Q: Thayer Corporation purchased an apartment building on January 1, 2006 for $200,000. The building was depreciated using the straight-line method. On December 31, 2009 the building was sold for $220,000, when the asset balance of accumulated depreciation was $170,000. On it's 2009 tax return, Thayer should report
a. Section 1231 gain of $42,000, and ordinary income of $7,500.
b. Section 1231 gain of $44,000 and ordinary income of $6,000
c. Ordinary income of $50,000
d. Section 1231 gain of $50,000
The CPA Exam is known as "the most difficult professional designation." My understanding is that it is actually similar to taking the BAR exam, except you have to essentially take it 4 times. There are 4 sections to the CPA exam, which they recommend studying around 12 weeks, or 150, hours for each section. That's a lot of studying.
What makes it so difficult isn't sitting down to actually study the material. If you get to the point where you are actually eligible to take the exam, you know you like accounting enough to stomach the studying part. The most difficult part of the CPA exam is the sheer volume of information you are required to know.
Currently I am studying for Regulation. This is comprised of Business Law, Individual Taxation, Corporate and Partnership Taxation, and Gift and Estate Tax. Those 4 subject, are actually 3 separate classes at the college level. So I have 12 weeks, to nail down 3 classes worth of information, doing this on my own without the help of a teacher in a classroom, and no study guides, no knowledge of what are the most important things to study, and no clue on how the exam is graded. It's almost laughable because you need a 75 to pass. Not a 75%...a 75. An arbitrary number, and they don't tell you how they get to that number. Almost 25% of the MCQ's are pre-test, meaning they aren't even graded, just seeing how people do. One of the simulations is tossed, but who knows which one. You need to average about 60 seconds per multiple choice question, and when you're figuring out Like-Kind Exchanges that's a major challenge.
So I get nervous for these exams. I'm gutted. My test is next week, and I am spending almost 4 HOURS every night in the books. Just to get that elusive "75"
Are you overwhelmed yet? WAIT. Let me give you the answer to the above question:
Answer: (b) The requirement is to determine the proper treatment of the $50,000 gain on the sale of the building, which is Sec. 1250 property. Sec 1250 recaptures gain as ordinary income to the extent of "excess" depreciation (i.e. depreciation deducted in excess of straight-line). The total gain, less any recapture is Sec 1231 gain. Since straight-line depreciation was used, there is no recapture under Sec 1250. However, Sec 291 requires that the amount of ordinary income on the disposition of Sec 1250 by Corporations be increased by 20% of the additional amount that would have been ordinary income if the property had instead been Sec 1245 property. If the building had been Sec 1245 property, the amount of recapture would have been $30,000 ($200,000-170,000). Thus, the Sec 291 ordinary income is $30,000 x 20% = $6000. The remaining $44,000 is Sec. 1231 gain.
Got that? We are on the same page now right? Good.