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215
Subject
Accounting
Date
May 5, 2024
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1. Jamie sells investment real estate for $80,000, resulting in a $15,000 loss. Jamie's loss is
A) an ordinary loss.
B) a capital loss.
C) a Sec. 1231 loss.
D) a Sec. 1244 loss.
Answer: B
Explanation: Real estate held for investment is considered a capital asset; therefore the loss on the sale or exchange is a capital loss.
Page Ref.: I:9-5; Example I:9-4
Objective: 2
2. Lucia owns 100 shares of Cronco Inc. which she purchased on December 1 of last year for $10,000. The stock is not Sec. 1244 stock. On July 1 of the current year, Lucia receives notice from the bankruptcy court that Cronco Inc. has been liquidated, and there are no assets remaining for shareholders. As a result, Lucia will have
A) a short-term capital loss of $10,000.
B) a long-term capital loss of $10,000.
C) an ordinary loss of $10,000.
D) no loss allowed.
Answer: B
Explanation: Worthlessness of securities is deemed to occur at the end of the year so the loss will be treated as long-term capital loss.
Page Ref.: I:9-3 and I:9-4; Example I:9-3
Objective: 1
3. Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n)
A) ordinary loss of $125,000.
B) long-term capital loss of $125,000.
C) long-term capital loss of $100,000 and ordinary loss of $25,000.
D) ordinary loss of $100,000 and long-term capital loss of $25,000.
Answer: D
Explanation: The loss realized is $100,000 - $225,000 = ($125,000). Since the stock is Section 1244 stock and Stacy is an original owner, the first $100,000 (for married individuals) of the loss is treated as ordinary. The remainder of $25,000 ($125,000 - $100,000) is treated as long-term capital gain since Stacy held the stock longer than 12 months.
Page Ref.: I:9-5
Objective: 2
4. Rex has generated $150,000 of AGI this year due to salary, interest income and dividends. Rex is a single taxpayer. He plans to sell his shares of Trisco Inc., a qualifying small business corporation under Sec. 1244, realizing a $110,000 loss. Rex has
not sold any other investment assets this year. Due to the sale of the Trisco stock, he will
reduce his AGI by
A) $3,000.
B) $110,000.
C) $50,000.
D) $53,000.
Answer: D
Explanation: The sale of the Sec. 1244 stock will result in a $50,000 ordinary loss and a $60,000 capital loss. He will recognize the full $50,000 loss, but will be limited to recognition of $3,000 of the capital loss.
Page Ref.: I:9-5
Objective: 2
5. Joy reports the following income and loss:
Salary
$ 120,000 Income from activity A
60,000 Loss from activity B
( 35,000)
Loss from activity C
( 55,000)
Activities A, B, and C are all passive activities.
Based on this information, Joy has
A) adjusted gross income of $90,000.
B) salary of $120,000 and deductible net losses of $30,000.
C) salary of $120,000 and net passive losses of $30,000 that will be carried over.
D) salary of $120,000, passive income of $60,000, and passive loss carryovers of $90,000.
Answer: C
Explanation: The losses from passive activities B and C may offset and eliminate the income from passive activity A resulting in a net passive loss of $30,000 ($60,000 income less $90,000 loss). The passive loss of $30,000 may not offset the salary and must be carried over to the next tax year.
Page Ref.: I:9-8; Example I:9-6
Objective: 3
7. Joy reports the following income and loss:
Salary
$ 120,000 Income from activity A
60,000 Loss from activity B
( 35,000)
Loss from activity C
( 55,000)
Activities A, B, and C are all passive activities.
Based on this information, Joy has the following suspended losses:
A) Activity B
Activity C
$11,667
$18,333
B)
Activity B
Activity C
$35,000
$55,000
C) Activity B
Activity C
$10,000
$20,000
D) Activity B
Activity C
$0
$0
Answer: A
Explanation: Suspended losses total $30,000 ($60,000 - [$35,000 + $55,000]) and are allocated pro rata to the two loss activities. Activity B: $30,000 × ($35,000/$90,000) = $11,667; Activity C: $30,000 × ($55,000/$90,000) = $18,333.
Page Ref.: I:9-8; Example I:9-6
Objective: 3
8. Jana reports the following income and loss:
Salary
$ 120,000 Income from activity A
60,000 Loss from activity B
(30,000)
Loss from activity C
(70,000)
Activities A, B, and C are all passive activities.
Based on this information, Jana has the following suspended losses
A) Activity B
Activity C
$30,000
$70,000
B) Activity B
Activity C
$0
$0
C) Activity B
Activity C
$18,000
$42,000
D) Activity B
Activity C
$12,000
$28,000
Answer: D
Explanation: Suspended losses total $40,000 ($60,000 - [$30,000 + $70,000]) and are allocated pro rata to the two loss activities. Activity B: $40,000 × ($30,000/$100,000) = $12,000; Activity C: $40,000 × ($70,000/$100,000) = $28,000.
Page Ref.: I:9-8; Example I:9-6
Objective: 3
9. Justin has AGI of $110,000 before considering his $30,000 loss from rental property, which he actively manages. How much of the rental loss can Justin deduct this year?
A) $10,000
B) $20,000
C) $25,000
D) $30,000
Answer: B
Explanation: Justin must reduce the $25,000 rental loss allowance by 50% of his AGI over $100,000, resulting in a deductible loss of $20,000 [$25,000 - .5($110,000 - $100,000)].
Page Ref.: I:9-14 and I:9-15; Example I:9-16
Objective: 3
10. Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct?
A) $0
B) $10,000
C) $20,000
D) $25,000
Answer: A
Explanation: His AGI exceeds $150,000, so no portion of the rental loss is deductible.
Page Ref.: I:9-15
Objective: 3
11. Last year, Abby loaned her friend, Pat, $10,000. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona
fide, Abby should account for nonpayment of the loan as a(n)
A) itemized deduction.
B) ordinary loss.
C) long-term capital loss.
D) short-term capital loss.
Answer: D
Explanation: Because the debt is not related to Abby's trade or business, it is a nonbusiness bad debt. All nonbusiness bad debts are deductible as short-term capital losses after determined totally worthless.
Page Ref.: I:9-26
Objective: 5
12. Kayla reported the following amounts in her 2023 tax return:
Interest income
$ 6,900 Loss from sole proprietorship
(20,000)
AGI
(13,100)
Standard deduction
(13,850)
($26,950)
Kayla has generated an NOL of
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Related Questions
True or False. What's the answer for this?
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Required information
Problem 11-50 (LO 11-5) (Algo)
[The following information applies to the questions displayed below.]
Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231
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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
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Aruna's tax will
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decrease
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To calculate any capital gain or loss, you need to
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the adjusted cost base (ACB)
the outlays and expenses incurred to sell your
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!
Required information
Problem 11-50 (LO 11-5) (Algo)
[The following information applies to the questions displayed below.]
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
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what effect will the sales have on Aruna's tax liability for each year?
Aruna's tax will
Aruna's tax will
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in year 2 by
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77
Week 5 Discussion Forum
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Recommended textbooks for you
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT