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Name: EXAM 3 Summer Semester, 2016 True/False. Answer on bubble sheet.

1. Every taxable entity must use a calendar fiscal year.

2. A computer used exclusively in a sole proprietor's business is a capital asset. (F)

3. To qualify as Section 1231 property, the property must be used in a taxpayer's trade or business and must be held for more than one year. (T)

4. Inventory on hand at the end of the year is Section 1231 property.

5. Personal property depreciated using straight-line depreciation is not subject to Section 1245 recapture.

ACT3002

6. Section 1231 applies to all business property.

7. if Section 1231 losses exceed Section 1231 gains, the excess is treated as ordinary loss.

8. if Section 1231 gains exceed Section 1231 losses, the excess is treated as long-term capital gain (except in cases where there are nonrecaptured Section 1231 losses).

9. Business property held for one year or less always produces ordinary gain or loss

10. A C corporation carries forward capital losses indefinitely.

11. A taxpayer's holding period is always measured from the day after the taxpayer acquires the property.

12. Depreciable Section 1245 property is subject to depreciation recapture rules.

13. Section 1245 recapture does not apply to depreciable real property.

14. Both C and S corporations recognize gain on the distribution of appreciated property and recognize a loss when it distributes property that has declined in value.

15. Different charitable contribution limits apply to corporate and individual taxpayers.

16. A corporation that owns 80 % of the stock in another corporation is not taxed on the dividends it receives from the other corporation.

17. Corporations can use capital losses to offset ordinary income.

18. Book income and taxable income are normally the same.

19. C corporations cannot use the cash method of accounting if their average annual gross receipts for the three previous tax years exceed $5 million.

20. C Corporations with taxable income in excess of $18,000,000 are taxed at a flat 35% tax rate.

21. The differences between book income and taxable income are reconciled in Schedule M-1. 22. Large corporations (assets>$10,000,000) must use a Schedule M-3 for the income differences.

23. C Corporations do not pay Alternative Minimum Tax, if applicable.

24. Controlled groups must allocate tax attributes between them.

25. C Corporation file Form 1120 to report their taxes.

Multiple Choice:

26. If certain conditions are met, which of the following properties could be classified as Section 1231 property?

a. Stock

b. Inventory

c. Accounts receivable

d. Computer

e. None of the above can ever be classified as Section 1231 property

27. If certain conditions are met, which of the following properties could be subject to Section 1245 depreciation recapture?

a. Land b. Delivery truck

c. Apartment building

d. Inventory

e. None of the above would ever be subject to Sec 1245 depreciation recapture

28. A taxpayer purchased business machinery on February 16, 2014, for $25,000. The machinery was sold for $26,000 on November 10, 2015. Depreciation information is as follows: Accelerated depreciation taken $9,000 Straight-line depreciation (7-year life) would have been $5,000 What is the gain or loss on the sale of this machinery, and how will it be treated on the tax return?

a. $4,000 ordinary income and $6,000 Section 1231 gain.

b. $4,000 ordinary income and $6,000 long-term capital gain.

c. $9,000 ordinary income and $1,000 Section 1231 gain.

d. $9,000 ordinary income and $1,000 long-term capital gain e. None of the above.

29. Which of following is true for Net Operating Losses (NOLs) of a C corporation:

I. Carried back 5 years

II. Carried back 3 years

III. Carried back 2 years

IV. Carried forward 5 years

V. Carried forward 3 years

VI. Carried forward 20 years

a. II and V.

b. I. and IV.

 d. II and VI.

e. All are acceptable.

 

30. Which of following is true for Capital Losses of a C Corporation:

I. Carried back 5 years

II. Carried back 3 years

IV. Carried forward 5 years V. Carried forward 3 years I and VI.

III. Carried back 2 years

VI. Carried forward 20 years

a. II and V.

 b. I. and IV.

c. I and VI.

d. II and IV.

e. All are acceptable.

 

31. The lookback period for purposes of computing non-recaptured Section 1231 Losses is:

a. 7 years.

b. 3 years.

 c. 10 years.

d. 5 years.

e. Indefinite.