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ACC/307 ACC307 ACC 307 WEEK 8 HOMEWORK 2

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ACC 307 WEEK 8 HOMEWORK 2 1. Problem 11-36 (LO 11-1, LO 11-2) Hannah Tywin owns 100 shares of MM Inc. stock. She sells the stock on December 11 for $25 per share. She received the stock as a gift from her Aunt Pam on March 20 of this year when the fair market value of the stock was $18 per share. Aunt Pam originally purchased the stock seven years ago at a price of $12 per share. What is the amount and character of Hannah’s recognized gain or loss on the stock? Amount $1,300 Long-term capital gain 2. Problem 11-39 (LO 11-2) Identify each of White Corporation’s following assets as an ordinary, capital, or §1231 asset. a. Two years ago, White used its excess cash to purchase a piece of land as an investment. Capital asset b. Two years ago, White purchased land and a warehouse. It uses these assets in its business. §1231 asset c. Manufacturing machinery White purchased earlier this year. Ordinary asset d. Inventory White purchased 13 months ago but is ready to be shipped to a customer. Ordinary asset e. Office equipment White has used in its business for the past three years. §1231 asset f. 1,000 shares of stock in Black corporation that White purchased two years ago because it was a good investment. Capital asset g. Account receivable from a customer with terms 2/10 net 30. Ordinary asset h. Machinery White held for three years and then sold at a loss of $10,000. §1231 asset 3. Problem 11-45 (LO 11-3, LO 11-4, LO 11-5) Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 30 percent. Answer the questions presented in the following alternative scenarios (assume Hart had no property transactions other than those described in the problem): (Loss amounts should be indicated by a minus sign.) a-1. What is the amount and character of Hart’s recognized gain if the asset is tangible personal property sold for $450,000? (Enter NA if a situation is not applicable. Leave no answer blank. Enter zero if applicable.) Description Amount Total Gain/(Loss) Recognized $50,000 Ordinary Income – §1245 depreciation recapture $50,000 §1231 gain/loss $0 a-2. What effect does the sale have on Hart’s tax liability for the year? Tax liability $15,000 b-1. What is the amount and character of Hart’s recognized gain if the asset is tangible personal property sold for $550,000? (Enter NA if a situation is not applicable.) Description Amount Total Gain/(Loss) Recognized $150,000 Ordinary Income – §1245 depreciation recapture $100,000 §1231 gain/loss $50,000 b-2. What effect does the sale have on Hart’s tax liability for the year? Tax liability $37,500 c-1. What is the amount and character of Hart’s recognized gain if the asset is tangible personal property sold for $350,000? (Enter NA if a situation is not applicable. Leave no answer blank. Enter zero if applicable.) Description Amount Total Gain/(Loss) Recognized $(50,000) NA $0 §1231 gain/loss $(50,000) c-2. What effect does the sale have on Hart’s tax liability for the year? Tax savings $15,000 d-1. What is the amount and character of Hart’s recognized gain if the asset is a nonresidential building sold for $450,000? (Enter NA if a situation is not applicable. Leave no answer blank. Enter zero if applicable.) Description Amount Total Gain/(Loss) Recognized $50,000 Unrecaptured §1250 gain (and §1231 gain) $50,000 §1231 gain/loss $0 d-2. What effect does the sale have on Hart’s tax liability for the year? Tax liability $12,500 e-1. Now assume that Hart is a corporation. What is the amount and character of its recognized gain if the asset is a nonresidential building sold for $450,000? (Enter NA if a situation is not applicable.) Description Amount To

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