Multiple Choice Questions
1. Identify which of the following is a capital asset:
I. A canvas painting of a portrait client, in the painter's hands
II. Depreciable fixtures in a business parking lot
III. Office supplies held by a business
a. II only
b. II and III only
c. III only
d. None of the above
2. On January 15 of the current year, Kreutzer, an individual, received as an inheritance from Gladstone's estate shares of stock worth $25,000. Gladstone had purchased the shares in June of the previous year for $20,000, and the shares were worth $25,000 at Gladstone's date of death in November of the previous year. The executor of Gladstone's estate did not elect to use the alternate valuation date. In March of the current year, Kreutzer sold the shares for $27,000. As a result of the sale, what is the amount and type of gain reported by Kreutzer?
a. $7,000 long-term capital gain
b. $2,000 short-term capital gain
c. $7,000 short-term capital gain
d. $2,000 long-term capital gain
3. In 2016, Colossus Corporation incurred a net capital loss in the amount of $25,000. Colossus had the following net capital gains in the previous five years:
2015: $7,000
2014: $2,000
2013: $5,000
2012: $4,000
2011: $3,000
How much of the 2016 net capital loss may Colossus carry over to 2017?
a. $0
b. $25,000
c. $11,000
d. $4,000
4. The following facts apply to Eliot, an individual, in the current year:
April 2: Sold shares of stock, purchased on April 1 of the previous year, for a $2,000 gain.
May 15: Sold equipment used in Eliot's business, which had been purchased in July of the previous year, for a $2,000 gain.
July 12: Sold shares of stock, purchased in February of the previous year, for a $7,000 gain.
November 3: Sold equipment used in Eliot's business, which had been purchased in January of the current year, for a $1,000 loss.
December 9: Sold shares of stock, purchased on February 22 of the current year, for a $3,000 loss.
Considering only the above facts, what is Eliot's net capital gain for the current year?
a. $7,000 long-term capital gain
b. $9,000 long-term capital gain
c. $5,000 long-term capital gain
d. $6,000 long-term capital gain
5. Joe purchased a van for $30,000 on February 1, 2014, for use with his business, Crew Airport Transport. Joe elected to take the § 179 deduction for the entire cost. On January 1, 2016, Joe sold the van for $20,000. What were the tax effects of this transaction?
a. $10,000 loss
b. $20,000 capital gain
c. $20,000 ordinary gain
d. $10,000 capital gain, $10,000 ordinary gain
6. In year 3, Daniels, an individual, sold depreciable equipment for $21,000 that had an adjusted basis of $12,000, resulting in a $9,000 gain. The property had cost Daniels $20,000 when purchased in year 1, and $8,000 of MACRS depreciation had been taken. How should Daniels report the gain on Daniels' year 3 tax return?
a. As a long-term capital gain of $9,000
b. As an ordinary gain of $1,800 and a § 1231 gain of $7,200
c. As an ordinary gain of $8,000 and a § 1231 gain of $1,000
d. As an ordinary gain of $7,200 and a § 1231 gain of $1,800
7. Cowabunga Corp. had a highly profitable year 4, during which it purchased $1,000,000 in tangible personal property and elected to claim the highest depreciation expense allowed for tax purposes under § 179. In year 6, Cowabunga sells the tangible personal property, which now has an adjusted basis of $200,000 as a result of the heavy depreciation taken in years 4 and 5. Had only MACRS depreciation been taken on the property, its adjusted basis at the time of sale would have been $800,000. At a sales price of $930,000, how much of the $730,000 realized gain must be reported as ordinary gain for tax purposes?
a. $720,000
b. $600,000
c. $0
d. $730,000