ACCT-4021EL Lecture 8: Capital Gains Reserves
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Please solve part 5 to 8
Kendra, Cogley, and Mei share income and loss in a 3:2:1 ratio.The partners have decided to liquidate their partnership. On theday of liquidation their balance sheet appears asfollows.
| KENDRA, COGLEY, AND MEI Balance Sheet May 31 | |||||||
| Assets | Liabilities andEquity | ||||||
| Cash | $ | 72,200 | Accounts payable | $ | 251,000 | ||
| Inventory | 550,800 | Kendra, Capital | 74,400 | ||||
| Cogley, Capital | 167,400 | ||||||
| Mei, Capital | 130,200 | ||||||
| Total assets | $ | 623,000 | Total liabilities andequity | $ | 623,000 | ||
Required:
For each of the following scenarios, complete the scheduleallocating the gain or loss on the sale of inventory. Preparejournal entries to record the below transactions. (Do notround intermediate calculations. Amounts to be deducted or Lossesshould be entered with a minus sign. Round your final answers tothe nearest whole dollar.)
(1) Inventory is sold for $604,200.
(2) Inventory is sold for $475,200.
(3) Inventory is sold for $301,800 and any partners with capitaldeficits pay in the amount of their deficits.
(4) Inventory is sold for $282,000 and the partners have no assetsother than those invested in the partnership.
5) Complete the schedule allocating the gain orloss on the sale of inventory is $301,800 and any partners withcapital deficits pay in the amount of their deficits.
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6) a) Record the sale of inventory.
b) Allocate the gain(loss) on the sale of inventory to thepartners.
c) The partner(s) with deficit balances repay the amount oftheir deficit(s).
d) Record the payment of the liabilities.
e) Record the disbursement of the remaining cash to thepartners.
7) Complete the schedule allocating the gain orloss on the sale of inventory $282,000 and the partners have noassets other than those invested in the partnership.
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8) a) Record the sale of inventory for$282,000.
b) Record the allocation of the gain or loss on the sale ofinventory to the partners.
c) Assuming that the partners have no assets other than thoseinvested, allocate any partner(s) deficit balances to the remainingpartners.
d) Record the payment of the liabilities.
e) Record the disbursement of the remaining cash to thepartner(s).
Multiple Choice:
_____For purposes of calculating depreciation on the taxpayersbusiness usage of his home, the depreciable basis of the officeis:
The allocable share (example - square footage) of the adjustedbasis of the home when he converted the room from personal space toan office for business use.
The allocable share of the fair market value of the home at thetime he converted the room to an office space for business.
The lesser of a. or b.
The greater of a. or b.
____ Which of the following is not included inthe taxpayerâs basis of business property?
Sales taxes paid with the purchase
Title insurance paid with the purchase
Amounts paid to have the property installed
Amounts paid to have the property delivered
All of the above are included in the taxpayerâs basis.
____ A taxpayer has a net short term capital lossof $2,000 and a net long term capital loss of $3,000 for the taxyear. If there are no other gains or losses, what, if anything,carries over to the next year?
$2,000 short term capital loss
$2,000 long term capital loss
$2,000 short term capital loss; $3,000 long term capitalloss
$500 short term capital loss; $1,500 long term capital loss
The taxpayer has no capital loss carryover.
_____ A taxpayer purchased a capital asset on March 22, 2015.What is the earliest date that he can dispose of the asset wherethe sale qualifies for long term capital gains/loss treatment?
September 22, 2015
September 23, 2015
March 22, 2016
March 23, 2016
_____ A married couple sells the following capital assets duringthe year:
Date Acquired | Date Sold | Sales Price | Adjusted Basis | |
The coupleâs net capital gain is:
$4,000
$12,000
$5,000
$11,000
None of the above
_____ Land purchased for $80,000 in 2000 and used in thetaxpayers business is sold in 2015 for $87,000. The sale of theland results in:
$7,000 short term capital gain
$7,000 long term capital gain
$7,000 ordinary income
$7,000 section 1231 gain
None of the above
_____ Taxpayer purchased office equipment for $9,000. Theequipment had been depreciated $5,000. It was sold for $7,500. Whatis the amount and nature of the gain/loss from the sale?
$1,500 ordinary loss
$1,500 capital loss
$3,500 ordinary income
$3,500 long term capital gain.
_____ Taxpayer has a plant where she acquired a machine for$14,000. Over time depreciation of $6,000 was claimed. In thecurrent year taxpayer sells the asset for $19,000. What is theamount and nature of the gain/loss from the sale?
$6,000 of ordinary income, $5,000 long term capital gain
$5,000 of long term capital gain, $5,000 of ordinary income
$11,000 ordinary income.
$11,000 long term capital gain
______ Equipment used in the business is purchased in 2012 for$50,000. It was sold in 2015 for $22,000.
Depreciation information is as follows:
Accelerated depreciation claimed $23,758
Straight line Depreciation would have been$21,500
What is the gain or loss on the sale of the equipment, and howwill it be treated for tax purposes?
$4,242 Section 1231 loss
$1,758 Section 1231 loss
$2,258 ordinary loss; $1,984 Section 1231 loss
$4,242 ordinary loss
$6,500 ordinary loss
_____ In Malat v Riddell, 383 U.S. 569, 86 S.Ct. 1030,which of the following statements is accurate:
The Supreme Court sustained the governmentâs position, holdingthat the property was held by the taxpayer primarily for sale tocustomers in the ordinary course of his trade or business.
The Supreme Court held that the sale of âproperty held by thetaxpayer primarily for sale to customers in the ordinary course ofa trade or business is synonymous with the wordâsubstantiallyâ.
Words of the statutes should be interpreted where possible intheir ordinary, everyday senses. The Supreme Court concluded thatas used in Section 122191), âprimarilyâ means âof first importanceâor âprincipallyâ.
In so concluding as it did, the Supreme Court found itunnecessary to remand the case back to the lower court.