Exam 7: Property Acquisitions and Cost Recovery Deductions

Broadus, a calendar year taxpayer, purchased a total of $128,300 tangible personalty in 2018. Broadus' taxable income without regard to a Section 179 deduction was $92,600. Which of the following statements is true? 

A corporation that incurs $28,500 organization costs must capitalize the costs and amortize them over 180 months. 

Gowda Inc., a calendar year taxpayer, purchased $1,496,000 of equipment on March 23. This was Gowda's only purchase of depreciable property for the year. If the equipment has a 7-year recovery period, refer to Table 7.2 and compute Gowda's first and second-year MACRS depreciation. (Disregard the Section 179 deduction and bonus depreciation in making your calculation.) 

Poole Company made a $100,000 cash expenditure this year. Which of the following statements is false? 

An asset's adjusted book basis and adjusted tax basis convey no information about the asset's fair market value. 

Mr and Mrs Schulte paid a $750,000 lump-sum price to purchase a business. At date of purchase, the appraised FMVs of the balance sheet assets were: Accounts receivable $ 38,000 Inventory 415,000 Fixtures and equipment 147,000 $ 600,000 Which of the following statements is true?

Which of the following statements about the tax treatment of research and experimental expenditures is true? 

D&R Company, a calendar year corporation, purchased $1,116,000 of equipment on August 3. This was D&R's only purchase of depreciable property for the year. If the equipment has a 7-year recovery period, refer to Table 7.2 and compute D&R's first and second-year MACRS depreciation. (Disregard the Section 179 deduction and bonus depreciation in making your calculation.) 

W&F Company, a calendar year taxpayer, purchased a total of $2,034,700 tangible personalty in 2018. How much of this cost can W&F elect to expense under Section 179? 

Which of the following intangible assets is not amortizable for tax purposes? 

Mann Inc., a calendar year taxpayer, incurred $49,640 start-up expenditures during the preoperating phase of a new business venture. The business started operations in November. Mann expensed the $49,640 on its current-year financial statements. Which of the following statements is true? 

Durna Inc., a calendar year taxpayer, made two asset purchases this year. The first purchase was a machine costing $874,000, and the second purchase was equipment costing $660,000. Both assets are 7-year recovery property. Durna placed the machine in service on March 27 and the equipment in service on December 14. How many months of MACRS depreciation is Durna allowed for each asset?  

Song Company, a calendar year taxpayer, purchased a total of $2,534,400 tangible personalty in 2018. How much of this cost can Song elect to expense under Section 179? 

The capitalized cost of tangible leasehold improvements is amortizable over the term of the lease.  

Which of the following expenditures must be capitalized for tax purposes? 

Dorian, a calendar year corporation, purchased $1,568,000 of equipment on May 3. This was Dorian's only purchase of depreciable property for the year. If the equipment has a 10-year recovery period, refer to Table 7.2 and compute Dorian's first and second-year MACRS depreciation. (Disregard the Section 179 deduction and bonus depreciation in making your calculation.) 

KJD Inc., a calendar year corporation, purchased $923,000 of equipment on November 13. This was KJD's only purchase of tangible personalty this year. KJD must use a midquarter convention to compute MACRS depreciation on the equipment. 

A firm must capitalize start-up expenditures of a new business in excess of $5,000 but may deduct expansion costs of an existing business. 

Which of the following statements about the computation of cost of goods sold is true? 

Selkie Inc. paid a $2 million lump sum to purchase a business. According to the contract, the seller of the business is prohibited from engaging in a similar business for 18 months. Selkie allocated $300,000 of the purchase price to this covenant not to compete. Selkie may amortize the $300,000 over 15 years.