ACC 455 Apply: Week 1 Application Assignment

Review the Week 1 Knowledge Check in preparation for this assignment.

Complete the Week 1 Application Assignment in McGraw-Hill Connect.

Butte sold a machine to a machine dealer for $51,300. Butte bought the machine for $53,700 several years ago and has claimed $11,850 of depreciation expense on the machine. What is the amount and character of Butte’s gain or loss?

Multiple Choice

$9,450 §1231 loss.

$2,400 §1231 loss.

$9,450 ordinary gain.

$9,450 capital gain.

None of the choices are correct.

Sumner sold equipment that it uses in its business for $31,100. Sumner bought the equipment a few years ago for $79,450 and has claimed $39,725 of depreciation expense. Assuming that this is Sumner’s only disposition during the year, what is the amount and character of Sumner’s gain or loss?

Multiple Choice

$8,625 §1231 loss.

$8,625 §1245 loss.

$48,350 ordinary loss.

$8,625 capital loss.

None of the choices are correct.

Bateman Corporation sold an office building that it used in its business for $800,450. Bateman bought the building ten years ago for $599,775 and has claimed $200,675 of depreciation expense. What is the amount and character of Bateman’s gain or loss?

Multiple Choice

$40,135 ordinary and $361,215 §1231 gain.

$200,675 ordinary and $200,675 §1231 gain.

$401,350 ordinary gain.

$401,350 capital gain.

None of the choices are correct.

Brad sold a rental house that he owned for $254,500. Brad bought the rental house five years ago for $220,500 and has claimed $52,250 of depreciation expense. What is the amount and character of Brad’s gain or loss?

Multiple Choice

$34,000 ordinary and $52,250 unrecaptured §1250 gain.

$34,000 §1231 gain and $52,250 unrecaptured §1250 gain.

$86,250 ordinary gain.

$86,250 capital gain.

None of the choices are correct.

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,250. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $49,750 and has claimed $30,250 of depreciation expense. What is the amount and character of Alpha’s gain?

Multiple Choice

$20,750 ordinary income under §1239.

$10,000 ordinary gain and $10,750 §1231 gain.

$10,750 ordinary gain.

$20,750 capital gain.

None of the choices are correct.

Brandon, an individual, began business four years ago and has sold §1231 assets with $5,300 of losses within the last 5 years. Brandon owned each of the assets for several years. In the current year, Brandon sold the following business assets:

Asset       Original Cost  Accumulated Depreciation     Gain/Loss

Machinery      $     30,600    $     7,600      $     10,300

Land            46,000         0          23,000

Building       102,000        26,000         (11,000   )

________________________________________

Assuming Brandon’s marginal ordinary income tax rate is 32 percent, what effect do the gains and losses have on Brandon’s tax liability?

Use Dividends and Capital Gains Tax Rates for reference.

Multiple Choice

$22,300 ordinary income, $7,136 tax liability.

$22,300 §1231 gain and $3,345 tax liability.

$9,400 §1231 gain, $12,900 ordinary income, and $5,538 tax liability.

$12,900 §1231 gain, $9,400 ordinary income, and $4,943 tax liability.

None of the choices are correct.

Ashburn reported a $104,900 net §1231 gain in year 6. Assuming Ashburn reported $53,000 of nonrecaptured §1231 losses during years 1-5, what amount of Ashburn’s net §1231 gain for year 6, if any, is treated as ordinary income?

Multiple Choice

$0.

$51,900.

$53,000.

$104,900.

None of the choices are correct.

Koch traded machine 1 for machine 2 when the fair market value of both machines was $50,000. Koch originally purchased machine 1 for $75,100 and machine 1’s adjusted basis was $40,050 at the time of the exchange. Machine 2’s seller purchased it for $64,950 and machine 2’s adjusted basis was $55,050 at the time of the exchange. What is Koch’s adjusted basis in machine 2 after the exchange?

Multiple Choice

$40,050.

$50,000.

$55,050.

$75,100.

None of the choices are correct.

Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $31,000. The new land had a fair market value of $36,500. Arlington also received $5,000 of office equipment in the transaction. What is Arlington’s gain or loss recognized on the exchange?

Multiple Choice

$0.

$5,000.

$5,500.

$10,500.

None of the choices are correct.

Sadie sold 10 shares of stock to her brother, George, for $590 sixteen months ago. Sadie had purchased the stock for $780 two years earlier. If George sells the stock for $970 what is the amount and character of his recognized gain or loss in the current year?

Multiple Choice

$0.

$190 short-term capital gain.

$190 long-term capital gain.

$380 short-term capital gain.

None of the choices are correct.

Maren received 10 NQOs (each option gives her the right to purchase 13 shares of stock for $10 per share) at the time she started working when the stock price was $9 per share. When the share price was $14 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $23 per share. What is the amount of Maren’s bargain element?

Multiple Choice

$0.

$520.

$650.

$1,820.

None of the choices are correct.

Maren received 12 NQOs (each option gives her the right to purchase 9 shares of stock for $10 per share) at the time she started working when the stock price was $8 per share. When the share price was $20 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $21 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

Multiple Choice

$0 gain and $0 tax.

$108 gain and $22 tax.

$108 gain and $40 tax.

$1,188 gain and $238 tax.

Tom recently received 2,170 shares of restricted stock from his employer, Independence Corporation, when the share price was $12 per share. Tom’s restricted shares vested three years later when the market price was $16. Tom held the shares for a little more than a year and sold them when the market price was $14. What is the amount of Tom’s income or loss on the sale?

Multiple Choice

$0.

$2,170 loss.

$4,340 gain.

$4,340 loss.

Stevie recently received 1,030 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Stevie’s restricted shares vested three years later when the market price was $11. Stevie held the shares for a little more than a year and sold them when the market price was $16. Assuming Stevie made a section 83(b) election, what is the amount of Stevie’s ordinary income with respect to the restricted stock?

Multiple Choice

$0.

$5,150.

$8,240.

$11,330

Grace’s employer is now offering group-term life insurance. The company will provide each employee with $160,000 of group-term life insurance. It costs Grace’s employer $800 to provide this amount of insurance to Grace each year. Assuming that Grace is 46 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit.

EXHIBIT 12-08 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

5-Year Age Bracket       Cost per $1,000 of Protection for One Month

Under 25 $0.05

25 to 29  0.06

30 to 34  0.08

35 to 39  0.09

40 to 44  0.10

45 to 49  0.15

50 to 54  0.23

55 to 59  0.43

60 to 64  0.66

65 to 69  1.27

70 and above  2.06

________________________________________

Multiple Choice

$0.

$16.50.

$25.70.

$64.01.

Rachel receives employer provided health insurance. The employer’s cost of the health insurance is $6,100 annually. What is her employer’s after-tax cost of providing the health insurance, assuming that the employer’s marginal tax rate is 21 percent and is profitable?

Multiple Choice

$0.

$1,281.

$4,819.

$6,100.

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles per year at a discount. Levingston’s average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3.

Model     FMV       Dealer cost     Employee Price

530  $63,600   $50,600   $54,300

M3  $71,800   $60,600   $57,600

________________________________________

What amount must Kevin include in income?

Multiple Choice

$0.

$3,430.

$2,950.

$22,000.