Dallas Corporation, Not a Dealer in Securities, Realizes Taxable Income

question 92

Essay

Dallas Corporation, not a dealer in securities, realizes taxable income of $60,000 from the operation of its business. Additionally, in the same year, Dallas realizes a long- term capital loss of $10,000 from the sale of marketable securities. If the corporation realizes no other capital gains or losses, what is the proper treatment for the $10,000 long- term capital loss on the tax return?
A) Carry the $10,000 long- term capital loss back three years as a short- term capital loss, then forward five years.
B) Use $6,000 of the loss to reduce taxable income and carry $4,000 of the long- term capital loss forward for five years.
C) Use $10,000 of the long- term capital loss to reduce taxable income.
D) Use $3,000 of the loss to reduce taxable income and carry $7,000 of the long- term capital loss forward for five years.

• A) Carry the $10,000 long- term capital loss back three years as a short- term capital loss, then forward five years.
• B) Use $6,000 of the loss to reduce taxable income and carry $4,000 of the long- term capital loss forward for five years.
• C) Use $10,000 of the long- term capital loss to reduce taxable income.
• D) Use $3,000 of the loss to reduce taxable income and carry $7,000 of the long- term capital loss forward for five years.

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Definitions:

Qualitative Characteristic

Attributes that make the information provided in financial statements useful to users, including relevance, understandability, comparability, and reliability.

Cost Constraint

The principle that the cost of providing financial information should not outweigh the benefits that the information provides to users.

Generating Revenue

The process by which a company produces income from its operations, sales, or services.

Consumed Assets

Assets that have been used and cannot be restored or recovered, typically expensed in the period they are used.