Property Dispositions True / False Questions 1. Gain or loss realized on the disposition of property is recogniz

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Property Dispositions
True / False Questions
1.
Gain or loss realized on the disposition of property is recognized
unless the tax law provides a nonrecognition
exception.
True False
2.
According to the realization principle, an increase in the value of
an asset is not accounted for as income unless the amount of the
increase can be accurately measured.
True False
3.
The seller's amount realized on the sale of property equals any
cash received plus the FMV of any property received plus any amount
of debt relief to the seller.
True False
4.
Mr. Hickem sold an investment asset worth $20,000. The purchaser
paid Mr. Hickem by giving him $12,500 cash and an oil painting
worth $7,500. Mr. Hickem's amount realized on sale is
$12,500.
True False
5.
N&B Inc. sold land worth $385,000. The purchaser paid $80,000
cash and assumed N&B's $305,000 mortgage on the land. N&B's
amount realized on sale is $385,000.
True False
6.
Four years ago, Mrs. Beights purchased marketable securities for
$75,000 cash. At the end of the current year, the FMV of the
securities had plummeted to $4,000. Mrs. Beights may elect to
recognize her $71,000 loss this year, even though she still owns
the securities.
True False
7.
Kopel Company transferred an inventory asset to Cassim LLC in
exchange for Cassim's $230,000 interest-bearing note. Kopel's tax
basis in the note is its $230,000 face value.
True False
8.
Mrs. Lex realized a $78,400 gain on sale of investment land to
S&T, which issued a 10-year note in full payment. Mrs. Lex must
recognize the gain in the year of sale unless she elects to use the
installment sale method to recognize gain over the term of the
note.
True False
9.
A taxpayer that is using the installment sale method to recognize
gain must recompute the gross profit percentage every year during
the term of the installment note.
True False
10. The use of
the installment sale method can result in an unfavorable difference
between book income and taxable income in the year of
sale.
True False
11. The
installment sale method of accounting is not applicable to realized
losses.
True False
12. A
corporation can use the installment sale method of accounting for
both book and tax purposes.
True False
13. Mr. and
Mrs. Plame sold an investment asset to their grandson Leonard.
Because Leonard is a related party, the Plames do not recognize any
gain or loss realized on sale.
True False
14. Sandy Cole
realized a loss on sale of an investment asset to her mother,
Lynne. If the facts and circumstances prove that the selling price
was an arm's length market price, Sandy can recognize the
loss.
True False
15. The gain
or loss recognized on any disposition of a capital asset is
characterized as capital gain or loss.
True False
16. The
characterization of income as ordinary or capital gain has no
relevance for financial reporting purposes.
True False
17. The same
asset may be an ordinary asset in the hands of one taxpayer and a
capital asset in the hands of a different taxpayer.
True False
18. Inventory,
accounts receivable, and machinery used in a business are examples
of capital assets.
True False
19. For tax
purposes, every asset is a capital asset unless it falls into one
of eight categories of noncapital assets.
True False
20. Every gain
or loss realized on the disposition of property is ultimately
characterized as either ordinary or capital for tax
purposes.
True False