Question :1). Sheila inherited 300 shares of stock, 100 shares of Magenta and 200 shares of Purple. She has a stockbroker sell the shares for her, uses the proceeds for personal expenses, and thinks nothing further about the transactions. What issues does she face when she prepares her Federal income tax return?
2). Blue Corporation and Fuchsia Corporation are engaged in a contract negotiation over the use of Blue`s trademarked name, DateSiteForSeniors. For a one-time payment of $45,000, Blue licensed Fuchsia to use the name DateSiteForSeniors, and the license requires that Fuchsia pay Blue a royalty every time a new customer signs up on Fuchsia`s website. Blue is a developer of "website ideas" that it then licenses to other companies such as Fuchsia. Did Fuchsia purchase a franchise right from Blue, or did Fuchsia purchase the name DateSiteForSeniors from Blue?
3). Sissie owns two items of business equipment. They were both purchased in 2010 for $100,000, both have a seven-year recovery period, and both have an adjusted basis of $37,490. Sissie is considering selling these assets in 2014. One of them is worth $60,000, and the other is worth $23,000. Because both items were used in her business, Sissie simply assumes that the loss on one will be offset against the gain from the other and that the net gain or loss will increase or reduce her business income. Is she correct? Explain.
4). Jingie owns two parcels of business land (? 1231 assets). One parcel can be sold at a loss of $60,000, and the other parcel can be sold at a gain of $70,000. Jingie has no nonrecaptured ? 1231 losses from prior years. The parcels could be sold at any time because potential purchasers are abundant. Jingie has a $35,000 short-term capital loss carryover from a prior tax year and no capital assets that could be sold to generate longterm capital gains. Both land parcels have been held more than one year. What should Jingie do based upon these facts? (Assume that tax rates are constant, and ignore the present value of future cash flow.
5). Copper Industries (a sole proprietorship) sold three ? 1231 assets during 2014.
Data on these property dispositions are as follows:
Asset Cost Acquired Depreciation Sold for Sold on
Rack $110,000 10/10/11 $70,000 $55,000 10/10/14
Forklift 45,000 10/16/10 21,000 15,000 10/10/14
Bin 97,000 03/12/13 31,000 60,000 10/10/14
a. Determine the amount and the character of the recognized gain or loss from the disposition of each asset.
b. Assuming that Copper has $6,000 nonrecaptured net ? 1231 losses from prior years, how much of the 2014 recognized gains is treated as capital gains?