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ACC 455 Practice: Week 1 Knowledge Check
Complete the Week 1 Knowledge Check in McGraw-Hill Connect.
Which of the following results in an ordinary gain or loss?
Multiple Choice
Sale of a machine at a gain.
Sale of stock held for investment.
Sale of a §1231 asset.
Sale of inventory.
None of the choices are correct.
Mary exchanged an office building used in her business for some land. Mary originally purchased the building for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange. The land had a fair market value of $40,000. Mary also gave $4,000 in the transaction. What is Mary’s adjusted basis in the land after the exchange?
rev: 03_15_2019_QC_CS-162970
Multiple Choice
$20,000.
$24,000.
$36,000.
$40,000.
None of the choices are correct.
How long after the initial exchange does a taxpayer have to identify replacement property in a like-kind exchange?
Multiple Choice
The like-kind property to be received must be identified within 45 days.
The like-kind property to be received must be identified by the earlier of 45 days or the last day of the taxpayer’s taxable year.
The like-kind property to be received must be identified within 180 days.
There is no deadline for the identification of replacement property.
All of the choices are correct.
Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha’s gain?
Multiple Choice
$20,000 ordinary income under §1239.
$10,000 ordinary gain and $10,000 §1231 gain.
$20,000 ordinary gain.
$20,000 capital gain.
None of the choices are correct.
When does unrecaptured §1250 gains apply?
Multiple Choice
When the taxpayer makes the election.
It applies only when non-corporate taxpayers sell depreciable real property at a gain.
It applies when §1245 recapture trumps §1250 recapture.
It applies only when real property purchased before 1986 is sold at a gain.
None of the choices are correct.
Butte sold a machine to a machine dealer for $50,000. Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine. What is the amount and character of Butte’s gain or loss?
Multiple Choice
$7,500 §1231 loss.
$5,000 §1231 loss.
$7,500 ordinary gain.
$7,500 capital gain.
None of the choices are correct.
The sale of land held for investment results in the following type of gain or loss?
Multiple Choice
Capital.
Ordinary.
- 1231.
- 1245.
None of the choices are correct.
The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?
Multiple Choice
Capital.
Ordinary.
- 1231.
- 1245.
None of the choices are correct.
Why does §1250 recapture generally no longer apply?
Multiple Choice
Congress repealed the code section.
Real property is depreciated using the straight-line method after 1986.
- 1245 recapture trumps §1250 recapture.
Because unrecaptured §1250 gains now apply to all taxpayers instead.
None of the choices are correct.
Which one of the following is not a requirement of a deferred like-kind exchange?
Multiple Choice
The like-kind property to be received must be identified within 45 days.
The exchange must be completed within the taxable year.
The like-kind property must be received within 180 days.
The exchanged property must be like-kind.
All of the choices are correct.
Which one of the following is not true regarding a like-kind exchange?
Multiple Choice
Loss on like-kind property is not recognized.
Gains on boot given are deferred.
Losses on boot given are not recognized.
Land can be like-kind with a building.
All of the choices are true.
Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad’s gain or loss?
Multiple Choice
$25,000 ordinary and $50,000 unrecaptured §1250 gain.
$25,000 §1231 gain and $50,000 unrecaptured §1250 gain.
$75,000 ordinary gain.
$75,000 capital gain.
None of the choices are correct.
Which of the following does not ultimately result in a capital gain or loss?
Multiple Choice
Sale of a personal use asset.
Sale of inventory.
Gain on equipment used in a trade or business held for more than one year, if it is the only asset sale during the year.
Sale of capital stock in another company.
None of the choices are correct.
The general rule regarding the exchanged basis in the new property received in a like-kind exchange is:
Multiple Choice
The basis is equal to the fair market value of the new property.
The basis is equal to the fair market value of the old property.
The basis is equal to the adjusted basis of the old property.
The basis is equal to the cost basis of the old property.
All of the choices are correct.
What is the character of land used in an active trade or business for two years?
Multiple Choice
Capital.
Ordinary.
- 1231.
Investment.
None of the choices are correct.
Which of the following may qualify as an installment sale?
Multiple Choice
Sale of inventory at a gain.
Sale of securities.
Sale of asset used in a business at a gain.
Land sold at a loss.
All of the choices qualify for installment sale treatment.
Which of the following is true regarding disallowed losses between related taxpayers?
Multiple Choice
The tax laws essentially treat related parties as the same taxpayer.
The holding period of the seller carries over to the buyer.
The related person always receives a carryover basis.
The seller’s realized loss is deferred until the buyer sells the assets.
None of the choices are correct.
Ashburn reported a $105,000 net §1231 gain in year 6. Assuming Ashburn reported $60,000 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.
$45,000.
$60,000.
$105,000.
None of the choices are correct.
Sumner sold equipment that it uses in its business for $30,000. Sumner bought the equipment a few years ago for $80,000 and has claimed $40,000 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
$10,000 §1231 loss.
$10,000 §1245 loss.
$50,000 ordinary loss.
$10,000 capital loss.
None of the choices are correct.
Arlington LLC exchanged land used in its business for some new land. Arlington originally purchased the land for $28,000. The new land had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington’s gain or loss recognized on the exchange?
Multiple Choice
$0.
$2,000.
$7,000.
$9,000.
None of the choices are correct.
Which of the following is not usually included in an asset’s tax basis?
Multiple Choice
Purchase price
Sales tax
Shipping costs
Installation costs
None of the choices are correct.
Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman’s gain or loss?
Multiple Choice
$40,000 ordinary and $360,000 §1231 gain.
$200,000 ordinary and $200,000 §1231 gain.
$400,000 ordinary gain.
$400,000 capital gain.
None of the choices are correct.
Which of the following is true regarding the §1231 look-back rule?
Multiple Choice
It only applies when a §1231 loss occurs.
It only applies when a §1231 gain occurs.
It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years.
It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years.
None of the choices are correct.
Bozeman sold equipment that it uses in its business for $80,000. Bozeman bought the equipment two years ago for $75,000 and has claimed $20,000 of depreciation expense. What is the amount and character of Bozeman’s gain or loss?
Multiple Choice
$25,000 §1231 gain.
$20,000 ordinary gain, and $5,000 §1231 gain.
$5,000 ordinary gain, and $20,000 §1231 gain.
$25,000 capital gain.
None of the choices are correct.
Which of the following items is not included on an employee’s Form W-2?
Multiple Choice
Taxable wages, tips, and compensation.
Social Security withholding.
Value of stock options granted during the year.
Federal and state income tax withholding.
Francis works for a local fly fishing shop. The shop allows employees to purchase two fly rods per year at a discount. This year, Francis purchased one rod. The rod normally retails for $300, was purchased for $225, was sold to Francis for $250, and the employer’s average gross profit percentage is 30 percent. What amount of the discount must be included in Francis’ income?
Multiple Choice
$0.
$25.
$40.
Some other amount.
Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 per share) from his employer. At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he exercises all of the options. Two years later Bad Brad sells the stock for $27 per share. What is Bad Brad’s basis in his stock for purposes of calculating the gain or loss at the time of the sale?
Multiple Choice
$7,200.
$7,800.
$15,000.
$16,200.
Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?
Multiple Choice
Free tax return preparation from a client.
Complementary dry cleaning for employees at a laundry company.
A car wash at an automobile dealership.
Free local phone service for phone company employees.
Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom’s restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $12. What is the amount of Tom’s income or loss on the sale?
Multiple Choice
$0.
$2,000 loss.
$4,000 gain.
$4,000 loss.
Which of the following statements regarding restricted stock is false?
Multiple Choice
Like stock options, restricted stock has to vest before it can be sold.
Like nonqualified stock options, the employee’s income inclusion for restricted stock is the bargain element.
Even if the value of restricted stock decreases from the price on the grant date, it retains some value to the employee.
There is no effective tax planning elections for restricted stock.
Which of the following statements regarding compensation is false?
Multiple Choice
Wages are usually paid by the hour.
Salary is usually a form of fixed compensation.
Bonuses are a form of compensation obtained if certain criteria are met.
Bonuses paid within 2½ months of year-end are included in employee’s compensation in the year they were earned.
Which of the following is true regarding stock options?
Multiple Choice
A loss is realized when stock options lapse.
There is typically no tax effect on the grant date.
Income recognized on the exercise date is greater for incentive stock options than nonqualified options.
The bargain element on a nonqualified option is taxed to employees at capital gain rates.
Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. What is the amount of Maren’s bargain element?
Multiple Choice
$0.
$700.
$900.
$1,500.
None of the choices are correct.
Tanya’s employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $6,000 in benefits. For 2018, Tanya selected $3,360 ($280 per month) of parking, $1,840 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?
Multiple Choice
$0.
$1,040.
$1,120.
$4,000.
Which of the following isn’t reported on the Form W-2?
Multiple Choice
The employee’s taxable salary and wages.
Annual Federal and state withholding information.
Indication as to whether an employee had more than one employer during the year.
Annual amount of Social Security and Medicare tax withholding information.
Tasha receives reimbursement from her employer for dependent care expenses for up to $8,000. Tasha applies for and receives reimbursement of $6,000 for her 10-year-old son. How much, if any, is includible in her income?
Multiple Choice
$0.
$1,000.
$3,000.
$6,000.
Which of the following is not a purpose of equity-based compensation?
Multiple Choice
Provide both risk and incentives to employees.
Motivate employees by aligning employee and employer incentives.
Avoid compensation limits for certain publicly traded company executives.
Provides a low or no cost form of compensation.
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 $63,000 $50,000 $54,000
M3 $70,000 $60,000 $57,000
________________________________________
What amount must Kevin include in income?
Multiple Choice
$0.
$2,500.
$2,950.
$22,000.
How is the bargain element for a stock option calculated?
Multiple Choice
The difference between the strike price and the market price on the date of grant.
The difference between the market price on the exercise date and the market price on the date of grant.
The difference between the market price on the exercise date and the strike price.
The difference between the market price on the sale date and the strike price.
Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom’s restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $20. What is the amount of Tom’s income or loss on the vesting date?
Multiple Choice
$0.
$10,000.
$20,000.
$28,000.
Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 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.
$500 gain and $100 tax.
$500 gain and $185 tax.
$1,200 gain and $240 tax.
Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly traded companies?
Multiple Choice
The limitation applies to all employees.
The limitation applies to all officers.
The limitation applies only to the CEO and three other highest compensated officers.
The limitation applies only to the CEO, CFO, and three other highest compensated officers and all covered employees from previous years.
Aharon exercises 10 stock options awarded several years ago. The following information pertains to the options: (1) each option gives the employee the right to buy 10 shares, (2) the market price on the grant date was $7, (3) the strike price is $10, and (4) the market price on the exercise date was $15. How much will it cost Aharon to purchase the options on the exercise date?
Multiple Choice
$90.
$500.
$700.
$1,000.
Lara, a single taxpayer with a 32 percent marginal tax rate, desires health insurance. The health insurance would cost Lara $5,000 to purchase if she pays for it herself (Lara’s AGI is too high to receive any tax deduction for the insurance as a medical expense). Lara’s employer has a 21 percent marginal tax rate. Ignoring payroll taxes, what is the maximum amount of before-tax salary Lara would give up to receive health insurance? (Round your answer to the nearest whole number)
Multiple Choice
$1,600.
$5,000.
$7,353.
$15,625.
Stevie recently received 1,000 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.
$5,000.
$8,000.
$11,000.
Which of the following statements regarding employer provided educational benefits is true?
Multiple Choice
All undergraduate tuition expenses can be excluded.
Only educational benefits from public universities can be excluded.
Up to $5,250 in tuition benefits can be excluded.
All graduate tuition expenses are included.
Which of the following is a fringe benefit that employers can discriminate among employees?
Multiple Choice
No additional cost service.
Qualified employee discount.
Qualified transportation fringe.
Employee educational assistance.
Stevie recently received 1,000 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. What is the amount of Stevie’s ordinary income with respect to the restricted stock?
Multiple Choice
$0.
$5,000.
$8,000.
$11,000.
Which of the following is not a requirement of a “qualified employee discount”?
Multiple Choice
The discount relates to goods or services of the employer.
The discount on services doesn’t exceed 20 percent of the price offered to customers.
The discount can be elected up to five times annually.
The employee discount on goods is not greater than employer’s average gross profit.