000Loretta is single and has a taxable income of $200,000 before considering the
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 ... 8,000Long-term capital loss ... 4,000Samantha is married and has a taxable income of $119,000 before
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 capital gain ....... 12,000Long-term capital loss carryover .... 7,000Jie is married and has a taxable
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 business status through the date of the sale.a. Determine the amount of realized and recognized gain
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 liability if her marginal tax rate is 33%?
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, 2014.a. Determine the amount of realized and recognized gain on the sale.b. What is Yorgi’s effective
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 December 30, 2016.
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 small business stock. He predicts the stock will triple in value over the next 3 years. At the end of
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 business stock in Miltown Corporation for $36,000. On December 2, 2011, RAD sells all of the Miltown
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 asset transactions consist of a $7,000 short-term capital loss, a $25,000 long-term capital gain, and
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 years ago. Neila owns the following securities in December of the current year.Write a memorandum to
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, 2010. Ansel owns the following securities in December 2011:What actions should Ansel take to optimize
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 Corporation declares bankruptcy and closes its doors forever. Opal never receives a return on her investment
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 following gains and losses:Casualty loss on foam truck .... $3,200Section 1231 gains ........ 9,400Section
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 effect of these transactions on Fred’s taxable income? Explain, and show the required calculations.
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 Section 1231 gains or losses were recognized by Sondra during the 2006–2010 period. What is the tax
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, speakers, and other electronic equipment are stolen after a concert. The stolen equipment’s basis is
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 is the proper characterization of the net Section 1231 gains and losses for 2006–2010 for
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 December 27, 2014.a. What is the character of Gladys Corporation’s gain or loss on the sale assuming
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 sale of the equipment if the selling price isa. $90,000?b. $155,000?c. $40,000?
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 time for personal purposes. At the date of sale, Maria had taken $10,000 in depreciation on 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 building for $620,000.a. What is Alex’s gain on the sale if he deducts the ACRS depreciation on 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 using ACRS (accelerated depreciation). Straight line depreciation would have been $125,000 if he had
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 of Anton’s gain or loss on the sale if he uses the regular MACRS system and the building isa. An
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 capital loss .......... $ 4,000Collectibles gain ............ 7,000Long-term capital gain .........
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 gain on the sale?a. Thuy also sells the following securities:Determine the amount of tax that Thuy
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 possible tax consequences of each issue that you identify.
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 collection.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each
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 several weeks before. The estate valuation of the pottery is $13,000. Marino’s grandmother paid
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 sells half her shares for $1,500 five months after her birthday and pays a broker $50 to complete the
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. However, no one has reported a loss of jewels, and Melody is allowed to keep them. Upon returning home,
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, 2011, he sells 500 shares of the stock for $15,000 and pays a $900 commission on the sale.Identify the
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 liabilities, the stock is determined to be worthless on October 16, 2011.Identify the tax issue(s)
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 presented. Determine the possible tax consequences of each issue that you identify.
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 you identify.
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 issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you
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. Determine the possible tax consequences of each issue that you identify.
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 purposes. At the date of sale, Harry had taken $10,000 in depreciation on the car.Identify the tax
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 $185,000.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each
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 non-recourse and Soft-Core’s only recourse in the event of default by Nuts & Seeds is to take back the
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. Trace the process you used to find the information (search engine or tax directory used and key words).
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 and situations. Find the publication(s) that discuss the treatment of gains on the sale of qualified
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 he paid in 2010. He pays the remaining $15,000 of expenses in 2011. Jeremiah sells the land together
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 following transactions related to the assets:a. In June, an electrical connection shorts out and
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 $200,000 is sold for $180,000. Depreciation taken on the building to date of sale totals $62,000.b.
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 $26,000 for the casualty.b. Barney’s prize bull, for which he paid $22,000 and which has an adjusted
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 $20,000. Soft’n Sales had just gone public, and Melanie believes the stock will be a good
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 since HoTech€™s management was sued for patent infringement four months ago. The price is
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. The shares were selling for $25 per share on December 24, 2010. No gift tax was paid on the transfer
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. The only obstacle is the sale of the following assets of the luncheonette to fund her fishing boat
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 chain of restaurants in which she owns 60%of the stock. (Her basis in the stock is $200,000.) On
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 a $2,000 business loss, free car maintenance for 2 years, and $4,000 cash to spend on their vacation

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Concepts In Federal Taxation 19th Edition Kevin E. Murphy, Mark Higgins, Tonya K. Flesher - Solutions

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