Homeworks

Week 5

1) Problem 71 on page 14-58

2) Problem 83 on page 14-59

3) Question 24 on page 17-36

4) Problem 27 on page 17-36

5) Problem 28 on page 17-36

1) A corporation has income of $80,000 from operations, a $12,000 short-term capital gain, and a $16,000 long-term capital loss. What is the corporation’s taxable income for the year?

2) Susco had the following items this year:

Gross receipts	$700,000
Operating expenses	500,000
Long-term capital gain	40,000
Long-term capital loss	(20,000)
Short-term capital gain	16,000
Short-term capital loss	(44,000)

What is Susco’s taxable income and does it have any carrybacks/carryovers?

3) Define and differentiate a spin-off, split-off, and split-up.

4) Pursuant to a corporate reorganization, Katie exchanged 1,000 shares in Burton Corp. with a basis of $12,000 and a value of $9,500, for stock in Mead Corp. worth $9,000 and cash of $500.

a. What is Katie’s realized and recognized gain or loss from the reorganization?

b. What is Katie’s tax basis for her Mead Corp. stock?

5) Leno Hardware is owned and operated as a sole proprietorship by Larry Leno. The location is excellent, and he is approached by a buyer, Hard Bargains Inc., a national chain of hardware stores. What are the tax consequences in the following situations?

a. Larry sells the store for cash.

b. Larry sells the store for marketable stock in Hard Bargains.

c. Larry incorporates the store and exchanges the stock for shares in Hard Bargains.

d. Same as (c), but Larry incorporated his hardware store two years earlier.

Week 6

1. Doom Corporation changed from a C corporation to an S corporation in 2017. For 2020, the corporation has built-in gain of $40,000 and taxable income of $30,000. Determine the built-in gains tax imposed on the corporation.

2. Germaine, the sole shareholder in Nomad Corporation, has a basis in his stock of $18,000 at the beginning of the year. The corporation has taxable income of $9,000 for the year. In addition, the corporation has a short-term capital loss of $1,200 and tax-exempt income of $800. What is Germaine’s basis in his stock at the end of the year?

3. Alpha Corporation, a calendar-year S corporation, has no accumulated earnings and profits at the end of the year. An individual shareholder receives a cash distribution of $10,000 during the year. How will this distribution be recognized, assuming the shareholder has an $8,200 basis in his stock?

4. An S corporation’s only transaction for the year was the receipt of $10,000 in tax-exempt interest. How would a $6,000 distribution be taxed to the sole shareholder if the S corporation has an accumulated adjustments account of a negative $6,500 at the beginning of the year?

5. Some stock in a calendar-year S corporation is sold to a nonresident alien on February 13, 2020. On what date is the corporation’s status as an S corporation terminated?

WEEK 7

Problem 28 on page 10-19

2) Problem 42 on page 10-21

3) Problem 47 on page 10-22

4) Question 11 on page 11-22

5) Problem 22 on page 11-23

1. What are the special rules for gains or losses on sales to related parties?

(A disallowed loss on a related party transaction can be used to offset any future gain when the property is sold to an unrelated party

2. Frank Fleming recently purchased some new equipment that he plans to use in his business. He paid $43,000 for the equipment. He also paid $2,500 in delivery and installation costs, $1,600 in legal fees, and $3,800 in sales taxes. What is Frank’s basis in this equipment?

3. Martha McDonald purchased an office building in 2000 for $630,000. In 2020, she sells the building for $950,000. Over the years, she had replaced the windows and doors at a cost of $60,000, repainted the exterior at a cost of $15,000, and installed an elevator at a cost of $90,000. Martha had taken straight line depreciation on the building for 20 years, for a total of $400,000.

1. What is Martha’s basis in the building at the time of the sale?

2. What is her realized gain?

3. What is her recognized gain?

4. John Johnson, single, sold his home that he had owned for 20 years for $650,000. He purchased it for $125,000 and made $50,000 of capital improvements on the home during his time of ownership.

1. How much gain is excluded? How much is recognized?

2. If John purchased another home for $425,000, how much is excluded and recognized?

5. Milton and Maxine Miller purchased a home in New York City for $350,000 on October 1, 2019. Milton obtained a job in Richmond, Virginia, and on December 1, 2020, the Millers sold their home in New York for $550,000.

1. How much gain can the Millers exclude and how much is recognized?

2. Assume that the Millers instead sold their home on December 1, 2020, for $750,000. How much gain can the Millers then exclude and how much is recognized?

Week 8

1)Problem 30 on page 12-31

2) Problem 31 on page 12-31

3) Problem 41 on page 12-32

4) Problem 48 on page 12-33

5) Problem 53 on page 12-34

1) Which of the following is a capital asset? Explain.

a. Gold ring received as a gift.

b. Personal automobile

c. Accounts receivable obtained in the ordinary course of business

d. Shares of stock in the Riviera Corporation

e. Building owned and used by the Riviera Corporation

f. Business cars and trucks owned and used by the Riviera Corporation

g. Home in Florida used for only four months during the winter

h. Copyright on a book written and owned by the author

2) Explain the difference between the following situations:

a. Lois sells a letter written to her by President Ronald Reagan in 1982 to a collector for $5,000.

b. Lois sells a signed copy of the book To Kill a Mockingbird, which she purchased in 1980 for $5 to a collector for $5,000.

3) Cannon Corporation had a net long-term capital gain of $50,000 and a net short-term capital loss of $75,000 in 2020. What are the tax consequences to Cannon as a result of its capital transactions

The short term capital loss can be set off from long term capital gain. Capital gain is 50,000 and capital loss is 75,000 so there is no tax consequences in this situation

4) Which of the following are Section 1231 assets? Explain. Assume all the items have been held long-term.

a. Machinery used in the business

b. Personal home

c. Factory building

d. Land held as an investment:

e. Land used in a business

f. Shares of stock in Jones Corporation.

g. Inventory.

h. Musical composition held by the composer

5) Indicate whether the following items are Section 1245 or Section 1250 property or, if neither, indicate what type of property they are considered to be (e.g., capital asset, Section 1231 asset). (Remember that Section 1245 and Section 1250 properties are sub-categories of depreciable Section 1231 property.) Assume all the items have been held long-term.

a. Equipment used in the business

b. Personal automobile

c. Truck used in the business.

d. Escalator used in the business.

e. Inventory

f. Residential rental housing

g. Nonresidential real property

h. Leasehold of Section