Multiple Choice Questions 21. Lenoci Inc. paid $310,000 for equipment three years ago. This year, it sold the equ

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Multiple Choice Questions
21. Lenoci
Inc. paid $310,000 for equipment three years ago. This year, it
sold the equipment for $200,000. Through date of sale, accumulated
book depreciation was $93,840 and accumulated tax depreciation was
$147,327. Which of the following statements is true?

A. The sale
results in a $53,487 favorable temporary book/tax difference.
B. The sale
results in a $53,487 unfavorable temporary book/tax
difference.
C. The sale
results in a $53,487 unfavorable permanent book/tax
difference.
D. None of the
above is true.
22. Six years
ago, Alejo Company purchased real property by paying $250,000 cash
and giving the seller its $1 million note for the balance of the
purchase price. This year, Alejo deducted $30,800 depreciation on
the property and made a $125,000 principal payment on the note.
Which of the following statements is false?
A. The
depreciation deduction reduced Alejo's adjusted tax basis in the
real property.
B. The principal
payment increased Alejo's equity in the real property.
C. The principal
payment reduced Alejo's tax basis in the real property and the
balance due on the note.
D. None of the
above statements is false.
23. O&V
sold an asset with a $78,300 adjusted tax basis for $100,000. The
purchaser paid $30,000 in cash and assumed O&V's $70,000
mortgage on the asset. Compute O&V's net cash flow from the
sale assuming a 35% tax rate.
A.
$22,405
B. $13,095
C. $14,105
D. None of the
above
24. This year,
Ms. Lucas sold investment land for $125,000 cash plus the
purchaser's assumption of a $50,000 mortgage on the land. Ms.
Lucas's tax basis in the land was $93,000. If any recognized gain
is taxed at 15 percent, compute the after-tax cash flow from the
sale.
A.
$62,300
B. $69,700
C. $112,700
D. $162,700
25. Philp Inc.
sold equipment with a $132,900 adjusted tax basis for $200,000. The
purchaser paid $20,000 in cash and assumed Philp's $180,000
mortgage on the asset. Compute Philp's net cash flow from the sale
assuming a 35% tax rate.
A.
$23,485
B. $20,000
C. -0-
D. None of the
above
26. Mr. Beck
sold real property with a $140,000 adjusted basis for $255,000. The
buyer paid $148,000 cash and assumed Mr. Beck's $107,000 mortgage
on the realty. Mr. Beck's realized gain or loss on sale
is
A. $115,000
gain
B. $8,000
gain
C. $33,000
loss
D. $0 gain or
loss
27. Brenda
sold investment land for $200,000 in June. Her basis in the land
was $75,000. The purchaser paid Brenda $40,000 cash and gave her
his 5-year, interest-bearing note for the $160,000 remaining
contract price. In December, Brenda received a $20,000 principle
payment on the note. Brenda's recognized gain this year
is
A.
$125,000
B. 60,000
C. $37,500
D. $22,500
28. Winslow
Company sold investment land to an unrelated purchaser. The
purchaser paid $250,000 cash, assumed Winslow's $600,000 mortgage
on the land, and gave Winslow its $580,000 ten-year,
interest-bearing note. Compute Winslow's amount realized on
sale.
A.
$250,000
B. $830,000
C. $850,000
D. $1,430,000
29. The
installment sale method of accounting applies to which of the
following?
A. $89,300 gain
realized on sale of business inventory.
B. $798,600 gain
realized on sale of common stock in a publicly held
corporation.
C. $(41,500) loss
realized on sale of land used in a trade or business.
D. None of the
above
30. O&V
sold a business asset with a $78,300 adjusted tax basis for
$100,000. The purchaser paid $30,000 in cash and gave O&V a
note for the $70,000 balance of the price. O&V will not receive
a payment on the note until next year. Compute O&V's gain
recognized under the installment sale method.
A. $7,690
B. $6,510
C. $4,920
D. None of the
above
31. The
installment sale method of accounting does not apply to which of
the following sales?
A. Sale of
12-acre tract of land held as inventory by a real estate
developer
B. Sale of
business equipment
C. Sale of U.S.
Treasury notes
D. The method does
not apply to a. and c.
32. Mrs. Beld
sold marketable securities with a $79,600 tax basis to her daughter
for $60,000 cash. Two years later, the daughter sold the securities
through her broker for $93,000. Compute the daughter's gain
recognized on sale.
A.
$13,400
B. $19,600
C. $33,000
D. None of the
above
33. Warsham
Inc. sold land with a $300,000 basis to Sara Phillips for $117,000
cash. Sara owns 68 percent of Warsham's outstanding stock. Which of
the following statements is true?
A. Warsham
cannot recognize its $183,000 realized loss on sale on its current
year tax return.
B. Warsham does
not report the $183,000 realized loss on its current year financial
statements.
C. The $183,000
loss is an unfavorable temporary difference between Warsham's book
and tax income.
D. Both a. and c.
are true.
34. Which of
the following is a capital asset?
A. Accounts
receivable of an accrual basis
business

B. Business
equipment
C. Self-created
goodwill
D. Purchased
goodwill
35. Which of
the following is a capital asset?
A. Supplies
used in a business
B. Business
inventory
C. Land used in a
business
D. None of the
above