1-

Perry acquired raw land as an investment 16 years ago. The land cost $50,000. In the current year, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000. Assume that Perry uses the installment method to recognize the gain and receives only the $10,000 down payment in the year of sale. How much gain should Perry recognize in the current year?

a.$5,833

b.$7,000

c.$4,166

d.$9,000

e.None of these choices are correct.

2-

In the current year, Henry, a sole proprietor, sold for $65,000 a machine that was used in his business. The machine had been purchased a few years ago for $50,000, and when it was sold, it had accumulated depreciation of $20,000 and an adjusted basis of $30,000. For the current year, how should this gain be treated?

a.Section 1231 gain of $15,000 and ordinary income of $20,000

b.Ordinary income of $35,000

c.Section 1231 gain of $35,000

d.Section 1231 gain of $20,000 and ordinary income of $15,000

e.None of these choices are correct.

3-

Choose the incorrect statement.

a.The choice to file on a fiscal year-end basis must be made with an initial tax return.

b.Books and records may be kept on a different year-end basis than the year-end used for tax purposes.

c.Almost all individuals file tax returns using a calendar year accounting period.

d.An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met.