lable at 1. Rennie, a 12 year old middle school student, just agreed to take over a paper route to deliver bike with a specially equipped basket to transport the papers each morning. How is the bike Newsday to his extended neighborhood on a daily basis. To deliver the papers, he purchases a new classified for income tax purposes? a. The bike is an ordinary income asset. b. The bike is a capital asset. c. The bike is a Section 1231 asset. d. The bike is a personal asset. 2. Custom Framing, Inc., a C corporation, sold a machine used to cut wood used in their picture frames for $2,700. They originally purchased the machine for $2,000 and had taken $1,400 in depreciation deductions. When the company that made the machine went out of business, the machine became a collectors item, and the company sold the machine for more than they paid for it to purchase other equipment. Which of the following statements concerning the tax impact of the sale transaction is correct? a. The b. The company will recognize $1,400 of ordinary income. c. The company will recognize a capital gain of $700 that will be taxed at the favorable long term capital gains tax rate. d. The company will recognize a short-term capital gain of $700. will recognize $2,100 of ordinary income. company Ten years ago, Chelsea purchased an industrial sewing machine used in her business, Froggie Dolls, LLC, for $10,000. She had taken depreciation deductions of $9,000 over this period, and sold the machine for $12,000 after she purchased a new state-of-the-art industrial sewing machine. How much ordinary income will Chelsea recognize on the sale of the machine? a. $0. b. $1,000. c. $9,000. d. $11,000. 3. 4. Michael purchased an apartment building for $2 million several years ago. He has claimed depreciation deductions totaling $950,000 during the holding period, and straight-line depreciation would have been $900,000. What is Michael's long-term capital gain (taxed at the highest capital gains tax rate) that will be recognized for income tax purposes if he sells the building for $2.5 million? a. $0. b.$50,000. c. $500,000. d. $1,450,000 5. After 35 years in business for herself, Daisy retired and closed the doors of her office. She gave her to her niece, Molly, who recently completed her degree in a similar field and is opening up her practice. Daisy originally paid $12,000 for the desk, and it was fully depreciated by the time she gave to Molly, Molly used the desk for two years, and then sold it (for $6,000) when she decided to redecorate her office. How will Molly treat the proceeds from the sale of the gift for income tax purposes? a. Since Molly received the desk as a gift, there is no need to pay taxes on the proceeds from the sale. b. Since the desk was given to Molly when it was fully depreciated, it is "loss property" and the $6,000 proceeds will not be taxable because it fell between Molly's gain basis and loss basis in the transaction. c. Molly will recognize $6,000 of ordinary income on the sale. d. Molly will recognize $6,000 of long-term capital gain on the sale
