Nell Sells a Passive Activity with an Adjusted Basis of $45,000

question 76

Multiple Choice

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this property total $45,000. The total gain and the taxable gain are:

• A) $60,000 total gain? $105,000 taxable gain.
• B) $10,000 total gain? $15,000 taxable gain.
• C) $60,000 total gain? $0 taxable gain.
• D) $60,000 total gain? $15,000 taxable gain.
• E) None of the above.

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Definitions:

Dividend Distribution

The method by which a corporation's earnings are distributed among its shareholders in the form of dividends.

Retaining Earnings

Profits kept by a company for reinvestment in its operations rather than distributed to shareholders as dividends.

Residual Dividend

A policy whereby dividends are based on earnings after all projects with positive NPV are funded.

Capital Budgeting Projects

Long-term investment decisions made by companies to invest in projects or assets with the aim of generating revenue or reducing costs in the future.