Question 1

Maxcom Inc. purchased 15 passenger automobiles for use by its sales force. Which of the following statements is true?

Accepted Answer

A) Maxcom must use the straight-line method to depreciate the passenger automobiles for tax purposes. 
B) Maxcom's annual tax depreciation on the passenger automobiles may be limited to an amount less than MACRS depreciation. 
C) Maxcom's annual tax depreciation on the passenger automobiles is computed under MACRS. 
D) Even though Maxcom purchased the automobiles for business use, Maxcom is not allowed any tax depreciation for the automobiles. 
A) Maxcom must use the straight-line method to depreciate the passenger automobiles for tax purposes. 
B) Maxcom's annual tax depreciation on the passenger automobiles may be limited to an amount less than MACRS depreciation. 
C) Maxcom's annual tax depreciation on the passenger automobiles is computed under MACRS. 
D) Even though Maxcom purchased the automobiles for business use, Maxcom is not allowed any tax depreciation for the automobiles.

Question 2

Vane Company, a calendar year taxpayer, incurred the following expenditures in the preoperating phase of a new health and fitness center.   Which of the following statements is true?

Accepted Answer

A) If Vane already operates seven other health and fitness centers, it can deduct the $10,415 preoperating expenditures of the eighth center as expansion costs. 
B) If Vane is a cash basis taxpayer, it can deduct $10,415 in the year of payment. 
C) If the new center represents a new business for Vane, it must capitalize the $10,415 preoperating expenditures. 
D) None of the above is true. 
A) If Vane already operates seven other health and fitness centers, it can deduct the $10,415 preoperating expenditures of the eighth center as expansion costs. 
B) If Vane is a cash basis taxpayer, it can deduct $10,415 in the year of payment. 
C) If the new center represents a new business for Vane, it must capitalize the $10,415 preoperating expenditures. 
D) None of the above is true.

Question 3

Which of the following statements about the depletion deduction is false?

Accepted Answer

A) Firms can deduct the greater of cost depletion or percentage depletion for the year. 
B) Percentage depletion is a tax preference item. 
C) The depletion deduction can never exceed the unrecovered cost basis in the depletable asset. 
D) Percentage depletion is not based on any actual decrease in the expected productive value of a mine or well. 
A) Firms can deduct the greater of cost depletion or percentage depletion for the year. 
B) Percentage depletion is a tax preference item. 
C) The depletion deduction can never exceed the unrecovered cost basis in the depletable asset. 
D) Percentage depletion is not based on any actual decrease in the expected productive value of a mine or well.

Question 4

Uqua Inc. purchased a depreciable asset for $189,000. First-year depreciation for book purposes was $22,000, and first-year MACRS depreciation was $37,800. If Uqua's marginal tax rate is 35%, the excess tax depreciation results in a $5,530:

Accepted Answer

A) Deferred tax asset 
B) Deferred tax liability 
C) Permanent favorable book/tax difference 
D) Permanent unfavorable book/tax difference 
A) Deferred tax asset 
B) Deferred tax liability 
C) Permanent favorable book/tax difference 
D) Permanent unfavorable book/tax difference

Question 5

Richland Company purchased an asset in 2010 for $50,000 and sold it in 2013. The asset was 7-year recovery property. Richland's 2013 MACRS depreciation on the asset was $6,245.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Laven Company, a calendar year taxpayer, purchased a total of $561,240 new depreciable personalty during 2013. Which of the following statements is true?

Accepted Answer

A) Laven can elect to expense $500,000 of the cost.The $61,240 remaining cost is capitalized and subject to 50% bonus and MACRS depreciation. 
B) Laven can elect to expense $500,000 of the cost.The $61,240 remaining cost is capitalized and is not depreciable. 
C) Laven can expense the entire $561,240 cost using 100% bonus depreciation. 
D) The amount of the cost that Laven can elect to expense depends on Laven's 2013 taxable income. 
A) Laven can elect to expense $500,000 of the cost.The $61,240 remaining cost is capitalized and subject to 50% bonus and MACRS depreciation. 
B) Laven can elect to expense $500,000 of the cost.The $61,240 remaining cost is capitalized and is not depreciable. 
C) Laven can expense the entire $561,240 cost using 100% bonus depreciation. 
D) The amount of the cost that Laven can elect to expense depends on Laven's 2013 taxable income.

Question 8

Which of the following statements concerning deductible repair expenses is false?

Accepted Answer

A) The distinction between a repair expense and a capital improvement is clearly defined by the tax law. 
B) Businesses typically incur repair expenses on a regular and recurring basis. 
C) Repair expenses do not substantially increase the value of the repaired asset. 
D) Repair expenses do not substantially increase the useful life of the repaired asset. 
A) The distinction between a repair expense and a capital improvement is clearly defined by the tax law. 
B) Businesses typically incur repair expenses on a regular and recurring basis. 
C) Repair expenses do not substantially increase the value of the repaired asset. 
D) Repair expenses do not substantially increase the useful life of the repaired asset.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Terrance Inc., a calendar year taxpayer, purchased equipment for $2,765,000 and placed it in service on March 4, 2012. The equipment was seven-year recovery property and was the only depreciable asset that Terrance purchased during 2012.
a. Compute Terrance's tax depreciation with respect to the equipment for 2012 and 2013.
b. Compute Terrance's adjusted basis in the equipment in December 31, 2012.
c. How would your answer to a. change if Terrance placed the equipment in service on November 18 instead of March 4?

Accepted Answer

a. Tax depreciation for 2012 is $1,580,0

Question 11

Which of the following statements about amortization deductions is false?

Accepted Answer

A) Amortization deductions result in the recovery of the capitalized cost of an intangible asset. 
B) Amortization is computed ratably (on a straight-line basis) over the asset's determinable life. 
C) Amortization deductions reduce the tax basis of the amortized asset. 
D) None of the above is false. 
A) Amortization deductions result in the recovery of the capitalized cost of an intangible asset. 
B) Amortization is computed ratably (on a straight-line basis) over the asset's determinable life. 
C) Amortization deductions reduce the tax basis of the amortized asset. 
D) None of the above is false.

Question 12

This year, Zulou Industries capitalized $552,000 indirect costs to inventory for book purposes and $591,600 indirect cost to inventory under unicap. Zulou's cost of goods sold for book purposes was $2,458,000, and its cost of goods sold for tax purposes was $2,707,000. If Zulou has no other book/tax differences, and its book income is $5,000,000, compute Zulou's taxable income.

Accepted Answer

A) $4,711,400 
B) $4,751,000 
C) $4,790,600 
D) $5,288,600 
A) $4,711,400 
B) $4,751,000 
C) $4,790,600 
D) $5,288,600

Question 13

Kaskar Company, a calendar year taxpayer, paid $3,350,000 for a residential apartment complex and allocated $350,000 of the cost to the land and $3,000,000 of the cost to the building. Kaskar place the realty in service on September 29. Refer to the appropriate MACRS Table in Chapter 7 to compute Kaskar's first-year depreciation on the realty.

Accepted Answer

A) $31,830 
B) $35,544 
C) $22,470 
D) None of the above 
A) $31,830 
B) $35,544 
C) $22,470 
D) None of the above

Question 14

On April 2, Reid Inc., a calendar year taxpayer, paid a $750,000 lump-sum price to purchase a business. The appraised FMVs of the balance sheet assets were:   Which of the following statements is false?

Accepted Answer

A) Reid must capitalize $150,000 of the cost as purchased goodwill. 
B) Reid may amortize the $150,000 cost for both book and tax purposes. 
C) Reid's amortization deduction for the current year is $7,500. 
D) None of the above is false. 
A) Reid must capitalize $150,000 of the cost as purchased goodwill. 
B) Reid may amortize the $150,000 cost for both book and tax purposes. 
C) Reid's amortization deduction for the current year is $7,500. 
D) None of the above is false.

Question 15

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 16

Kassim Company purchased an asset by paying $35,000 cash and giving the seller its 3-year note for $240,000. Which of the following statements is true?

Accepted Answer

A) Kassim's book basis and tax basis in the asset is $275,000. 
B) Kassim's book basis is $275,000, but its tax basis is $35,000. 
C) Kassim's book basis and tax basis in the asset is $35,000. 
D) If Kassim is a cash basis taxpayer, its initial tax basis in the asset is zero. 
A) Kassim's book basis and tax basis in the asset is $275,000. 
B) Kassim's book basis is $275,000, but its tax basis is $35,000. 
C) Kassim's book basis and tax basis in the asset is $35,000. 
D) If Kassim is a cash basis taxpayer, its initial tax basis in the asset is zero.

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Song Company, a calendar year taxpayer, purchased a total of $2,214,400 tangible personalty in 2013. How much of this cost can Song elect to expense under Section 179?

Accepted Answer

A) -0- 
B) $139,000 
C) $214,400 
D) None of the above 
A) -0- 
B) $139,000 
C) $214,400 
D) None of the above

Question 19

Merkon Inc. must choose between purchasing a new asset for $86,000 or leasing the asset for four years for $27,500 annual rent. The purchased asset would be 3-year recovery property that Merkon could use for four years, after which the asset would have no salvage value. Assuming a 35% tax rate, an 8% discount rate, and no Section 179 deduction or 50% bonus depreciation, which of the following statements is true?

Accepted Answer

A) Merkon's after-tax cost of the purchase is $5,953 less than the after-tax cost of the lease. 
B) Merkon's after-tax cost of the lease is $1,374 less than the after-tax cost of the purchase. 
C) Merkon's after-tax cost of the purchase is $8,226 less than the after-tax cost of the lease. 
D) None of the above 
A) Merkon's after-tax cost of the purchase is $5,953 less than the after-tax cost of the lease. 
B) Merkon's after-tax cost of the lease is $1,374 less than the after-tax cost of the purchase. 
C) Merkon's after-tax cost of the purchase is $8,226 less than the after-tax cost of the lease. 
D) None of the above

Question 20

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.

Accepted Answer

A) True 
 B)False

Maxcom Inc. purchased 15 passenger automobiles for use by its sales force. Which of the following statements is true?

Vane Company, a calendar year taxpayer, incurred the following expenditures in the preoperating phase of a new health and fitness center. Which of the following statements is true?

Which of the following statements about the depletion deduction is false?

Uqua Inc. purchased a depreciable asset for $189,000. First-year depreciation for book purposes was $22,000, and first-year MACRS depreciation was $37,800. If Uqua's marginal tax rate is 35%, the excess tax depreciation results in a $5,530:

Richland Company purchased an asset in 2010 for $50,000 and sold it in 2013. The asset was 7-year recovery property. Richland's 2013 MACRS depreciation on the asset was $6,245.

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

Laven Company, a calendar year taxpayer, purchased a total of $561,240 new depreciable personalty during 2013. Which of the following statements is true?

Which of the following statements concerning deductible repair expenses is false?

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

Which of the following statements about amortization deductions is false?

On April 2, Reid Inc., a calendar year taxpayer, paid a $750,000 lump-sum price to purchase a business. The appraised FMVs of the balance sheet assets were: Which of the following statements is false?

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Kassim Company purchased an asset by paying $35,000 cash and giving the seller its 3-year note for $240,000. Which of the following statements is true?

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.

Song Company, a calendar year taxpayer, purchased a total of $2,214,400 tangible personalty in 2013. How much of this cost can Song elect to expense under Section 179?

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.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters

Exam 7: Property Acquisitions and Cost Recovery Deductions

Maxcom Inc. purchased 15 passenger automobiles for use by its sales force. Which of the following statements is true?

Vane Company, a calendar year taxpayer, incurred the following expenditures in the preoperating phase of a new health and fitness center. Which of the following statements is true?

Which of the following statements about the depletion deduction is false?

Uqua Inc. purchased a depreciable asset for $189,000. First-year depreciation for book purposes was $22,000, and first-year MACRS depreciation was $37,800. If Uqua's marginal tax rate is 35%, the excess tax depreciation results in a $5,530:

Richland Company purchased an asset in 2010 for $50,000 and sold it in 2013. The asset was 7-year recovery property. Richland's 2013 MACRS depreciation on the asset was $6,245.

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

Laven Company, a calendar year taxpayer, purchased a total of $561,240 new depreciable personalty during 2013. Which of the following statements is true?

Which of the following statements concerning deductible repair expenses is false?

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

Which of the following statements about amortization deductions is false?

On April 2, Reid Inc., a calendar year taxpayer, paid a $750,000 lump-sum price to purchase a business. The appraised FMVs of the balance sheet assets were: Which of the following statements is false?

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Kassim Company purchased an asset by paying $35,000 cash and giving the seller its 3-year note for $240,000. Which of the following statements is true?

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.

Song Company, a calendar year taxpayer, purchased a total of $2,214,400 tangible personalty in 2013. How much of this cost can Song elect to expense under Section 179?

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.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters