Quiz for Chapter 7


1	Catnip Corporation purchased an asset 3 years ago for $30,000. During the three years Catnip recovered $14,000 of the asset's original cost. If Catnip sells the asset for $28,000, what is the realized gain.
		A)	$14,000.
		B)	$12,000.
		C)	$16,000.
		D)	$0.
		E)	Catnip actually has a realized loss of $2,000.


2	Carnival Corporation purchased an asset 5 years ago for $60,000. Its cost is being recovered using straight-line depreciation and the asset is considered to have a 10 year useable life. If Carnival sells the asset today for $24,000, what is its realized gain or loss on the sale?
		A)	$(6,000)
		B)	$ 6,000
		C)	$(2,000)
		D)	$2,000
		E)	$0, no gain or loss is realized.


3	Fandango Corporation sells an asset on an installment basis. The sales price was $250,000 and the purchaser paid 10 percent of the cost in cash and signed a note for the remainder. Fandango had a basis in the asset of $160,000. What is Fandango's gross profit percentage on this asset.
		A)	10%
		B)	26%
		C)	36%
		D)	40%
		E)	64%


4	Father sells daughter an asset for $35,000. Father's basis in the asset was $50,000 on the date of the sale and its FMV is $42,000. What is Father's allowed loss on the sale and the basis to daughter?
		A)	$0 loss, $42,000 basis
		B)	$7,000 loss, $35,000 basis
		C)	$7,000 loss, $42,000 basis
		D)	$15,000 loss, $35,000 basis
		E)	$0 loss, $35,000 basis.


5	Referring to the information in Question 4, what is the daughter's recognized gain or loss if she later sells the asset to an unrelated party for $52,000?
		A)	$0.
		B)	$2,000.
		C)	$17,000.
		D)	$10,000.
		E)	$8,000.


6	A capital asset is determined by the intrinsic nature of the asset not its use by the owner.
		A)	True
		B)	False


7	As a general rule taxpayers prefer?
		A)	Capital gains and ordinary losses.
		B)	Capital gains and capital losses.
		C)	Ordinary gains and capital losses.
		D)	Ordinary gains and ordinary losses.
		E)	Taxpayers are indifferent between capital and ordinary items of income and loss.


8	Jipco Corporation purchased business personalty property 2 years ago for $20,000. It sells the property for $18,000 this year when its adjusted basis is $15,000. How much should Jipco report as Section 1231 gains?
		A)	$13,000
		B)	$10,000
		C)	$0
		D)	$3,000
		E)	Some other answer.


9	Fonder Corporation experienced $30,000 in net 1231 gains in the sale of business assets two years ago. This year it expects to have $30,000 of net 1231 losses. How much ordinary income will Fonder report from the sale of assets this year?
		A)	$0
		B)	$30,000
		C)	$20,000
		D)	$10,000
		E)	Some other answer.


10	Jocko Corporation purchases depreciable realty two years ago for $125,000. It sells the asset in the current year for $100,000 when its basis is $90,000. What is the amount of depreciation recapture required of Jocko Corporation on this sale and what is the Section 1231 gain?
		A)	$25,000, $25,000.
		B)	$2,000, $10,000.
		C)	$2,000, $8,000.
		D)	$2,000, $0.
		E)	$0, $10,000.

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