In 2006, Gita contributed property with a basis of $500,000 and a fair market value of $3,000,000 to a qualified small business corporation for all of its common stock. She sells one-half of the stock after five years for $4,000,000. What is the amount of taxable gain on the transaction?

In 2006, Gita contributed property with a basis of $500,000 and a fair market value of $3,000,000 to a qualified small business corporation for all of its common stock. She sells one-half of the stock after five years for $4,000,000. What is the amount of taxable gain on the transaction?

Answer: The amount of the realized gain is $4,000,000 - $250,000 = $3,750,000. Fifty percent of the gain ($1,750,000 ) is eligible for the exclusion for qualified small business stock. $1,750,000 is taxable.

On January 15, 2014, Vern purchased the rights to a mineral interest for $3,500,000. At that time it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Vern incurred expenses during 2014 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2014.

On January 15, 2014, Vern purchased the rights to a mineral interest for $3,500,000. At that time it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Vern incurred expenses during 2014 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2014.

a. $150,000
b. $175,000
c. $176,000
d. $200,000
e. $250,000


Answer: b

Orange Corporation begins business on April 2, 2014. The corporation has startup expenditures of $64,000 which it incurred last year. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2014.

Orange Corporation begins business on April 2, 2014. The corporation has startup expenditures of $64,000 which it incurred last year. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2014.

a. $0
b. $3,200
c. $4,267
d. $7,950
e. None of these


Answer: b

On June 1, 2014, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2014 for the patent.

On June 1, 2014, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2014 for the patent.

a. $0
b. $1,667
c. $11,667
d. $35,000
e. None of these


Answer: c

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange Corporation may amortize.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange Corporation may amortize.

a. $16,667
b. $26,667
c. $33,333
d. $100,000
e. None of these


Answer: e

George purchases used seven year class property at a cost of $200,000 on April 20, 2014. Determine George's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming George does not elect § 179.

George purchases used seven year class property at a cost of $200,000 on April 20, 2014. Determine George's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming George does not elect § 179.

a. $2,500
b. $10,000
c. $14,280
d. $28,580
e. None of these


Answer: e