Answer the following statements true (T) or false (F)
1. Galvin Corporation has owned all of the stock of Rialto Corporation for five years. Rialto Corporation has been actively engaged in manufacturing in Kansas, but it is now bankrupt, and the stock is worthless. Galvin Corporation will recognize a long-term capital loss.
2. Purchase of a bond at a significant discount will result in the investor recognizing a capital gain when the bond matures.
3. Gain on sale of a patent by an inventor generally is ordinary income.
4. The gain or loss on an asset purchased on March 31, 2017, and sold on March 31, 2018, is classified as short-term.
5. If property received as a gift has a basis of the fair market value of the property on the date of the gift, the donee's holding period starts on the day after the date of the gift.
1. FALSE
The stock of Rialto Corporation will meet the criteria of worthless securities in an affiliated corporation so Galvin Corporation will be able to treat the loss as an ordinary loss.
2. FALSE
A significant discount on a bond will be treated as original issue discount or market discount, resulting in ordinary income recognition over the life of the bond or at redemption.
3. TRUE
Gain on the sale of a patent is ordinary if sold by the individual who developed the patent.
4. TRUE
To qualify as long-term, the asset must be held more than one year.
5. TRUE
Normally the donee's holding period includes the donor's holding period, but if the donee's basis is the FMV on the gift date, the holding period starts over.
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