Question: Elliott has the following capital gain and

> Determine the taxpayer’s current-year (1) economic income and (2) gross income for tax purposes from the following events. a. Sam’s employment contract as chief executive of a large corporation was terminated, and he was paid $500,000 not to work fo

> Howard buys wrecked cars and stores them on his property. Recently, he purchased a 1990 Ford Taurus for $400. If he can sell all of the usable parts, his total proceeds from the Taurus will be over $2,500. As of the end of the year, he has sold only the

> Glenda, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Glenda pays $8,400 rent on April 1, 2015 for the 12 months ending March 31, 2016. a. How much is Glenda’s deduction for rent expense in 2015? b

> Cardinal Corporation is a trucking firm that operates in the Mid-Atlantic states. One of Cardinal’s major customers frequently ships goods between Charlotte and Baltimore. Occasionally, the customer sends last-minute shipments that are out- bound for Eur

> Linda operates an illegal gambling operation and incurs the following expenses. Which of these expenses can reduce her taxable income? a. Bribes paid to city employees. b. Salaries to employees. c. Security cameras. d. Kickbacks to police. e. Rent on an

> Ted, an agent for Waxwing Corporation, which is an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country. Waxwing has sufficient capacity to handle only one of the order

> Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2015. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Because the coliseum was not scheduled to be used again until January 15, the c

> Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan.

> Tammy, a resident of Virginia, is considering whether to purchase a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. Tammy is aware that State of Virginia bonds

> Several years ago, Loon Finance Company, which is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for bankruptcy, and Loon was notified that it could not e

> During the past tax year, Jane identified $50,000 as a nonbusiness bad debt. In that tax year, Jane had $100,000 of taxable income, of which $5,000 consisted of short-term capital gains. During the current tax year, Jane collected $10,000 of the amount s

> Pam owns a personal-use boat that has a fair market value of $35,000 and an adjusted basis of $45,000. Pam’s AGI is $100,000. Calculate the realized and recognized gain or loss if: a. Pam sells the boat for $35,000. b. Pam exchanges the boat for anothe

> If a taxpayer sells property for cash, the amount realized consists of the net proceeds from the sale. For each of the following, indicate the effect on the amount realized: a. The property is sold on credit. b. A mortgage on the property is assumed by

> Roby and James have been married for nine years. Roby sells Plum, Inc. stock that she has owned for four years to James for its fair market value of $180,000. Her adjusted basis is $200,000. a. Calculate Roby’s recognized gain or recognized loss. b. Cal

> Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2015, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on August 16, 2015, he and the purchaser signed a contrac

> Edith’s warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October 2015. Edith, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2016. Calculate Edith’s realized gain or loss, recognized gain or loss, and ba

> For each of the following involuntary conversions, indicate whether the property acquired qualifies as replacement property, the recognized gain, and the basis for the property acquired. a. A warehouse is destroyed by a tornado. The space in the warehou

> Howard’s roadside vegetable stand (adjusted basis of $275,000) is destroyed by a tractor-trailer accident. He receives insurance proceeds of $240,000 ($300,000 fair market value – $60,000 coinsurance). Howard immediately uses the proceeds plus additional

> Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the building for $900,000. Randall accepts the offer with t

> Determine Hazel’s Federal gross income from the following receipts for the year. Gain on sale of Augusta County bonds ……………………. $800 Interest on U.S. government savings bonds ………………. 400 Interest on state income tax refund …………………………. 200 Interest on Au

> Turquoise Realty Company owns an apartment house that has an adjusted ba- sis of $760,000 but is subject to a mortgage of $192,000. Turquoise transfers the apartment house to Dove, Inc., and receives from Dove $120,000 in cash and an office building with

> Determine the realized, recognized, and postponed gain or loss and the new basis for each of the following like-kind exchanges: Adjusted Basis of Old Asset Boot Fair Market Value of Boot Given New Asset Received $ 7,000 $ -0- $12,000 $4,000 a. b. 14,

> Tom and Frank are brothers. Each owns investment property in the other’s hometown. To make their lives easier, they decide to legally exchange the investment properties. Under the terms of the exchange, Frank will transfer realty (adjusted basis of $52,0

> Cardinal Properties, Inc., exchanges real estate used in its business along with stock for real estate to be held for investment. The stock transferred has an adjusted basis of $45,000 and a fair market value of $50,000. The real estate transferred has a

> Rose Company owns Machine A (adjusted basis of $12,000 and fair market value of $15,000), which it uses in its business. Rose sells Machine A for $15,000 to Aubry (a dealer) and then purchases Machine B for $15,000 from Joan (also a dealer). Machine B wo

> What is the basis of the new property in each of the following exchanges? a. Apartment building held for investment (adjusted basis of $145,000) for office building to be held for investment (fair market value of $225,000). b. Land and building used as

> Tulip, Inc., would like to dispose of some land it acquired four years ago because the land will not continue to appreciate. Its value has increased by $50,000 over the four-year period. The company also intends to sell stock that has declined in value b

> Maple Company owns a machine (adjusted basis of $90,000; fair market value of $125,000) that it uses in its business. Maple exchanges it for another machine (worth $100,000) and stock (worth $25,000). Determine Maple’s: a. Realized and recognized gain o

> Starling Corporation exchanges a yellow bus (used in its business) for Robin Corporation’s gray bus and some garage equipment (used in its business). The assets have the following characteristics: a. What are Starling’s recognized gain or loss and basis

> Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2015, she exchanges it with Martin (an unrelated party) for undeveloped land on the West Coast and $3,000 cash. Martin has

> How does the tax benefit rule apply in the following cases? a. In 2013, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange’s cost of the furniture was $600. In 2014, Orange took a bad debt deduct

> A warehouse owned by M&S (a partnership) and used in its business (i.e., to store inventory) is being condemned by the city to provide a right-of-way for a highway. The warehouse has appreciated by $180,000 based on an estimate of fair market value. In t

> Sue exchanges a sport utility vehicle (adjusted basis of $16,000; fair market value of $19,500) for cash of $2,000 and a pickup truck (fair market value of $17,500). Both vehicles are for business use. Sue believes that her basis for the truck is $17,500

> Surendra’s personal residence originally cost $340,000 (ignore land). After living in the house for five years, he converts it to rental property. At the date of conversion, the fair market value of the house is $320,000. As to the rental property, calcu

> Abby’s home had a basis of $360,000 ($160,000 attributable to the land) and a fair market value of $340,000 ($155,000 attributable to the land) when she converted 70% of it to business use by opening a bed-and-breakfast. Four years after the conversion,

> Sam owns 1,500 shares of Eagle, Inc. stock that he purchased over 10 years ago for $80,000. Although the stock has a current market value of $52,000, Sam still views the stock as a solid long-term investment. He has sold other stock during the year with

> Tyneka inherited 1,000 shares of Aqua, Inc. stock from Joe. Joe’s basis was $35,000, and the fair market value on July 1, 2015 (the date of death), was $45,000. The shares were distributed to Tyneka on July 15, 2015. Tyneka sold the stock on July 30, 201

> Sheila sells land to Elane, her sister, for the fair market value of $40,000. Six months later when the land is worth $45,000, Elane gives it to Jacob, her son. (No gift tax resulted.) Shortly thereafter, Jacob sells the land for $48,000. a. Assuming th

> Dan bought a hotel for $2,600,000 in January 2011. In May 2015, he died and left the hotel to Ed. While Dan owned the hotel, he deducted $289,000 of cost recovery. The fair market value in May 2015 was $2,800,000. The fair market value six months later w

> On September 18, 2015, Gerald received land and a building from Frank as a gift. Frank’s adjusted basis and the fair market value at the date of the gift are as follows: No gift tax was paid on the transfer. a. Determine Geraldâ

> Simon owns stock that has declined in value since acquired. He has decided either to give the stock to his nephew, Fred, or to sell it and give Fred the proceeds. If Fred receives the stock, he will sell it to obtain the proceeds. Simon is in the 15% tax

> Vito is the sole shareholder of Vito, Inc. The corporation also employs him. On June 30, 2015, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2016, he borrowed an additional $10,000. Both loans were due on demand. No interest was charged on the loa

> Nicky receives a car from Sam as a gift. Sam paid $48,000 for the car. He had used it for business purposes and had deducted $10,000 for depreciation up to the time he gave the car to Nicky. The fair market value of the car is $33,000. a. Assuming that

> Roberto has received various gifts over the years. He has decided to dis- pose of the following assets he received as gifts: a. In 1951, he received land worth $32,000. The donor’s adjusted basis was $35,000. Roberto sells the land for $95,000 in 2015.

> Rod Clooney purchases Agnes Mitchell’s sole proprietorship for $990,000 on August 15, 2015. The assets of the business are as follows: Rod and Agnes agree that $50,000 of the purchase price is for Agnes’s five-year co

> Finch, Inc., purchases 1,000 shares of Bluebird Corporation stock on October 3, 2015, for $300,000. On December 12, 2015, Finch purchases an additional 750 shares of Bluebird stock for $210,000. According to market quotations, Bluebird stock is selling f

> Luciana, a nonshareholder, purchases a condominium from her employer for $85,000. The fair market value of the condominium is $120,000. What is Luciana’s basis in the condominium and the amount of any income as a result of this purchase?

> Sissie owns two items of business equipment. Both were purchased in 2011 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering selling these assets in 2015. One of them is worth $60,000,

> Renata Corporation purchased equipment in 2013 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2015 for $110,000. What is the amount and character of Renata’s gain or loss?

> Coline has the following capital gain and loss transactions for 2015. Short-term capital gain $ 5,000 Short-term capital loss (2,100) Long-term capital gain (28%) 6,000 Long-term capital gain (15%) 2,000 Long-term capital loss (28%) (10,500) After th

> Indicate whether the imputed interest rules apply in the following situations. a. Mike loaned his sister $90,000 to buy a new home. Mike did not charge interest on the loan. The Federal rate was 5%. Mike’s sister had $900 of investment income for the ye

> Dexter owns a large tract of land and subdivides it for sale. Assume that Dexter meets all of the requirements of § 1237 and during the tax year sells the first eight lots to eight different buyers for $22,000 each. Dexter’s basis in each lot sold is $15

> In a § 1031 like-kind exchange, Rafael exchanges equipment that originally cost $200,000. On the date of the exchange, the equipment given up has an adjusted basis of $85,000 and a fair market value of $110,000. Rafael pays $15,000 and receives equipment

> Larry is the sole proprietor of a trampoline shop. During 2015, the following transactions occurred. • Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation proceeds were $15,000. The land, acquired in 1986, had

> On December 1, 2013, Lavender Manufacturing Company (a corporation) purchased another company’s assets, including a patent. The patent was used in Lavender’s manufacturing operations; $49,500 was allocated to the patent, and it was amortized at the rate

> Siena Industries (a sole proprietorship) sold three § 1231 assets on October 10, 2015. Data on these property dispositions are as follows. a. Determine the amount and the character of the recognized gain or loss from the disposition of ea

> Delphinium Company owns two parcels of land (§ 1231 assets). One parcel can be sold at a loss of $60,000, and the other parcel can be sold at a gain of $70,000. The company has no nonrecaptured § 1231 losses from prior years. The parcels could be sold at

> Geranium, Inc., has the following net § 1231 results for each of the years shown. What is the nature of the net gain in 2014 and 2015? Tax Year Net 5 1231 Loss Net 5 1231 Gain 2010 $18,000 2011 33,000 2012 42,000 2013 $41,000 2014 30,000

> Harold, a CPA, has a new client who recently moved to town. Harold pre- pares the client’s current-year tax return, which shows a net § 1231 gain. Harold calls the client to request copies of the returns for the preceding five years to determine if there

> A sculpture that Tulip & Co. held for investment was destroyed in a flood. The sculpture was insured, and Tulip had a $60,000 gain from this casualty. It also had a $17,000 loss from an uninsured antique vase that was destroyed by the flood. The vase was

> Two years ago, Harriet Company (an unincorporated entity) developed a process for preserving doughnuts that gives the doughnuts a much longer shelf life. The process is not patented or copyrighted, and only Harriet knows how it works. A conglomerate has

> Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal interest rate was 3%. What are the Federal tax consequences of the following loans by Ridge? a. On June 30, Ridge loaned $12,000 to

> Bridgette is known as the “doll lady.” She started collecting dolls as a child, always received one or more dolls as gifts on her birthday, never sold any dolls, and eventually owned 600 dolls. She is retiring and moving to a small apartment and has deci

> In 2015, Bertha Jarow (head of household with three dependents) had a $28,000 loss from the sale of a personal residence. She also purchased from an individual inventor for $7,000 (and resold in two months for $18,000) a patent on a rubber bonding proces

> The taxpayer is an antiques collector and is going to sell an antique purchased many years ago for a large gain. The facts and circumstances indicate that the taxpayer might be classified as a dealer rather than an investor in antiques. The taxpayer will

> Platinum, Inc., has determined its taxable income as $215,000 before considering the results of its capital gain or loss transactions. Platinum has a short- term capital loss of $24,000, a long-term capital loss of $38,000, and a short-term capital gain

> Sally has taxable income of $160,000 as of November 30 of this year. She wants to sell a Rodin sculpture that has appreciated $90,000 since she purchased it six years ago, but she does not want to pay more than $15,000 of additional tax on the transactio

> Elaine Case (single with no dependents) has the following transactions in 2015: AGI (exclusive of capital gains and losses) $240,000 Long-term capital gain ………………………………………. 22,000 Long-term capital loss ………………………………………. (8,000) Short-term capital gain

> Thrasher Corporation sells short 100 shares of ARC stock at $20 per share on January 15, 2015. It buys 200 shares of ARC stock on April 1, 2015, at $25 per share. On May 2, 2015, Thrasher closes the short sale by delivering 100 of the shares purchased on

> Maria held vacant land that qualified as an investment asset. She purchased the vacant land on April 10, 2011. She exchanged the vacant land for a rental house in a qualifying like-kind exchange on January 22, 2015. Maria was going to hold the house for

> Freys, Inc., sells a 12-year franchise to Red Company. The franchise contains many restrictions on how Red may operate its store. For instance, Red cannot use less than Grade 10 Idaho potatoes; must fry the potatoes at a constant 410 degrees; must dress

> Blue Corporation and Fuchsia Corporation are engaged in a contract negotiation over the use of Blue’s trademarked name, DateSiteForSeniors. For a one- time payment of $45,000, Blue licensed Fuchsia to use the name DateSiteForSeniors, and the license requ

> Brad is the president of the Yellow Corporation. He and other members of his family control the corporation. Brad has a temporary need for $50,000, and the corporation has excess cash. He could borrow the money from a bank at 9%, and Yellow is earning 6%

> Mac, an inventor, obtained a patent on a chemical process to clean old aluminum siding so that it can be easily repainted. Mac has a $50,000 tax basis in the patent. Mac does not have the capital to begin manufacturing and selling this product, so he has

> Carla was the owner of vacant land that she was holding for investment. She paid $2 million for the land in 2013. Raymond was an investor in vacant land. He thought Carla’s land might be the site of an exit ramp from a new freeway. Raymond gave Carla $83

> Benny purchased $400,000 of Peach Corporation face value bonds for $320,000 on November 13, 2014. The bonds had been issued with $80,000 of original issue discount because Peach was in financial difficulty in 2014. On December 3, 2015, Benny sold the bon

> Eagle Partners meets all of the requirements of § 1237 (subdivided realty). In 2015, Eagle Partners begins selling lots and sells four separate lots to four dif- ferent purchasers. Eagle Partners also sells two contiguous lots to another purchaser. The s

> Hyacinth, Inc., is a dealer in securities. The firm has spotted a fast-rising company and would like to buy and hold its stock for investment. The stock is currently selling for $2 per share, and Hyacinth thinks it will climb to $40 a share within two ye

> George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events (e.g., antique automobile shows) while he is holding them. I

> Rennie owns a video game arcade. He buys vintage video games from estates, often at much less than the retail value of the property. He usually installs the vintage video games in a special section of his video game arcade that appeals to players of “cla

> During the year, Eugene had the four property transactions summarized below. Eugene is a collector of antique glassware and occasionally sells a piece to get funds to buy another. What are the amount and nature of the gain or loss from each of these tran

> Alison owns a painting that she received as a gift from her aunt 10 years ago. The aunt created the painting. Alison has displayed the painting in her home and has never attempted to sell it. Recently, a visitor noticed the painting and offered Alison $5

> An individual taxpayer sells some used assets at a garage sale. Why are none of the proceeds taxable in most situations?

> Roy decides to buy a personal residence, and he goes to the bank for a $150,000 loan. The bank tells Roy that he can borrow the funds at 4% if his father will guarantee the debt. Roy’s father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal

> Nicholas owns business equipment with a $155,000 adjusted basis; he paid $200,000 for the equipment, and it is currently worth $173,000. Nicholas dies suddenly, and his son Alvin inherits the property. What is Alvin’s basis for the property? What happens

> Gaston Corporation distributes § 1245 property as a dividend to its share- holders. The property’s fair market value is $580,000, and the adjusted basis is $560,000. In addition, the amount of the recapture potential is $55,000. What is the amount and ch

> An apartment building was acquired in 2006. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of 25% gain?

> Jacob purchased business equipment for $56,000 in 2012 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2015 for $26,000. What is the amount and character of Jacob’s gain or loss?

> Olivia wants to buy some vacant land for investment purposes. She currently cannot afford the full purchase price. Instead, Olivia pays the landowner $8,000 to obtain an option to buy the land for $175,000 anytime in the next four years. Fourteen months

> Shelia purchases $50,000 of newly issued Gingo Corporation bonds for $45,000. The bonds have original issue discount (OID) of $5,000. After Sheila amortized $2,300 of OID and held the bonds for four years, she sold the bonds for $48,000. What is the amou

> Dexter owns a large tract of land and subdivides it for sale. Assume that Dexter meets all of the requirements of § 1237 and during the tax year sells the first eight lots to eight different buyers for $22,000 each. Dexter’s basis in each lot sold is $15

> Camilo’s property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken. a. What is Camilo’s realized and recognized gain? b. What is the

> Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $85,000) is worth $100,000 and Johnathan’s land has a fair market value of $80,000, Johnathan also gives Logan cash of $20,00

> Peyton sells an office building and the associated land on May 1, 2015. Under the terms of the sales contract, Peyton is to receive $1,600,000 in cash. The purchaser is to assume Peyton’s mortgage of $950,000 on the property. To enable the purchaser to o

> Alva received dividends on her stocks as follows. Amur Corporation (a French corporation whose stock is traded on an established U.S. securities market) $60,000 Blaze, Inc., a Delaware corporation 40,000 Grape, Inc., a Virginia corporation 22,000 a. Al

> Lefty completes the following capital asset transactions. Compute Lefty’s recognized capital gain or loss from these transactions. Long-term gain……….$10,000 Short-term gain……….4,000 Short-term loss……….25,000

> What is guerrilla marketing? What is ambient advertising?

> What is the purpose of public relations? What is a crisis management plan? Describe some of the activities that are part of PR.

> Why is follow-up after the sale so important in relationship selling?

> What is the objective of the sales presentation? How might you overcome buyer objections?