1- Alpha sold machinery, which it used in its business, to Beta, a related entit
ID: 2734742 • Letter: 1
Question
1- Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,200. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $49,800 and has claimed $30,200 of depreciation expense. What is the amount and character of Alpha's gain?
$10,600 ordinary gain.
$10,000 ordinary gain and $10,600 §1231 gain.
None of these.
$20,600 capital gain.
$20,600 ordinary income under §1239.
2-
If Lucy earns a 8% after-tax rate of return, $28,000 received in four years is worth how much today? (round present and future value amounts to 3 places)
$28,000.
$25,784.
$30,749.
$20,580.
None of these.
3-
Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $22,000 for damages, $6,300 for emotional distress, and $74,750 for punitive damages. What amount must Paul include in his gross income?
$6,300.
$74,750.
$22,000.
$96,750.
All of these benefits are included in gross income.
4-
Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. The taxi was originally purchased for $9,500 and the adjusted basis was $1,250 at the time of the accident. The taxi was repaired at a cost of $2,875 and insurance reimbursed Don $745 of this cost. What is the amount of Don's casualty loss deduction?
$2,875
Don is not eligible for a casualty loss deduction.
$2,130
$505
$1,250
Explanation / Answer
1- Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,200. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $49,800 and has claimed $30,200 of depreciation expense. What is the amount and character of Alpha's gain?
$10,600 ordinary gain.
$10,000 ordinary gain and $10,600 §1231 gain.
None of these.
$20,600 capital gain.
$20,600 ordinary income under §1239.
Explanation: U/s 1239 any sale or exchange between related parties any gain recognized to seller, is treated as ordinary income subject to property transferred is depreciated u/s 167
2-
If Lucy earns a 8% after-tax rate of return, $28,000 received in four years is worth how much today? (round present and future value amounts to 3 places)
$28,000.
$25,784.
$30,749.
$20,580.
None of these.
Explanation: 2800*(1.08)^-4 = 20580.85
3-
Acme published a story about Paul and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $22,000 for damages, $6,300 for emotional distress, and $74,750 for punitive damages. What amount must Paul include in his gross income?
$6,300.
$74,750.
$22,000.
$96,750.
All of these benefits are included in gross income.
Explanation: As per tax law any damages received on physical damage is nontaxable, above mentioned is not covered in physical damages.
4-
Don operates a taxi business, and this year one of his taxis was damaged in a traffic accident. The taxi was originally purchased for $9,500 and the adjusted basis was $1,250 at the time of the accident. The taxi was repaired at a cost of $2,875 and insurance reimbursed Don $745 of this cost. What is the amount of Don's casualty loss deduction?
$2,875
Don is not eligible for a casualty loss deduction.
$2,130
$505
$1,250
Explanation: Lesser of adjusted basis or repair amount less insurance reimbursement.1250 or 2875, 1250 is lower less 745 = 505
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