Taxation of Individuals and Business Entities 2018 Edition 9Th Edition Spilker Test Bank Full Chapter PDF

Taxation of Individuals and Business
Entities 2018 Edition 9th Edition Spilker

Test Bank
Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/taxation-of-individuals-and-business-entities-2018-edition-9th-edition-spilker-tes
t-bank/
McGraw-Hill’s Taxation of Individuals and Business Entities, 2018 Edition, 9e (Spilker)
Chapter 7 Investments
1) Generally, interest income is taxed at preferential capital gains rates and dividend income is
taxed at ordinary rates.
Answer: FALSE
Difficulty: 1 Easy
Topic: Portfolio Income: Interest and Dividends
Learning Objective: 07-01 Explain how interest income and dividend income are taxed.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
2) Interest earned on U.S. savings bonds is interest received at sale or maturity but must be taxed
annually.
Answer: FALSE
Explanation: Taxpayers may recognize interest income when they redeem the bonds or may elect
to include the increase in bond redemption value in income each year.
Difficulty: 2 Medium
Bloom's: Understand
3) When a taxable bond is issued at a premium, the taxpayer may elect to calculate and apply the
yearly amortization amount to reduce a portion of the actual interest payments that taxpayers
include in gross income.
Answer: TRUE
Difficulty: 3 Hard
Bloom's: Analyze
1
Copyright © 2018 McGraw-Hill
4) Qualified dividends are always taxed at a 15 percent preferential rate.
Answer: FALSE
Explanation: Qualified dividends may be taxed at a rate as low as 0 percent or as high as 20
percent depending on the taxpayer's ordinary income tax rate.
Bloom's: Understand
5) The capital gains (losses) netting process for taxpayers without 25 or 28 percent capital gains
requires them to (1) net short-term and long-term gains, (2) net short-term and long-term losses,
and (3) net the outcome to yield a final gain or loss to place on the tax return.
Answer: FALSE
Topic: Portfolio Income: Capital Gains and Losses
Learning Objective: 07-02 Compute the tax consequences associated with the disposition of
capital assets, including the netting process for calculating gains and losses.
Bloom's: Analyze
6) Two advantages of investing in capital assets are (1) gains are generally deferred and (2) gains
are generally taxed at preferential rates.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
2
7) Dave and Jane file a joint return. They sell a capital asset at a $150,000 loss. Even though they
have no capital gains, $6,000 of the loss can still be deducted in the current year.
Answer: FALSE
Explanation: Individual taxpayers (including married filing jointly) may deduct up to $3,000 of
net capital losses against ordinary income in a given year.
Difficulty: 1 Easy
Bloom's: Remember
8) Unrecaptured §1250 gain is taxed at the 28 percent preferential capital gains rate.
Answer: FALSE
Explanation: A maximum rate of 25% is assessed on unrecaptured §1250 gain.
Bloom's: Remember
9) Losses associated with personal-use assets, sales to related parties, and wash sales are not
currently deductible.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
3
10) Capital loss carryovers for individuals are carried forward indefinitely.
Answer: TRUE
Bloom's: Understand
11) Nondeductible investment expenses (other than investment interest expenses) are carried
forward indefinitely.
Answer: FALSE
Topic: Portfolio Investment Expenses
Learning Objective: 07-03 Calculate the deduction for portfolio investment-related expenses,
including investment expenses and investment interest expense.
Bloom's: Analyze; Understand
12) Taxpayers may make an election to include long-term capital gains and qualified dividends in
net investment income and deduct more investment interest expense currently if they are willing to
subject this income to ordinary tax rates.
Answer: TRUE
Bloom's: Understand
13) Investment expenses and investment interest expense are for AGI deductions.
Answer: FALSE
Bloom's: Understand
4
14) When electing to include long-term capital gains and qualified dividends in net investment
income, taxpayers must include all long-term capital gains and dividends recognized for that year.
Answer: FALSE
Bloom's: Understand
15) The investment interest expense deduction is limited to the amount of net investment income
for the year.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
16) Generally, losses from rental activities are considered to be active losses.
Answer: FALSE
Difficulty: 1 Easy
Topic: Passive Activity Income and Losses
Learning Objective: 07-04 Understand the distinction between portfolio investments and passive
investments and apply tax-basis, at-risk, and passive activity loss limits to losses from passive
investments.
Bloom's: Remember
5
17) Passive losses that exceed passive income are deferred until the taxpayer generates passive
income to offset these passive losses or until the taxpayer disposes of that activity.
Answer: TRUE
Difficulty: 1 Easy
investments.
Bloom's: Remember
18) A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis
in the activity.
Answer: FALSE
investments.
Bloom's: Analyze; Understand
19) A passive activity is any activity that involves a trade or business or rental activity in which the
taxpayer does not materially participate.
Answer: TRUE
Difficulty: 1 Easy
investments.
Bloom's: Remember
6
20) To qualify under the passive activity rental real estate exception, the taxpayer must (1) own at
least 15 percent of the property and (2) participate in the process of making management decisions.
Answer: FALSE
Explanation: An active participant must own at least 10 percent of the rental property.
investments.
Bloom's: Understand
21) Which of the following types of interest income is not taxed as it is earned?
A) interest from savings accounts
B) original issue discounts on corporate bonds
C) accrued market discount on bonds
D) interest from money market accounts
E) all of the choices are correct.
Answer: C
Bloom's: Analyze
22) Nontax factor(s) investors should consider when choosing between investments include:
A) before-tax rates of return.
B) after-tax rates of return.
C) liquidity needs.
D) before-tax rates of return and after-tax rates of return.
E) before-tax rates of return and liquidity needs.
Answer: E
Bloom's: Analyze
7
23) One primary difference between corporate and U.S. Treasury bonds is:
A) Treasury bonds always pay interest periodically.
B) Corporate bonds always pay interest periodically.
C) Interest from Treasury bonds is exempt from federal taxation.
D) Interest from corporate bonds is exempt from state taxation.
E) None of the choices are correct.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
24) The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:
A) the excess of the taxpayer's basis in the bonds over the bond proceeds.
B) the bond proceeds.
C) the excess of the bond proceeds over the taxpayer's basis in the bonds.
D) the taxpayer's basis in the bonds.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
25) Which of the following is not a tax advantage of a Series EE Saving Bond?
A) taxes are paid as the original issue discount on the bond is amortized
B) interest earned is exempt from state taxation
C) taxes are deferred until the bond is cashed in at maturity
D) interest is exempt from federal taxation when used for qualifying educational expenses
Answer: A
Bloom's: Analyze
8
26) When a bond is purchased in the secondary bond market at a discount, the amount of discount
treated as interest income when the bond is sold prior to maturity is the:
A) market premium.
B) market discount.
C) accrued market premium.
D) accrued market discount.
Answer: D
Bloom's: Understand
27) When selling stocks, which method of calculating basis provides the greatest opportunity for
minimizing gains or increasing losses?
A) LIFO
B) FIFO
C) Weighted average
D) Specific identification
E) None of the choices are correct
Answer: D
Bloom's: Analyze
9
28) Long-term capital gains for individual taxpayers can be taxed at a maximum rate of:
A) 20 percent.
B) 25 percent.
C) 28 percent.
D) Both 20 percent and 28 percent.
E) All of the choices are correct.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
29) Cory recently sold his qualified small business stock (acquired in 2017) for $90,000 after
holding it for ten years. His basis in the stock is $40,000. Assuming his marginal tax rate is 35
percent, how much tax will he owe on the sale?
A) $3,750
B) $7,000
C) $7,500
D) $14,000
E) None of the choices are correct
Answer: E
Explanation: $-0-. $90,000 − $40,000 = $50,000 realized gain; 100% of the gain on qualified
small business stock acquired in 2017 and held for more than five years is excluded.
Difficulty: 3 Hard
Bloom's: Analyze
AACSB: Analytical Thinking
10
30) In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000
LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of
Erin's capital gains and losses?
A) $3,000 net short-term capital gain.
B) $3,000 net long-term capital loss.
C) $4,000 net short-term capital gain.
D) $4,000 net long-term capital loss.
Answer: A
Explanation: $2,000 (LTCG) + ($9,000) (LTCL) = ($7,000) (NLTCL); $25,000 (STCG) +
($15,000) (STCL) = $10,000 (NSTCG); ($7,000) (NLTCL) + $10,000 (NSTCG) = $3,000
(NSTCG).
Bloom's: Analyze
31) The netting process for capital gains (losses) with 0/15/20 percent, 25 percent, and 28 percent
capital assets helps maximize the tax benefit of:
A) current year net loss in the 25 percent rate group.
B) net short-term capital losses.
C) long-term capital loss carryovers.
D) current year net loss in the 25 percent rate group and long-term capital loss carryovers.
E) net short-term capital losses and long-term capital loss carryovers.
Answer: E
Difficulty: 3 Hard
Bloom's: Analyze
11
32) When the wash sale rules apply, the realized loss is:
A) recognized at time of sale.
B) not recognized at time of sale and does not affect basis of newly acquired stock.
C) recognized at time of sale and added to basis of the newly acquired stock.
D) not recognized at time of sale and added to basis of the newly acquired stock.
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock.
Answer: D
Bloom's: Understand
33) The maximum amount of net capital losses individual taxpayers may deduct against their
ordinary income per year is:
A) $3,000.
B) $5,000.
C) Zero, losses are not deductible.
D) There is no maximum. All losses are allowed to be deducted.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
12
34) In the current year, Norris, an individual, has $50,000 of ordinary income, a Net Short Term
Capital Loss (NSTCL) of $10,000 and a Net Long Term Capital Gain (NLTCG) of $2,800. From
his capital gains and losses, Norris reports:
A) an offset against ordinary income of $10,000.
B) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000.
C) an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200.
D) an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200.
E) an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200.
Answer: E
Explanation: $2,800 NLTCG - $10,000 NSTCL = $7,200 NSTCL; Use $3,000 NSTCL to reduce
ordinary income leaving $4,200 as a NSTCL carryforward.
Bloom's: Analyze
35) Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2015. On
December 31, 2017 she sold all 1,000 shares of her Ibis stock for $4,500. Based on a hot tip from
her friend, she bought 1,000 shares of Ibis stock on January 23, 2018 for $3,000. What is Ms.
Fresh's recognized loss on her 2017 sale and what is her basis in her 1,000 shares purchased in
2018?
A) $-0- LTCL and $3,500 basis.
B) $200 LTCL and $3,300 basis.
C) $300 LTCL and $3,200 basis.
D) $400 LTCL and $3,100 basis.
E) $500 LTCL and $3,000 basis.
Answer: A
Explanation: $4,500 amount realized from Ibis sale − $5,000 tax basis in Ibis shares = $500
realized loss on sale of Ibis stock. Loss is not currently deductible because the Ibis shares were
reacquired within 30 days of the original sale (wash sale). $500 nondeductible loss from original
Ibis sale + $3,000 purchase price for new Ibis shares = $3,500 tax basis in new Ibis shares.
Bloom's: Analyze
13
36) Kevin bought 200 shares of Intel stock on January 1, 2017 for $50 per share with a brokerage
fee of $100. Then, Kevin sells all 200 shares for $75 per share on December 12, 2017. The
brokerage fee on the sale was $150. What is the amount of the gain/loss Kevin must report on his
2017 tax return?
A) $4,500
B) $4,750
C) $5,000
D) $5,250
Answer: B
Explanation: Amount Realized = (200 shares × $75) − $150 = $14,850; Adjusted Basis = (200
shares × $50) + $100 = $10,100; Gain = $14,850 − $10,100 = $4,750.
Difficulty: 3 Hard
Bloom's: Analyze
37) If an individual taxpayer's marginal tax rate is 35 percent and he holds the following assets for
more than one year, which gain will be taxed at the highest rate at the time of sale?
A) gain from investment land
B) gain from personal-use property
C) gain from a coin collection
D) gain from the sale of qualified small business stock held for 3 years
E) gain attributable to tax depreciation taken on real property
Answer: C
Bloom's: Analyze
14
38) John holds a taxable bond and a municipal bond. Which fees are considered part of John's
investment expense?
A) attorney and accounting fees on municipal bond
B) safe deposit box rental fees on taxable bond
C) interest expense on taxable bond
D) attorney and accounting fees on municipal bond and safe deposit box rental fees on taxable
bond
E) safe deposit box rental fees on taxable bond and interest expense on taxable bond
Answer: B
Explanation: The interest expense on the taxable bond is considered investment interest expense.
Difficulty: 1 Easy
Bloom's: Remember
39) Bill would like some tax benefits for his investment expenses incurred this year. His AGI is
$190,000. Currently, his expenses consist of: (1) $1,000 investment advice fees, (2) $1,500
unreimbursed employee business expenses (a miscellaneous itemized deduction), and (3) $600 tax
return preparation fees. How much more, if any, must Bill spend for investment expenses this year
before he receives any tax benefit?
A) Zero, Bill is already receiving a benefit.
B) More than $500.
C) More than $700.
D) More than $900.
Answer: C
Explanation: $190,000 × .02 = $3,800; $1,000 + $1,500 + $600 = $3,100; $3,800 − $3,100 =
$700.
Bloom's: Analyze
15
40) When calculating net investment income, gross investment income includes:
A) interest income.
B) net short-term capital gains.
C) non-qualified dividends.
D) royalty income.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
41) Unused investment interest expense:

A) expires after the current year.
B) is carried back two years.
C) is carried forward twenty years.
D) is carried forward indefinitely.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
16
42) Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The
Forte's income for the year consists of $120,000 in salary, $1,000 interest income, $1,500
nonqualifying dividends, and $1,000 long-term capital gains. The Forte's expenses for the year
consist of $3,000 investment interest expense and $900 tax preparation fees. Assuming that the
Forte's marginal tax rate is 30% and they make no special elections, what is the amount of
investment interest expense deduction for the year?
A) Zero; investment interest expense is below two percent of AGI.
B) $1,000.
C) $2,500.
D) $3,000.
Answer: C
Explanation: $1,000 + $1,500 = $2,500 ≤ investment interest expense ($3,000). The long-term
capital gains are not considered investment income because this income is taxed at a preferential
rate.
Bloom's: Analyze
43) Investment expenses treated as miscellaneous itemized deductions do not include:

A) expenses incurred to generate tax-exempt income.
B) investment interest expense.
C) expenses for investment advice.
D) expenses incurred to generate tax-exempt income and investment interest expense.
E) investment interest expense and expenses for investment advice.
Answer: D
Bloom's: Understand
17
44) Investment interest expense does not include:
A) interest expense from loans to purchase municipal bonds.
B) interest expense from loans to purchase corporate bonds.
C) interest expense from loans to purchase stocks.
D) interest expense from loans to purchase U.S. savings bonds and interest expense from loans to
purchase corporate bonds.
E) interest expense from loans to purchase corporate bonds and interest expense from loans to
purchase stocks.
Answer: A
Explanation: Expenses incurred to produce tax-exempt income are not deductible.
Bloom's: Understand
45) Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to
include long-term capital gains and qualified dividends as investment income. What rate must Joe
use when calculating the tax on these two items?
A) 20%
B) 25%
C) 28%
D) 35%
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
18
46) Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Click's
income for the year consists of $90,000 in salary, $2,000 interest income, $800 long-term capital
loss. The Click's expenses for the year consist of $1,500 investment interest expense. Assuming
that the Click's marginal tax rate is 35%, what is the amount of their investment interest expense
deduction for the year?
A) $1,200
B) $1,500
C) $2,000
D) $2,300
Answer: B
Explanation: $2,000 ≥ investment interest expense ($1,500).
Bloom's: Analyze
47) Bob Brain files a single tax return and decides to itemize his deductions. Bob's income for the
year consists of $75,000 of salary, $3,000 long-term capital gain, and $1,500 interest income.
Bob's expenses for the year consists of $800 investment advice fees, $700 unreimbursed employee
business expenses (a miscellaneous itemized deduction), and $250 tax return preparation fees.
What is Bob's actual deduction for miscellaneous itemized deductions?
A) Zero; Bob's investment expenses do not exceed two percent of AGI floor.
B) $1,590.
C) $1,500.
D) $1,750.
Answer: E
Explanation: ($75,000 + $3,000 + $1,500) × 0.02 = $1,590; ($800 + $700 + $250) − $1,590 =
$160.
Bloom's: Analyze
19
48) Alain Mire files a single tax return and has adjusted gross income of $304,000. His net
investment income is $53,000. What is the additional tax that Alain will pay on his net investment
income for the year?
A) Zero
B) $2,014
C) $3,952
D) $1,938
Answer: B
Explanation: Alain's net investment income tax is the lesser of 1) his net investment income
($53,000) or 2) his modified adjusted gross income less the threshold of $200,000 ($304,000 −
$200,000 = $104,000) multiplied by 3.8% ($53,000 × 3.8% = $2,014).
Bloom's: Analyze
49) What is the correct order of the loss limitation rules?

A) tax basis, at-risk amount, passive loss limits
B) at-risk amount, tax basis, passive loss limits
C) passive loss limits, at-risk amount, tax basis
D) tax basis, passive loss limits, at-risk amount
E) passive loss limits, tax basis, at-risk amount
Answer: A
investments.
Bloom's: Analyze
20
50) Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the
partnership. The partnership had $20,000 of qualified nonrecourse debt and $20,000 of debt she is
not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both
types of debt resulting in a tax basis of $9,000 and an at risk amount of $7,000. During the year,
ABC LP generated a ($90,000) loss. How much of Sue's loss is disallowed due to her tax basis or
at-risk amount?
A) Zero; all of her loss is allowed to be deducted.
B) $2,000 disallowed because of her at-risk amount.
C) $2,000 disallowed because of her tax basis.
D) $4,000 disallowed because of her tax basis.
E) $4,000 disallowed because of her at-risk amount.
Answer: B
Explanation: Loss allowed = $7,000 amount at risk; Disallowed loss = $9,000 loss allocation not
limited by tax basis − $7,000 at-risk amount.
investments.
Bloom's: Analyze
51) Which taxpayer would not be considered a material participant of an activity?

A) taxpayer materially participated in the activity for any five of the preceding ten years
B) taxpayer participated on a regular, continuous, and substantial basis last year
C) taxpayer participated 95 hours last year and participation is not less than any other participants
for the year
D) taxpayer participated in the activity for 995 hours last year
Answer: C
investments.
Bloom's: Apply
21
52) Generally, which of the following does not correctly categorize the type of income?
A) rental real estate − passive income/loss
B) salary − active income/loss
C) dividends − portfolio income/loss
D) capital losses − passive income/loss
Answer: D
investments.
Bloom's: Analyze
53) Michelle is an active participant in the rental condominium property she owns. During the
year, the property generates a ($15,000) loss; however, Michelle has sufficient tax basis and at-risk
amounts to absorb the loss. If Michelle has $115,000 of salary, $10,000 of long-term capital gains,
$3,000 of dividends, and no additional sources of income or deductions, how much loss can
Michelle deduct?
A) Zero; losses from rental property are passive losses and can only be offset by passive income
B) $4,000
C) $11,000
D) $15,000
Answer: C
Explanation: $25,000 (exception) − $14,000 (phase-out: ($128,000 − $100,000) × .5) = $11,000.
Difficulty: 3 Hard
investments.
Bloom's: Analyze
22
54) The rental real estate exception favors:
A) lower income taxpayers (AGI less than $80,000).
B) middle income taxpayers (AGI greater than $80,000 and less than $150,000).
C) upper income taxpayers (AGI greater than $150,000).
D) lower income taxpayers (AGI less than $80,000) and middle income taxpayers (AGI greater
than $80,000 and less than $150,000).
E) middle income taxpayers (AGI greater than $80,000 and less than $150,000) and upper income
taxpayers (AGI greater than $150,000).
Answer: D
investments.
Bloom's: Analyze
55) On the sale of a passive activity, any suspended losses cannot be used to offset income from:
A) active business income.
B) capital gains.
C) interest income.
D) wages and tips.
Answer: E
investments.
Bloom's: Understand
23
56) A taxpayer's at-risk amount in an activity is increased by:
A) a reduction in the amount of debt related to the activity that the taxpayer is responsible for
paying.
B) cash contributions to the activity.
C) cash distributions from the activity.
D) a reduction in the amount of debt related to the activity that the taxpayer is responsible for
paying and cash contributions to the activity.
E) a reduction in the amount of debt related to the activity that the taxpayer is responsible for
paying and cash distributions from the activity.
Answer: B
investments.
Bloom's: Understand
57) Compare and contrast how interest income is reported for the following types of bonds: (a)
bond originally issued at a discount, (b) bond originally issued at a premium, (c) bond purchased at
a discount in a secondary market, (d) bond purchased at a premium in a secondary market.
Answer:
(a) Bond originally issued at a discount - actual interest payments received in gross income and
current year amortization amount from discount included in gross income.
(b) Bond originally issued at a premium - actual interest payments received in gross income and
may elect to include the current year amortization from the premium to offset the interest payments
included in gross income.
(c) Bond purchased at a discount in a secondary market - actual interest payments received in gross
income and accrued market discount is treated as interest income when the bond has been sold or
has reached maturity.
(d) Bond purchased at a premium in a secondary market - actual interest payments received in
gross income and may elect to use the market premium to offset the interest payments on a yearly
basis. If no election is made, the premium is included with the tax basis of the bond and will affect
the amount of gain or loss recognized when the bond is sold or redeemed.
Bloom's: Analyze
24
58) What requirements must be satisfied before an investor may receive preferential tax treatment
on dividend income, and what preferential treatment will result?
Answer: A dividend must be a qualified dividend to get preferential treatment. Qualified

dividends are paid by domestic or certain qualified foreign corporations. The investor must have
held the dividend-paying stock for more than 60 days during the 121 day period that begins 60
days before the ex-dividend date. Generally, qualified dividends are taxed at the preferential
capital gains rate of 15 percent. When taxpayers are subject to marginal ordinary rates of 15% or
less, qualified dividends are taxed at zero percent and when taxpayers are subject to marginal
ordinary rates of 39.6 percent, qualified dividends are taxed at 20 percent.
Bloom's: Understand
25
59) On January 1, 20X1, Fred purchased a corporate bond with a face value of $50,000 from the
secondary market at a premium. The bond has a coupon rate of 8 percent and matures in five years.
The market rate of the bond is a 6 percent annual before-tax return compounded semiannually. If
Fred was trying to minimize interest income, what is the least amount of interest income Fred may
report on his 20X1 tax return?
Answer: $3,244.74
See computation below:

Step 1: Find premium of bond
PMT − $50,000 × 0.08 × 0.50 = $2,000
N − 5 × 2 = 10
I − 0.06 × 0.50 = 3%
FV = $50,000
PV = $54,265
Step 2: Amortization Table

(A) (B) (C)
Basis of Bond at Interest Received Reported Premium

Semi-annual Beginning of 50,000 × 8% × Interest Amortization
Period Period 0.50 (A) × 6% × 0.50 (B) - (C)
1 54,265.00 2,000 1,627.95 372.05
2 53,892.95 2,000 1,616.79 383.21
Yearly Total 4,000 3,244.74 755.26
Step 3: Total Interest Income

Yearly interest income − $4,000
Election of yearly premium amortized − $755.26
Interest income reported − $4,000 − $755.26 = $3,244.74
Difficulty: 3 Hard
Bloom's: Analyze
26
60) On December 1, 20X7, George Jimenez needed a little extra cash for the upcoming holiday
season, and sold 250 shares of Microsoft stock for $50 per share less a broker's fee of $200 for the
entire sale transaction. Prior to the sale, George held the following blocks of Microsoft stock
(associated broker's fee paid at the time of purchase):
Acquisition Date Number of Shares Market Price When Acquired Broker's Fee
1/1/X4 300 $35 per share $250
6/30/X6 300 $45 per share $250
If his goal is to minimize his current capital gain, how much capital gain will George report from
the sale?
Answer: Using the specific identification method, George will report only $842 of gain instead of
$3,342 of gain he would have reported using the FIFO method.
See computation below:

Step 1 - Amount Realized
250 shares × $50 = $12,500 − $200 = $12,300
Step 2 - Adjusted Basis

FIFO
300 shares × $35 = $10,500 + $250 = $10,750/300 shares = $35.83
250 shares × $35.83 = $8,958
Specific Identification
300 shares × $45 = $13,500 + $250 = $13,750/300 shares = $45.83
250 shares × $45.83 = $11,458
Step 3 - Amount of Gain

FIFO
$12,300 − $8,958 = $3,342
Specific Identification
$12,300 − $11,458 = $842
Difficulty: 3 Hard
Bloom's: Analyze
27
61) What are the rules limiting the amount of capital losses a taxpayer may deduct in a given year?
Name at least three.
Answer: First, a maximum of $3,000 of net capital loss may be applied against ordinary income
annually. Any amount of capital loss over $3,000 or any capital loss not used because of
insufficient ordinary income is carried forward indefinitely. Second, while capital gains on
personal assets are required to be reported, capital losses on personal-use assets are not deductible.
Third, capital losses on sales to related parties are not deductible. Fourth, capital losses from wash
sales are not currently deductible. A wash sale occurs when an investor sells stock or other
securities at a loss and within 30 days either before or after the day of sale buys substantially
identical stocks or securities.
Bloom's: Understand
28
62) Henry, a single taxpayer with a marginal tax rate of 35 percent, sold the following assets
during the year:
Asset Sale Price Tax Basis Gain/Loss Holding Period

ABC Stock $ 50,000 $ 25,000 $ 25,000 More than 1 Year
XYZ Stock $ 12,000 $ 9,000 $ 3,000 Less than 1 Year
Stamp Collection $ 10,000 $ 5,000 $ 5,000 More than 1 Year
RST Stock $ 13,000 $ 19,000 $ (6,000) Less than 1 Year
Rental Home $ 100,000 $ 50,000* $ 50,000 More than 1 Year
*$25,000 of the gain is a 25 percent gain. The remaining gain is 0/15/20 percent gain.
What tax rate(s) will apply to Henry's capital gains or losses?
Answer: A $2,000 long-term capital gain taxed at 28%, $25,000 long-term capital gains taxed at
25% and $50,000 long-term capital gain taxed at 15%.
See computations below:

Step 1: ($3,000) net short-term capital loss [$3,000 + ($6,000)].
Step 2: The $25,000 gain on the ABC stock, and $25,000 of gain from the rental home are placed
in the 0/15/20 percent group resulting in $50,000 of 0/15/20 percent gains. $25,000 of the gain
from the rental property is placed in the 25 percent group, and the $5,000 gain on the stamp
collection is placed in the 28 percent group.
Step 3: (B) Proceed to step 6.
Step 4: Not required.
Step 6: Move the ($3,000) loss from Step 1 into the 28 percent group to offset the $5,000 gain from
the stamp collection. This step leaves $2,000 to be taxed at a maximum of 28 percent, $25,000
taxed at a maximum of 25 percent, and $50,000 taxed at 15 percent because Henry's marginal tax
rate is 35 percent.
29
Long-term Long-term Long-term
Description Short-term 28% 25% 0/15/20%
XYZ stock $ 3,000
RST stock (6,000)
Step 1: (3,000)
Stamp collection 5,000
Rental home gain taxed
25,000
at 25%
Remaining gains from
25,000
rental home
ABC stock 25,000
Step 2: $ 5,000 $ 25,000 $ 50,000
Step 6: (3,000) (3,000)
Summary 2,000 25,000 50,000
Applicable rate 28% 25% 0/15/20%
Difficulty: 3 Hard
Bloom's: Analyze
30
63) Scott Bean is a computer programmer and incurred the following transactions last year.
Sales Price Basis Purchased Sold

Provo City Bonds* $ 10,000 $ 5,000 11/1/2013 5/2/2017
Cisco Preferred Stock 25,000 6,000 7/15/2008 1/12/2017
Dreyer's Grand Ice Cream Stock 14,000 10,000 7/1/2016 4/20/2017
Novell Common 2,000 10,000 2/12/2014 11/29/2017
IBM Stock 4,000 3,000 8/2/2005 5/2/2017
ABC Common 6,000 9,000 5/30/2015 10/20/2017
Prior year ST Capital Loss
5,500
Carryforward
Prior year LT Capital Loss
5,500
Carryforward
*Purchased when originally issued by Provo City
What is the Net Short-Term Capital Gain/Loss reported on the 2017 Schedule D? What is the Net
Long-Term Capital Gain/Loss reported on the 2017 Schedule D? What amount of capital gain is
subject to the preferential capital gains rate?
Answer: $1,500 net short-term capital loss is reported on Schedule D, $9,000 net long-term
capital gain is reported on Schedule D, and $7,500 of net capital gain is subject to the preferential
capital gains rates.
See calculations below:

Short-term capital loss c/f $ (5,500 )
Dreyers stock 4,000
Net short-term capital loss on Sch. D $ (1,500 )
Long-term capital loss c/f $ (5,000)

Provo city bonds 5,000
Cisco preferred stock 19,000
Novell common stock (8,000)
IBM stock 1,000
ABC common stock (3,000)
Net long-term capital gain on Sch. D $ 9,000
Net short-term capital loss $ (1,500 )

Net long-term capital gain 9,000
Net capital gain subject to preferential rates $ 7,500
Bloom's: Analyze
31
64) Mr. and Mrs. Smith purchased 100 shares of stock for $45 per share on June 30, 20X6. On
March 30, 20X8, the Smith family decides to sell these shares for $30 generating a loss of $15 per
share. On April 15, 20X8, the Smith family realized they made a mistake and repurchased 100
shares for $35 per share. When will the Smith family receive a tax benefit for the loss on the March
30, 20X8 sale?
Answer: The Smith family will have a ($1,500) long-term capital loss. They had held the original
stock for over a year; thus, the loss would be categorized as long-term. However, the loss cannot be
deducted on the 20X8 tax return. The wash sale rules disallow the deduction because the Smith
family sold and purchased similar stock in the same company within 30 days of selling the original
shares. However, the loss is added to the basis of the newly acquired stock. Thus, the basis of the
new stock is $5,000 or $3,500 (100 shares × $35) + $1,500 (the disallowed loss).
Bloom's: Analyze
65) What is the tax treatment for qualified small business stock acquired in 2017 and held for more
than five years and what is the tax treatment if held for less than five years?
Answer: Qualified business stock is considered a capital asset. Thus, preferential treatment is
provided under certain circumstances. If stock acquired in 2017 is held by an investor for more
than five years, 100 percent of the gain will be excluded from income. If the stock has been held by
an investor for less than five years, the entire gain is taxed at a maximum 0/15/20% rate.
Bloom's: Understand
32
66) How are individual taxpayers' investment expenses and investment interest expense treated for
tax purposes?
Answer: Investment expense: This is any expense incurred to acquire or manage taxable
investments, excluding interest. Investment expenses are treated as miscellaneous itemized
deductions subject to the 2% of AGI floor. Thus, investment expenses result in tax deductions if
investors itemize and if such expenses exceed the 2 percent of AGI floor. These expenses are only
deductible in the year incurred.
Investment interest expense: This is a specific expense that relates to the interest on loans
taxpayers obtain to purchase portfolio investments. The amount a taxpayer is able to deduct
depends on whether the taxpayer itemizes deductions for the year. The deduction for investment
interest expense is limited to the taxpayer's net investment income for the year. Any investment
interest expense in excess of a taxpayer's net investment income may be carried forward
indefinitely until the taxpayer has enough net investment income to use the deduction.
Bloom's: Understand
33
67) Sarantuya, a college student, feels that now is a good time to buy stocks. However, because she
doesn't have any savings, she decides to borrow $15,000 at an annual interest rate of 8 percent. She
must make an interest-only payment each year for five years plus repay the entire principal in year
five. On August 1, 20X8 when Sarantuya obtained the loan, Sarantuya invested $10,000 in several
individual stocks and used the remaining $5,000 to pay her tuition for the year. Assuming
Sarantuya's net investment income this year is greater than her investment interest expense this
year, how much investment interest expense can she deduct in 20X8?
Answer: Sarantuya is allowed to deduct up to $333 in investment interest expense.

Step 1: Interest expense for 20X8.
[$15,000 × .08 × (5/12)] = $500
Step 2: Proportion amount of loan used for investment and personal use.
Individual stocks: $10,000/$15,000 = 67%
Tuition: $5,000/$15,000 = 33%
Step 3: Use percentages from Step 2 to allocate the correct interest expense that is allowed to be
deductible.
Investment interest expense: $500 × .67 = $333
Nondeductible personal interest: $500 × .33 = $167
Bloom's: Analyze
34
68) Dan and Sue Hill file a joint tax return and elect to itemize their deductions. For 20X7, the
Hills received the following income items: (1) $150,000 salary, (2) $3,000 long-term capital gain,
and (3) $1,500 interest income. Other than these amounts, no other events or transactions affected
their AGI in 20X7. During the same year, the Hills incurred the following expenses: (1) $500 tax
preparation fees, (2) $4,000 investment expenses, and (3) $10,000 additional miscellaneous
expenses. Assuming the Hills have a marginal tax rate of 30 percent, what is the tax benefit they
receive from the investment expenses they paid?
Answer: Tax savings of $1,200 for the Hills related to their investment expenses.

Step 1: Calculate AGI and calculate total miscellaneous expenses
AGI: $150,000 + $3,000 + $1,500 = $154,500
Miscellaneous itemized expenses: $500 + $4,000 + $10,000 = $14,500
Step 2: Calculate the 2% AGI floor

$154,500 × .02 = $3,090
Step 3: Calculate amount of miscellaneous itemized deductions in excess of the AGI floor
$14,500 − $3,090 = $11,410
Because the total $11,400 miscellaneous itemized deduction is greater than the $4,000 of
investment expenses, the Hills receive a tax benefit for all $4,000 of their investment expenses.
Given their marginal tax rate of 30%, the tax benefit is equal to $4,000 × 30% or $1,200.
Bloom's: Analyze
35
69) How can electing to include long-term capital gains and qualifying dividends in the
computation of net investment income be beneficial to taxpayers?
Answer: If taxpayers elect to include long-term capital gains and qualifying dividends in net
investment income, these income items must be taxed at ordinary rates rather than at the
preferential capital gains rates. This detriment may be more than offset by the additional
investment interest expense that becomes deductible as net investment income is increased by
virtue of making the election. Taxpayers considering this election should compare the current
benefit of making this election with the loss of future benefits from taking the investment interest
expense deduction in the future. Fortunately, the election doesn't require all capital gains and
qualifying dividends to be taxed at ordinary rates. Instead, taxpayers can elect to include only the
amount of long-term capital gains and qualifying dividends that will provide the greatest current
benefit.
Bloom's: Analyze
36
70) Kerri, a single taxpayer who itemizes deductions on Schedule A, incurs $15,000 of interest
expense on funds borrowed to acquire taxable bonds. Kerri also has $20,000 of taxable interest
income for the year. Assume Kerri is in a 30% marginal tax bracket. How much of the interest
expense can she deduct? Assuming the same facts except that the $20,000 of investment income is
a qualifying dividend rather than taxable interest income, what should Kerry do if she wants to
minimize her current year tax liability?
Answer: She can deduct $15,000 of investment interest expense. If the investment income is a
qualifying dividend, she should elect to treat $15,000 of the qualifying dividend as investment
income.
First question:
Investment interest expense $ 15,000
Investment income $ 20,000
Net investment income $ 20,000
Investment interest expense deduction = lesser of $15,000
15,000
and $20,000 $
Second question:
Investment interest expense $ 15,000
Investment income $ 15,000
Net investment income $ 15,000*
Investment interest expense deduction = lesser of
15,000
$15,000 and $15,000 $
*Kerri only wants to elect to treat an amount of the qualifying dividend as investment income
($15,000) so as to allow her to deduct all of the investment interest expense. This allows her to
deduct all $15,000 of the investment interest expense and still be able to tax $5,000 of the
qualifying dividend @ 15% rather than all $20,000 of the qualifying dividend @ 30%.
Bloom's: Analyze
37
71) The Crane family recognized the following types of investment income during 20X6: (1)
$1,500 qualified dividends, (2) $3,000 long-term capital gains, and (3) $850 taxable interest.
Additionally, the Crane family has $500 in investment expenses and their other miscellaneous
itemized deductions exceed 2% of their AGI for the year. The Crane family paid $3,333 in
investment interest expense during 20X6. Calculate the different possibilities to determine the
maximum deduction for investment interest expense for the Crane family in 20X6. From these
possibilities, which provides the maximum deduction?
Answer: Elect to include only $2,983 of long-term capital gain in net investment income.

Option 1: No election
Net investment income: $850 − $500 = $350
Investment interest expense allowed to deduct: $350
Investment interest expense carried forward: $3,333 − $350 = $2,983
Option 2: Election to include all qualified dividends in investment income

Net investment income: $1,500 + $850 − $500 = $1,850
Investment interest expense allowed to deduct: $1,850
Investment interest expense carried forward: $3,333 − $1,850 = $1,483
Option 3: Election to include all long-term capital gains in investment income

Investment interest expense carried forward: $0
Pay higher tax rate on excess $17 elected
Option 4: Election to include all qualified dividends and all long-term capital gains in investment
income
Net investment income: $1,500 + $3,000 + $850 − $500 = $4,850
Pay higher tax rate on excess $1,517 elected
38
Option 5: Election to include only $2,983 of long-term capital gains in net investment income
Option 5 is superior to options 3 and 4 because it subjects the minimum amount of long-term
capital gain to ordinary rates while maintaining the net investment interest carried forward at 0.
Other combinations of long-term capital gain and qualifying dividends totaling $2,983 would also
be acceptable.
Difficulty: 3 Hard
Bloom's: Analyze
72) Describe the three main loss limitations that taxpayers must overcome before deducting losses
allocated to them from a specific activity.
Answer: Tax basis—limits the amount of deductible loss to the tax basis the taxpayer has in the
activity. Thus, losses from an activity may not reduce the tax basis in that activity below zero.
Losses in excess of the taxpayer's basis are carried forward until the taxpayer's basis becomes
positive again.
At-risk amount—limits the amount of deductible loss to the amount the taxpayer has at risk in the
activity. Generally, the taxpayer's at risk amount corresponds to his tax basis except that debt
allocated to the taxpayer and included in tax basis is not included in the taxpayer's amount at risk if
he is not responsible for repaying the debt. However, an exception to this general rule is qualified
nonrecourse financing that is included in the taxpayer's amount at risk. Losses limited by the
taxpayer's amount at risk are carried forward and deducted when the taxpayer's amount at risk
becomes positive again.
Passive loss limits—limits the amount of loss from any passive activity (activities in which the
taxpayer does not materially participate) to the taxpayer's passive income for the year. Limited
partnerships and rental activities are generally considered to be passive activities. Losses limited
by the passive activity loss rules are carried forward until the taxpayer generates passive income or
until the taxpayer disposes of the activity producing the passive losses.
investments.
Bloom's: Understand
39
73) Given that losses from passive activities can only offset income from passive activities unless
the passive activity is sold, what types of activities are not considered to be passive? Name at least
three ways a taxpayer may be treated as an active participant in an activity.
Answer: To be considered an active participant in an activity, a taxpayer must materially

participate in the activity. An individual will qualify as a material participant in an activity if any
one of the seven tests below is satisfied:
• The individual participates in the activity more than 500 hours during the year.
• The individual's activity constitutes substantially all of the participation in such activity by all
individuals including non-owners.
• The individual participates more than 100 hours during the year, and the individual's
participation is not less than any other individual's participation in the activity.
• The activity qualifies as a "significant participation activity" (more than 100 hours) and the
aggregate of all "significant participation activities" is greater than 500 hours for the year.
• The individual materially participated in the activity for any five of the preceding 10 taxable
years.
• The individual materially participated for any three preceding years in any personal service
activity (personal services in health, law, accounting, architecture, etc.).
• Taking into account all the facts and circumstances, the individual participates on a regular,
continuous, and substantial basis during the year.
Difficulty: 3 Hard
investments.
Bloom's: Analyze
40
74) Roy, a resident of Michigan, owns 25 percent of a fourplex in the nearby college town of Ann
Arbor with three other friends. The fourplex is rented to students who attend the University of
Michigan. Roy's responsibility is to approve new tenants each year and take care of any
maintenance issues. During the year, the rental property generated a $25,000 loss, which was split
equally among Roy and his three friends. Assuming Roy's only source of income was $145,000 of
salary, how much of the rental loss can Roy deduct this year and what amount must be carried
forward?
Answer: Current year deduction − $2,500 and carried forward amount − $3,750.

Step 1: Portion of rental loss to Roy
$25,000/4 = $6,250
Step 2: Maximum deduction for current year after phase-out limitations

$25,000 − [($145,000 − $100,000) × .5] = $2,500
Step 3: Rental loss allowed to be deducted for current year and amount carried forward
Deducted for current year: $2,500
Carried forward: $6,250 − $2,500 = $3,750
investments.
Bloom's: Analyze
41
75) Judy, a single individual, reports the following items of income and loss:
Salary $ 120,000
Loss from rental property $ (40,000)
Judy owns 100% of the rental property and actively participates in the rental of the property.
Calculate Judy's AGI.
Answer: $105,000
AGI b/f PAL $ 120,000

Rental Real Estate $120,000 - $100,000 = $25,000 - $10,000* =
25% Exception 20,000 × 0.5 = $10,000 $15,000 PAL to offset
phase-out* ordinary income (15,000)
AGI after PALs $ 105,000
investments.
Bloom's: Analyze
42
76) On January 1, 20X8, Jill contributed $18,000 of cash to the XYZ limited partnership for a 25
percent limited partnership interest. On April 6, 20X8, XYZ, limited partnership distributed
$2,000 to Jill. For the year ended December 31, 20X8, Jill received the following income/loss
allocations from her partnership investments: (1) XYZ, limited partnership allocated a $5,000 loss
to Jill (2) ABC limited partnership allocated $2,300 of income to Jill. How much of the $5,000 loss
from XYZ limited partnership can Jill deduct in 20X8?
Answer: $2,300 of loss from XYZ is deducted in 20X8.

Jill has sufficient tax basis and amount at-risk in XYZ to deduct her $5,000 loss allocation from
XYZ; however, she must assess how much passive income she has from other sources that she
may offset with her $5,000 passive loss from XYZ. Because she is a limited partner in XYZ and
ABC, her losses and income from these activities are considered to be passive. The only passive
income she has is $2,300 from ABC. Thus, she would only be allowed to deduct $2,300 of her
$5,000 loss from XYZ this year and must carry forward $2,700 of the remaining loss until she
generates additional passive income in the future or sells her interest in XYZ.
Difficulty: 3 Hard
investments.
Bloom's: Analyze
43
Another random document with
no related content on Scribd:
is put in no ironic spirit. Shaw is the one thinker of eminence who
has consistently advanced in the same direction as that of the true
Nietzsche—namely, productive criticism of the Western morale—
while following out as poet the last implications of Ibsen and devoting
the balance of the artistic creativeness that is in him to practical
discussions.
Save in so far as the belated Romanticist in him has determined
the style, sound and attitude of his philosophy, Nietzsche is in every
respect a disciple of the materialistic decades. That which drew him
with such passion to Schopenhauer was (not that he himself or
anyone else was conscious of it) that element of Schopenhauer’s
doctrine by which he destroyed the great metaphysic and (without
meaning to do so) parodied his master Kant; that is to say, the
modification of all deep ideas of the Baroque age into tangible and
mechanistic notions. Kant speaks in inadequate words, which hide a
mighty and scarcely apprehensible intuition, an intuition of the world
as appearance or phenomenon. In Schopenhauer this becomes the
world as brain-phenomenon (Gehirnphänomen). The change-over
from tragic philosophy to philosophical plebeianism is complete. It
will be enough to cite one passage. In “The World as Will and Idea”
Schopenhauer says: “The will, as thing-in-itself, constitutes the inner,
true and indestructible essence of the man; in itself, however, it is
without consciousness. For the consciousness is conditioned by the
intellect and this is a mere accident of our being, since it is a function
of the brain, and that again (with its dependent nerves and spinal
cord) is a mere fruit, a product, nay, even a parasite of the rest of the
organism, inasmuch as it does not intervene directly in the latter’s
activities but only serves a purpose of self-preservation by regulating
its relations with the outer world.” Here we have exactly the
fundamental position of the flattest materialism. It was not for nothing
that Schopenhauer, like Rousseau before him, studied the English
sensualists. From them he learned to misread Kant in the spirit of
megalopolitan utilitarian modernity. The intellect as instrument of the
will-to-life,[459] as weapon in the struggle for existence, the ideas
brought to grotesque expression by Shaw in “Man and Superman”—
it was because this was his view of the world that Schopenhauer
became the fashionable philosopher when Darwin’s main work was
published in 1859. In contrast to Schelling, Hegel and Fichte, he was
a philosopher, and the only philosopher, whose metaphysical
propositions could be absorbed with ease by intellectual mediocrity.
The clarity of which he was so proud threatened at every moment to
reveal itself as triviality. While retaining enough of formula to produce
an atmosphere of profundity and exclusiveness, he presented the
civilized view of the world complete and assimilable. His system is
anticipated Darwinism, and the speech of Kant and the concepts of
the Indians are simply clothing. In his book “Ueber den Willen in der
Natur” (1835) we find already the struggle for self-preservation in
Nature, the human intellect as master-weapon in that struggle and
sexual love as unconscious selection according to biological interest.
[460]
It is the view that Darwin (via Malthus) brought to bear with

irresistible success in the field of zoology. The economic origin of
Darwinism is shown by the fact that the system deduced from the
similarities between men and the higher animals ceases to fit even at
the level of the plant-world and becomes positively absurd as soon
as it is seriously attempted to apply it with its will-tendency (natural
selection, mimicry) to primitive organic forms.[461] Proof, to the
Darwinian, means to the ordering and pictorial presentation of a
selection of facts so that they conform to his historico-dynamic basic
feeling of “Evolution.” Darwinism—that is to say, that totality of very
varied and discrepant ideas, in which the common factor is merely
the application of the causality principle to living things, which
therefore is a method and not a result—was known in all details to
the 18th Century. Rousseau was championing the ape-man theory
as early as 1754. What Darwin originated is only the “Manchester
School” system, and it is this latent political element in it that
accounts for its popularity.
The spiritual unity of the century is manifest enough here. From
Schopenhauer to Shaw, everyone has been, without being aware of
it, bringing the same principle into form. Everyone (including even
those who, like Hebbel, knew nothing of Darwin) is a derivative of the
evolution-idea—and of the shallow civilized and not the deep
Goethian form of it at that—whether he issues it with a biological or
an economic imprint. There is evolution, too, in the evolution-idea
itself, which is Faustian through and through, which displays (in
sharpest contrast to Aristotle’s timeless entelechy-idea) all our
passionate urgency towards infinite future, our will and sense of aim
which is so immanent in, so specific to, the Faustian spirit as to be
the a priori form rather than the discovered principle of our Nature-
picture. And in the evolution of evolution we find the same change
taking place as elsewhere, the turn of the Culture to the Civilization.
In Goethe evolution is upright, in Darwin it is flat; in Goethe organic,
in Darwin mechanical; in Goethe an experience and emblem, in
Darwin a matter of cognition and law. To Goethe evolution meant
inward fulfilment, to Darwin it meant “Progress.” Darwin’s struggle for
existence, which he read into Nature and not out of it, is only the
plebeian form of that primary feeling which in Shakespeare’s
tragedies moves the great realities against one another; but what
Shakespeare inwardly saw, felt and actualized in his figures as
destiny, Darwinism comprehends as causal connexion and
formulates as a superficial system of utilities. And it is this system
and not this primary feeling that is the basis of the utterances of
“Zarathustra,” the tragedy of “Ghosts,” the problems of the “Ring of
the Nibelungs.” Only, it was with terror that Schopenhauer, the first of
his line, perceived what his own knowledge meant—that is the root
of his pessimism, and the “Tristan” music of his adherent Wagner is
its highest expression—whereas the late men, and foremost among
them Nietzsche, face it with enthusiasm, though it is true, the
enthusiasm is sometimes rather forced.
Nietzsche’s breach with Wagner—that last product of the German
spirit over which greatness broods—marks his silent change of
school-allegiance, his unconscious step from Schopenhauer to
Darwin, from the metaphysical to the physiological formulation of the
same world-feeling, from the denial to the affirmation of the aspect
that in fact is common to both, the one seeing as will-to-life what the
other regards as struggle for existence. In his “Schopenhauer als
Erzieher” he still means by evolution an inner ripening, but the
Superman is the product of evolution as machinery. And
“Zarathustra” is ethically the outcome of an unconscious protest
against “Parsifal”—which artistically entirely governs it—of the rivalry
of one evangelist for another.
But Nietzsche was also a Socialist without knowing it. Not his
catchwords, but his instincts, were Socialistic, practical, directed to
that welfare of mankind that Goethe and Kant never spent a thought
upon. Materialism, Socialism and Darwinism are only artificially and
on the surface separable. It was this that made it possible for Shaw
in the third act of “Man and Superman” (one of the most important
and significant of the works that issued from the transition) to obtain,
by giving just a small and indeed perfectly logical turn to the
tendencies of “master-morale” and the production of the Superman,
the specific maxims of his own Socialism. Here Shaw was only
expressing with remorseless clarity and full consciousness of the
commonplace, what the uncompleted portion of the Zarathustra
would have said with Wagnerian theatricality and woolly
romanticism. All that we are concerned to discover in Nietzsche’s
reasoning is its practical bases and consequences, which proceed of
necessity from the structure of modern public life. He moves
amongst vague ideas like “new values,” “Superman,” “Sinn der
Erde,” and declines or fears to shape them more precisely. Shaw
does it. Nietzsche observes that the Darwinian idea of the Superman
evokes the notion of breeding, and stops there, leaves it at a
sounding phrase. Shaw pursues the question—for there is no object
in talking about it if nothing is going to be done about it—asks how it
is to be achieved, and from that comes to demand the transformation
of mankind into a stud-farm. But this is merely the conclusion implicit
in the Zarathustra, which Nietzsche was not bold enough, or was too
fastidious, to draw. If we do talk of systematic breeding—a
completely materialistic and utilitarian notion—we must be prepared
to answer the questions, who shall breed what, where and how? But
Nietzsche, too romantic to face the very prosaic social
consequences and to expose poetic ideas to the test of facts, omits
to say that his whole doctrine, as a derivative of Darwinism,
presupposes Socialism and, moreover, socialistic compulsion as the
means; that any systematic breeding of a class of higher men
requires as condition precedent a strictly socialistic ordering of
society; and that this “Dionysiac” idea, as it involves a common
action and is not simply the private affair of detached thinkers, is
democratic, turn it how you may. It is the climax of the ethical force of
“Thou shalt”; to impose upon the world the form of his will, Faustian
man sacrifices even himself.
The breeding of the Superman follows from the notion of
“selection.” Nietzsche was an unconscious pupil of Darwin from the
time that he wrote aphorisms, but Darwin himself had remoulded the
evolution-ideas of the 18th Century according to the Malthusian
tendencies of political economy, which he projected on the higher
animal-world. Malthus had studied the cotton industry in Lancashire,
and already in 1857 we have the whole system, only applied to men
instead of to beasts, in Buckle’s History of English Civilization.
In other words, the “master-morale” of this last of the Romantics is
derived—strangely perhaps but very significantly—from that source
of all intellectual modernity, the atmosphere of the English factory.
The Machiavellism that commended itself to Nietzsche as a
Renaissance phenomenon is something closely (one would have
supposed, obviously) akin to Darwin’s notion of “mimicry.” It is in fact
that of which Marx (that other famous disciple of Malthus) treats in
his Das Kapital, the bible of political (not ethical) Socialism.[462] That
is the genealogy of “Herrenmoral.” The Will-to-Power, transferred to
the realistic, political and economic domain, finds its expression in
Shaw’s “Major Barbara.” No doubt Nietzsche, as a personality,
stands at the culmination of this series of ethical philosophers, but
here Shaw the party politician reaches up to his level as a thinker.
The will-to-power is to-day represented by the two poles of public life
—the worker-class and the big money-and-brain men—far more
effectually than it ever was by a Borgia. The millionaire Undershaft of
Shaw’s best comedy is a Superman, though Nietzsche the
Romanticist would not have recognized his ideal in such a figure.
Nietzsche is for ever speaking of transvaluations of all values, of a
philosophy of the “Future” (which, incidentally, is merely the Western,
and not the Chinese or the African future), but when the mists of his
thought do come in from the Dionysiac distance and condense into
any tangible form, the will-to-power appears to him in the guise of
dagger-and-poison and never in that of strike and “deal.” And yet he
says that the idea first came to him when he saw the Prussian
regiments marching to battle in 1870.
The drama, in this epoch, is no longer poetry in the old sense of
the Culture days, but a form of agitation, debate and demonstration.
The stage has become a moralizing institution. Nietzsche himself
often thought of putting his ideas in the dramatic form. Wagner’s
Nibelung poetry, more especially the first draft of it (1850), expresses
his social-revolutionary ideas, and even when, after a circuitous
course under influences artistic and non-artistic, he has completed
the “Ring,” his Siegfried is still a symbol of the Fourth Estate, his
Brünhilde still the “free woman.” The sexual selection of which the
“Origin of Species” enunciated the theory in 1859, was finding its
musical expression at the very same time in the third act of
“Siegfried” and in “Tristan.” It is no accident that Wagner, Hebbel and
Ibsen, all practically simultaneously, set to work to dramatize the
Nibelung material. Hebbel, making the acquaintance in Paris of
Engels’s writings, expresses (in a letter of April 2, 1844) his surprise
at finding that his own conceptions of the social principle of his age,
which he was then intending to exemplify in a drama Zu irgend einer
Zeit, coincided precisely with those of the future “Communist
Manifesto.” And, upon first making the acquaintance of
Schopenhauer (letter of March 19, 1857), he is equally surprised by
the affinity that he finds between the Welt als Wille und Vorstellung
and tendencies upon which he had based his Holofernes and his
Herodes und Mariamne. Hebbel’s diaries, of which the most
important portion belongs to the years 1835-1845, were (though he
did not know it) one of the deepest philosophical efforts of the
century. It would be no surprise to find whole sentences of it in
Nietzsche, who never knew him and did not always come up to his
level.
The actual and effective philosophy of the 19th Century, then, has
as its one genuine theme the Will-to-Power. It considers this Will-to-
Power in civilized-intellectual, ethical, or social forms and presents it
as will-to-life, as life-force, as practical-dynamical principle, as idea,
and as dramatic figure. (The period that is closed by Shaw
corresponds to the period 350-250 in the Classical.) The rest of the
19th-Century philosophy is, to use Schopenhauer’s phrase,
“professors’ philosophy by philosophy-professors.” The real
landmarks are these:
1819. Schopenhauer, Die Welt als Wille und Vorstellung. The will
to life is for the first time put as the only reality (original force,
Urkraft); but, older idealist influences still being potent, it is put
there to be negatived (zur Verneinung empfohlen).
1836. Schopenhauer, Ueber den Willen in der Natur. Anticipation
of Darwinism, but in metaphysical disguise.
1840. Proud’hon, Qu’est-ce que la Propriété, basis of
Anarchism. Comte, Cours de philosophic positive; the formula
“order and progress.”
1841. Hebbel, “Judith,” first dramatic conception of the “New
Woman” and the “Superman.” Feuerbach, Das Wesen des
Christenthums.
1844. Engels, Umriss einer Kritik des Nationalökonomie,
foundation of the materialistic conception of history. Hebbel, Maria
Magdalena, the first social drama.
1847. Marx, Misère de la Philosophie (synthesis of Hegel and
Malthus). These are the epochal years in which economics begins
to dominate social ethic and biology.
1848. Wagner’s “Death of Siegfried”; Siegfried as social-ethical
revolutionary, the Fafnir hoard as symbol of Capitalism.
1850. Wagner’s Kunst und Klima; the sexual problem.
1850-1858. Wagner’s, Hebbel’s and Ibsen’s Nibelung poetry.
1859 (year of symbolic coincidences). Darwin, “Origin of
Species” (application of economics to biology). Wagner’s “Tristan.”
Marx, Zur Kritik der politischen Ökonomie.
1863. J. S. Mill, “Utilitarianism.”
1865. Dühring, Wert des Lebens—a work which is rarely heard
of, but which exercised the greatest influence upon the succeeding
generation.
1867. Ibsen, “Brand.” Marx, Das Kapital.
1878. Wagner “Parsifal.” First dissolution of materialism into
mysticism.
1879. Ibsen “Nora.”
1881. Nietzsche, Morgenröthe; transition from Schopenhauer to
Darwin, morale as biological phenomenon.
1883. Nietzsche, Also sprach Zarathustra; the Will-to-Power, but
in Romantic disguise.
1886. Ibsen, “Rosmersholm.” Nietzsche, Jenseits von Gut und
Böse.
1887-8. Strindberg, “Fadren” and “Fröken Julie.”
From 1890 the conclusion of the epoch approaches. The
religious works of Strindberg and the symbolical of Ibsen.
1896. Ibsen, “John Gabriel Borkman.” Nietzsche, Uebermensch.
1898. Strindberg, “Till Damascus.”
From 1900 the last phenomena.
1903. Weininger, Geschlecht und Charakter; the only serious
attempt to revive Kant within this epoch, by referring him to
Wagner and Ibsen.
1903. Shaw, “Man and Superman”; final synthesis of Darwin and
Nietzsche.
1905. Shaw, “Major Barbara”; the type of the Superman referred
back to its economic origins.
With this, the ethical period exhausts itself as the metaphysical had
done. Ethical Socialism, prepared by Fichte, Hegel, and Humboldt,
was at its zenith of passionate greatness about the middle of the
19th Century, and at the end thereof it had reached the stage of
repetitions. The 20th Century, while keeping the word Socialism, has
replaced an ethical philosophy that only Epigoni suppose to be
capable of further development, by a praxis of economic everyday
questions. The ethical disposition of the West will remain “socialistic”
but its theory has ceased to be a problem. And there remains the
possibility of a third and last stage of Western philosophy, that of a
physiognomic scepticism. The secret of the world appears
successively as a knowledge problem, a valuation problem and a
form problem. Kant saw Ethics as an object of knowledge, the 19th
Century saw it as an object of valuation. The Sceptic would deal with
both simply as the historical expression of a Culture.
CHAPTER XI
FAUSTIAN AND APOLLINIAN
NATURE-KNOWLEDGE
CHAPTER XI
FAUSTIAN AND APOLLINIAN NATURE-

KNOWLEDGE
I
Helmholtz observed, in a lecture of 1869 that has become famous,
that “the final aim of Natural Science is to discover the motions
underlying all alteration, and the motive forces thereof; that is, to
resolve itself into Mechanics.” What this resolution into mechanics
means is the reference of all qualitative impressions to fixed
quantitative base-values, that is, to the extended and to change of
place therein. It means, further—if we bear in mind the opposition of
becoming and become, form and law, image and notion—the
referring of the seen Nature-picture to the imagined picture of a
single numerically and structurally measurable Order. The specific
tendency of all Western mechanics is towards an intellectual
conquest by measurement, and it is therefore obliged to look for the
essence of the phenomenon in a system of constant elements that
are susceptible of full and inclusive appreciation by measurement, of
which Helmholtz distinguishes motion (using the word in its everyday
sense) as the most important.
To the physicist this definition appears unambiguous and
exhaustive, but to the sceptic who has followed out the history of this
scientific conviction, it is very far from being either. To the physicist,
present-day mechanics is a logical system of clear, uniquely-
significant concepts and of simple, necessary relations; while to the
other it is a picture distinctive of the structure of the West-European
spirit, though he admits that the picture is consistent in the highest
degree and most impressively convincing. It is self-evident that no
practical results and discoveries can prove anything as to the “truth”
of the theory, the picture.[463] For most people, indeed, “mechanics”
appears as the self-evident synthesis of Nature-impressions. But it
merely appears to be so. For what is motion? Is not the postulate
that everything qualitative is reducible to the motion of unalterably-
alike mass-points, essentially Faustian and not common to
humanity? Archimedes, for example, did not feel himself obliged to
transpose the mechanics that he saw into a mental picture of
motions. Is motion generally a purely mechanical quantity? Is it a
word for a visual experience or is it a notion derived from that
experience? Is it the number that is found by measurement of
experimentally-produced facts, or the picture that is subjected to that
number, that is signified by it? And if one day physics should really
succeed in reaching its supposed aim, in devising a system of law-
governed “motions” and of efficient forces behind them into which
everything whatsoever appreciable by the senses could be fitted—
would it thereby have achieved “knowledge” of that which occurs, or
even made one step towards this achievement? Yet is the form-
language of mechanics one whit the less dogmatic on that account?
Is it not, on the contrary, a vessel of the myth like the root-words, not
proceeding from experience but shaping it and, in this case, shaping
it with all possible rigour? What is force? What is a cause? What is a
process? Nay, even on the basis of its own definitions, has physics a
specific problem at all? Has it an object that counts as such for all
the centuries? Has it even one unimpeachable imagination-unit, with
reference to which it may express its results?
The answer may be anticipated. Modern physics, as a science, is
an immense system of indices in the form of names and numbers
whereby we are enabled to work with Nature as with a machine.[464]
As such, it may have an exactly-definable end. But as a piece of
history, all made up of destinies and incidents in the lives of the men
who have worked in it and in the course of research itself, physics is,
in point of object, methods and results alike an expression and
actualization of a Culture, an organic and evolving element in the
essence of that Culture, and every one of its results is a symbol.
That which physics—which exists only in the waking-consciousness
of the Culture-man—thinks it finds in its methods and in its results
was already there, underlying and implicit in, the choice and manner
of its search. Its discoveries, in virtue of their imagined content (as
distinguished from their printable formulæ), have been of a purely
mythic nature, even in minds so prudent as those of J. B. Mayer,
Faraday and Hertz. In every Nature-law, physically exact as it may
be, we are called upon to distinguish between the nameless number
and the naming of it, between the plain fixation of limits[465] and their
theoretical interpretation. The formulæ represent general logical
values, pure numbers—that is to say, objective space—and
boundary-elements. But formulæ are dumb. The expression s = ½gt²
means nothing at all unless one is able mentally to connect the
letters with particular words and their symbolism. But the moment we
clothe the dead signs in such words, give them flesh, body and life,
and, in sum, a perceptible significance in the world, we have
overstepped the limits of a mere order. θεωρία means image, vision,
and it is this that makes a Nature-law out of a figure-and-letter
formula. Everything exact is in itself meaningless, and every physical
observation is so constituted that it proves the basis of a certain
number of imaged presuppositions; and the effect of its successful
issue is to make these presuppositions more convincing than ever.
Apart from these, the result consists merely of empty figures. But in
fact we do not and cannot get apart from them. Even if an
investigator puts on one side every hypothesis that he knows as
such, as soon as he sets his thought to work on the supposedly clear
task, he is not controlling but being controlled by the unconscious
form of it, for in living activity he is always a man of his Culture, of his
age, of his school and of his tradition. Faith and “knowledge” are only
two species of inner certitude, but of the two faith is the older and it
dominates all the conditions of knowing, be they never so exact. And
thus it is theories and not pure numbers that are the support of all
natural science. The unconscious longing for that genuine science
which (be it repeated) is peculiar to the spirit of Culture-man sets
itself to apprehend, to penetrate, and to comprise within its grasp the
world-image of Nature. Mere industrious measuring for measuring’s
sake is not and never has been more than a delight for little minds.
Numbers may only be the key of the secret, no more. No significant
man would ever have spent himself on them for their own sake.
Kant, it is true, says in a well-known passage: “I maintain that in
each and every discipline of natural philosophy it is only possible to
find as much of true science as is to be found of mathematics
therein.” What Kant has in mind here is pure delimitation in the field
of the become, so far as law and formula, number and system can
(at any particular stage) be seen in that field. But a law without
words, a law, consisting merely of a series of figures read off an
instrument, cannot even as an intellectual operation be completely
effective in this pure state. Every savant’s experiment, be it what it
may, is at the same time an instance of the kind of symbolism that
rules in the savant’s ideation. All Laws formulated in words are
Orders that have been activated and vitalized, filled with the very
essence of the one—and only the one—Culture. As to the
“necessity” which is a postulate in all exact research, here too we
have to consider two kinds of necessity, viz., a necessity within the
spiritual and living (for it is Destiny that the history of every individual
research-act takes its course when, where and how it does) and a
necessity within the known (for which the current Western name is
Causality). If the pure numbers of a physical formula represent a
causal necessity, the existence, the birth and the life-duration of a
theory are a Destiny.
Every fact, even the simplest, contains ab initio a theory. A fact is
a uniquely-occurring impression upon a waking being, and
everything depends on whether that being, the being for whom it
occurs or did occur, is or was Classical or Western, Gothic or
Baroque. Compare the effect produced by a flash of lightning on a
sparrow and on an alert physical investigator, and think how much
more is contained in the observer’s “fact” than in the sparrow’s. The
modern physicist is too ready to forget that even words like quantity,
position, process, change of state and body represent specifically
Western images. These words excite and these images mirror a
feeling of significances, too subtle for verbal description,
incommunicable to Classical or to Magian or to other mankind as like
subtleties of their thought and feeling are incommunicable to us. And
the character of scientific facts as such—that is, the mode of their
becoming known—is completely governed by this feeling; and if so,
then also a fortiori such intricate intellectual notions as work, tension,
quantity of energy, quantity of heat, probability,[466] every one of
which contains a veritable scientific myth of its own. We think of such
conceptual images as ensuing from quite unprejudiced research
and, subject to certain conditions, definitively valid. But a first-rate
scientist of the time of Archimedes would have declared himself,
after a thorough study of our modern theoretical physics, quite
unable to comprehend how anyone could assert such arbitrary,
grotesque and involved notions to be Science, still less how they
could be claimed as necessary consequences from actual facts.
“The scientifically-justified conclusions,” he would have said, “are
really so-and-so”; and thereupon he would have evolved, on the
basis of the same elements made “facts” by his eyes and his mind,
theories that our physicists would listen to with amazed ridicule.
For what, after all, are the basic notions that have been evolved
with inward certainty of logic in the field of our physics? Polarized
light-rays, errant ions, flying and colliding gas-particles, magnetic
fields, electric currents and waves—are they not one and all
Faustian visions, closely akin to Romanesque ornamentation, the
upthrust of Gothic architecture, the Viking’s voyaging into unknown
seas, the longings of Columbus and Copernicus? Did not this world
of forms and pictures grow up in perfect tune with the contemporary
arts of perspective oil-painting and instrumental music? Are they not,
in short, our passionate directedness, our passion of the third
dimension, coming to symbolic expression in the imagined Nature-
picture as in the soul-image?
II
It follows then that all “knowing” of Nature, even the exactest, is

based on a religious faith. The pure mechanics that the physicist has
set before himself as the end-form to which it is his task (and the
purpose of all this imagination-machinery) to reduce Nature,
presupposes a dogma—namely, the religious world-picture of the
Gothic centuries. For it is from this world-picture that the physics
peculiar to the Western intellect is derived. There is no science that
is without unconscious presuppositions of this kind, over which the
researcher has no control and which can be traced back to the
earliest days of the awakening Culture. There is no Natural science
without a precedent Religion. In this point there is no distinction
between the Catholic and the Materialistic views of the world—both
say the same thing in different words. Even atheistic science has
religion; modern mechanics exactly reproduces the
contemplativeness of Faith.
When the Ionic reaches its height in Thales or the Baroque in
Bacon, and man has come to the urban stage of his career, his self-
assurance begins to look upon critical science, in contrast to the
more primitive religion of the countryside, as the superior attitude
towards things, and, holding as he thinks the only key to real
knowledge, to explain religion itself empirically and psychologically—
in other words, to “conquer” it with the rest. Now, the history of the
higher Cultures shows that “science” is a transitory spectacle,[467]
belonging only to the autumn and winter of their life-course, and that
in the cases of the Classical, the Indian, the Chinese and the
Arabian thought alike a few centuries suffice for the complete
exhaustion of its possibilities. Classical science faded out between
the battle of Cannæ and that of Actium and made way for the world-
outlook of the “second religiousness.”[468] And from this it is possible
to foresee a date at which our Western scientific thought shall have
reached the limit of its evolution.
There is no justification for assigning to this intellectual form-world
the primacy over others. Every critical science, like every myth and
every religious belief, rests upon an inner certitude. Various as the
creatures of this certitude may be, both in structure and in sound,
they are not different in basic principle. Any reproach, therefore,
levelled by Natural science at Religion is a boomerang. We are
presumptuous and no less in supposing that we can ever set up
“The Truth” in the place of “anthropomorphic” conceptions, for no
other conceptions but these exist at all. Every idea that is possible at
all is a mirror of the being of its author. The statement that “man
created God in his own image,” valid for every historical religion, is
not less valid for every physical theory, however firm its reputed
basis of fact. Classical scientists conceived of light as consisting in
corporeal particles proceeding from the source of light to the eye of
the beholder. For the Arabian thought, even at the stage of the
Jewish-Persian academies of Edessa, Resaïna and Pombaditha
(and for Porphyry too), the colours and forms of things were
evidenced without the intervention of a medium, being brought in a
magic and “spiritual” way to the seeing-power which was conceived
as substantial and resident in the eyeball. This was the doctrine[469]
taught by Ibn-al-Haitan, by Avicenna and by the “Brothers of
Sincerity.”[470] And the idea of light as a force, an impetus, was
current even from about 1300 amongst the Paris Occamists who
centred on Albert of Saxony, Buridan and Oresme the discoverer of
co-ordinate geometry. Each Culture has made its own set of images
of processes, which are true only for itself and only alive while it is
itself alive and actualizing its possibilities. When a Culture is at its
end and the creative element—the imaginative power, the symbolism
—is extinct, there are left “empty” formulæ, skeletons of dead
systems, which men of another Culture read literally, feel to be
without meaning or value and either mechanically store up or else
despise and forget. Numbers, formulæ, laws mean nothing and are
nothing. They must have a body, and only a living mankind—
projecting its livingness into them and through them, expressing itself
by them, inwardly making them its own—can endow them with that.
And thus there is no absolute science of physics, but only individual
sciences that come, flourish and go within the individual Cultures.
The “Nature” of Classical man found its highest artistic emblem in
the nude statue, and out of it logically there grew up a static of
bodies, a physics of the near. The Arabian Culture owned the
arabesque and the cavern-vaulting of the mosque, and out of this
world-feeling there issued Alchemy with its ideas of mysterious
efficient substantialities like the “philosophical mercury,” which is
neither a material nor a property but some thing that underlies the
coloured existence of metals and can transmute one metal into
another.[471] And the outcome of Faustian man’s Nature idea was a
dynamic of unlimited span, a physics of the distant. To the Classical
therefore belong the conceptions of matter and form, to the Arabian
(quite Spinozistically) the idea of substances with visible or secret
attributes,[472] and to the Faustian the idea of force and mass.
Apollinian theory is a quiet meditation, Magian a silent knowledge of
Alchemy the means of Grace (even here the religious source of
mechanics is to be discerned), and the Faustian is from the very
outset a working hypothesis.[473] The Greek asked, what is the
essence of visible being? We ask, what possibility is there of
mastering the invisible motive-forces of becoming? For them,
contented absorption in the visible; for us, masterful questioning of
Nature and methodical experiment.
As with the formulation of problems and the methods of dealing
with them, so also with the basic concepts. They are symbols in
each case of the one and only the one Culture. The Classical root-
words ἄπειρον, ἀρχή, μορφή, ὕλη, are not translatable into our
speech. To render ἀρχή by “prime-stuff” is to eliminate its Apollinian
connotation, to make the hollow shell of the word sound an alien
note. That which Classical man saw before him as “motion” in space,
he understood as ἀλλοίωσις, change of position of bodies; we, from
the way in which we experience motion, have deduced the concept
of a process, a “going forward,” thereby expressing and emphasizing
that element of directional energy which our thought necessarily
predicates in the courses of Nature. The Classical critic of Nature
took the visible juxtaposition of states as the original diversity, and
specified the famous four elements of Empedocles—namely, earth
as the rigid-corporeal, water as the non-rigid-corporeal and air as the
incorporeal, together with fire, which is so much the strongest of all
optical impressions that the Classical spirit could have no doubt of its
bodiliness. The Arabian “elements,” on the contrary, are ideal and
implicit in the secret constitutions and constellations which define the
phenomenon of things for the eye. If we try to get a little nearer to
this feeling, we shall find that the opposition of rigid and fluid means
something quite different for the Syrian from what it means for the
Aristotelian Greek, the latter seeing in it different degrees of
bodiliness and the former different magic attributes. With the former
therefore arises the image of the chemical element as a sort of
magic substance that a secret causality makes to appear out of
things (and to vanish into them again) and which is subject even to
the influence of the stars. In Alchemy there is deep scientific doubt
as to the plastic actuality of things—of the “somata” of Greek
mathematicians, physicists and poets—and it dissolves and destroys
the soma in the hope of finding its essence. It is an iconoclastic
movement just as truly as those of Islam and the Byzantine Bogomils
were so. It reveals a deep disbelief in the tangible figure of
phenomenal Nature, the figure of her that to the Greek was
sacrosanct. The conflict concerning the person of Christ which
manifested itself in all the early Councils and led to the Nestorian
and Monophysite secessions is an alchemistic problem.[474] It would
never have occurred to a Classical physicist to investigate things
while at the same time denying or annihilating their perceivable form.
And for that very reason there was no Classical chemistry, any more
than there was any theorizing on the substance as against the
manifestations of Apollo.
The rise of a chemical method of the Arabian style betokens a new
world-consciousness. The discovery of it, which at one blow made
an end of Apollinian natural science, of mechanical statics, is linked
with the enigmatic name of Hermes Trismegistus,[475] who is
supposed to have lived in Alexandria at the same time as Plotinus
and Diophantus. Similarly it was just at the time of the definite
emancipation of the Western mathematic by Newton and Leibniz that
the Western chemistry[476] was freed from Arabic form by Stahl
(1660-1734) and his Phlogiston theory. Chemistry and mathematic
alike became pure analysis. Already Paracelsus (1493-1541) had
transformed the Magian effort to make gold into a pharmaceutical
science—a transformation in which one cannot but surmise an
altered world-feeling. Then Robert Boyle (1626-1691) devised the
analytical method and with it the Western conception of the Element.
But the ensuing changes must not be misinterpreted. That which is
called the founding of modern chemistry and has Stahl and Lavoisier
at its turning-points is anything but a building-up of “chemical” ideas,
in so far as chemistry implies the alchemistic outlook on Nature. It is
in fact the end of genuine chemistry, its dissolution into the
comprehensive system of pure dynamic, its assimilation into the
mechanical outlook which the Baroque age had established through
Galileo and Newton. The elements of Empedocles designate states
of bodiliness (bezeichnen ein körperliches Sichverhalten) but the
elements of Lavoisier, whose combustion-theory followed promptly
upon the isolation of oxygen in 1771, designate energy-systems
accessible to human will, “rigid” and “fluid” becoming mere terms to
describe tension-relations between molecules. By our analysis and
synthesis, Nature is not merely asked or persuaded but forced. The
modern chemistry is a chapter of the modern physics of Deed.
What we call Statics, Chemistry and Dynamics—words that as
used in modern science are merely traditional distinctions without
deeper meaning—are really the respective physical systems of the
Apollinian, Magian and Faustian souls, each of which grew up in its
own Culture and was limited as to validity to the same.
Corresponding to these sciences, each to each, we have the
mathematics of Euclidean geometry, Algebra and Higher Analysis,
and the arts of statue, arabesque and fugue. We may differentiate
these three kinds of physics (bearing in mind of course that other
Cultures may and in fact do give rise to other kinds) by their
standpoints towards the problem of motion, and call them
mechanical orderings of states, secret forces and processes
respectively.
III
Now, the tendency of human thought (which is always causally

disposed) to reduce the image of Nature to the simplest possible
quantitative form-units that can be got by causal reasoning,
measuring and counting—in a word, by mechanical differentiation—
leads necessarily in Classical, Western and every other possible
physics, to an atomic theory. Of Indian and Chinese science we
know hardly more than the fact they once existed, and the Arabian is
so complicated that even now it seems to defy presentation. But we
do know our own and the Apollinian sciences well enough to
observe, here too, a deeply symbolical opposition.
The Classical atoms are miniature forms, the Western minimal
quanta, and quanta, too, of energy. On the one hand perceptibility,
sensuous nearness, and on the other, abstractness are the basic
conditions of the idea. The atomistic notions of modern physics—
which include not only the Daltonian or “chemical” atom but also the
electrons[477] and the quanta of thermodynamics—make more and
more demands upon that truly Faustian power of inner vision which
many branches of higher mathematics (such as the Non-Euclidean
geometries and the Theory of Groups) postulate, and which is not at
the disposal of laymen. A quantum of action is an extension-element
conceived without regard to sensible quality of any kind, which
eludes all relation with sight and touch, for which the expression
“shape” has no meaning whatever—something therefore which
would be utterly inconceivable to a Classical researcher. Such,
already, were Leibniz’s “Monads”[478] and such, superlatively, are the
constituents of Rutherford’s picture of the atom as positively-charged

Taxation of Individuals and Business Entities 2018 Edition 9Th Edition Spilker Test Bank Full Chapter PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Taxation of Individuals and Business Entities 2018 Edition 9Th Edition Spilker Test Bank Full Chapter PDF

Uploaded by

Copyright:

Available Formats

Taxation of Individuals and Business

Entities 2018 Edition 9th Edition Spilker

41) Unused investment interest expense:

43) Investment expenses treated as miscellaneous itemized deductions do not include:

49) What is the correct order of the loss limitation rules?

51) Which taxpayer would not be considered a material participant of an activity?

Answer: A dividend must be a qualified dividend to get preferential treatment. Qualified

See computation below:

Step 2: Amortization Table

Basis of Bond at Interest Received Reported Premium

Step 3: Total Interest Income

See computation below:

Step 2 - Adjusted Basis

Step 3 - Amount of Gain

Asset Sale Price Tax Basis Gain/Loss Holding Period

See computations below:

Sales Price Basis Purchased Sold

*Purchased when originally issued by Provo City

See calculations below:

Long-term capital loss c/f $ (5,000)

Net short-term capital loss $ (1,500 )

Answer: Sarantuya is allowed to deduct up to $333 in investment interest expense.

See calculations below:

See calculations below:

Step 2: Calculate the 2% AGI floor

See calculations below:

Option 2: Election to include all qualified dividends in investment income

Option 3: Election to include all long-term capital gains in investment income

Answer: To be considered an active participant in an activity, a taxpayer must materially

See calculations below:

Step 2: Maximum deduction for current year after phase-out limitations

See calculations below:

AGI b/f PAL $ 120,000

Answer: $2,300 of loss from XYZ is deducted in 20X8.

See calculations below:

It is the view that Darwin (via Malthus) brought to bear with

FAUSTIAN AND APOLLINIAN NATURE-

It follows then that all “knowing” of Nature, even the exactest, is

Now, the tendency of human thought (which is always causally

You might also like