Question 1

MACRS depreciation for buildings is based on the straight-line method.

Accepted Answer

A) True 
 B)False

Question 2

The after-tax cost of an expenditure is minimized when the expenditure is deductible in the current year.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about tax basis is false?

Accepted Answer

A)  The tax basis in an asset can never be negative. 
B)  Tax basis represents the taxpayer's unrecovered dollars invested in the asset. 
C)  Tax basis reflects the asset's fair market value. 
D)  Every asset owned by the taxpayer has a tax basis. 
A)  The tax basis in an asset can never be negative. 
B)  Tax basis represents the taxpayer's unrecovered dollars invested in the asset. 
C)  Tax basis reflects the asset's fair market value. 
D)  Every asset owned by the taxpayer has a tax basis.

Question 4

In 2014, Rydin Company purchased one asset costing $38,400 and elected to expense the entire cost. However, Rydin could only deduct $21,000 of the Section 179 expense because of the taxable income limitation. In 2015, Rydin purchased tangible personalty costing $80,000. Rydin's taxable income without regard to any Section 179 deduction was $912,400. Compute Rydin's 2015 Section 179 deduction.

Accepted Answer

A)  $17,400 
B)  $25,000 
C)  $42,400 
D)  $0 
A)  $17,400 
B)  $25,000 
C)  $42,400 
D)  $0

Question 5

Song Company, a calendar year taxpayer, purchased a total of $214,400 tangible personalty in 2015. How much of this cost can Song elect to expense under Section 179?

Accepted Answer

A)  -0- 
B)  $25,000 
C)  $214,400 
D)  None of the above 
A)  -0- 
B)  $25,000 
C)  $214,400 
D)  None of the above

Question 6

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5. Which of the following statements is false?

Accepted Answer

A)  Shelley must allocate the purchase price between the non-depreciable land and the depreciable building. 
B)  Shelley is allowed one half-year of MACRS depreciation with respect to the apartment building this year. 
C)  MACRS depreciation on the building is computed under the straight-line method. 
D)  None of the above statements is false. 
A)  Shelley must allocate the purchase price between the non-depreciable land and the depreciable building. 
B)  Shelley is allowed one half-year of MACRS depreciation with respect to the apartment building this year. 
C)  MACRS depreciation on the building is computed under the straight-line method. 
D)  None of the above statements is false.

Question 7

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 8

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

Accepted Answer

A)  Poole must capitalize the expenditure if it creates a new asset that the company can use for the next four years. 
B)  Poole must capitalize the expenditure if it extends the estimated useful life of an existing asset by three years. 
C)  Poole must capitalize the expenditure if it results in a long-term economic benefit to the company. 
D)  None of the above is false. 
A)  Poole must capitalize the expenditure if it creates a new asset that the company can use for the next four years. 
B)  Poole must capitalize the expenditure if it extends the estimated useful life of an existing asset by three years. 
C)  Poole must capitalize the expenditure if it results in a long-term economic benefit to the company. 
D)  None of the above is false.

Question 9

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 10

Zola Inc. paid a $10,000 legal fee to the attorney who resolved a dispute over Zola's title to investment land. Zola's auditors required the corporation to expense the payment for financial statement purposes. The tax law required Zola to capitalize the payment to the basis of the land. This difference in accounting treatment results in a:

Accepted Answer

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

Question 11

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 12

Cobly Company, a calendar year taxpayer, made only one asset purchase this year: machinery costing $1,932,500. The machinery is 7-year recovery property, and Cobly placed it in service on October 12. How many months of MACRS depreciation on the machinery is Cobly allowed?

Accepted Answer

A)  Six months 
B)  Two and one-half months 
C)  One and one-half months 
D)  None of the above 
A)  Six months 
B)  Two and one-half months 
C)  One and one-half months 
D)  None of the above

Question 13

Terrance Inc., a calendar year taxpayer, purchased equipment for $2,765,000 and placed it in service on March 4, 2015. The equipment was seven-year recovery property and was the only depreciable asset that Terrance purchased during 2015.
a. Compute Terrance's tax depreciation with respect to the equipment for 2015 and 2016.
b. Compute Terrance's adjusted basis in the equipment in December 31, 2016.
c. How would your answer to a. change if Terrance placed the equipment in service in 2014 instead of 2015?

Accepted Answer

a. Tax depreciation for 2015 is $395,119

Question 14

Richland Company purchased an asset in 2012 for $50,000 and sold it in 2015. The asset was 7-year recovery property. Richland's 2015 MACRS depreciation on the asset was $6,245.

Accepted Answer

A) True 
 B)False

Question 15

Mallow Inc., which has a 35% tax rate, purchased a new business asset. First-year book depreciation was $37,225, and first-year MACRS depreciation was $55,025. As a result of this book/tax difference, Mallow recorded a $6,230 deferred tax asset.

Accepted Answer

A) True 
 B)False

Question 16

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 17

The MACRS calculation is based on the estimated useful life of the depreciable asset.

Accepted Answer

A) True 
 B)False

Question 18

Four years ago, Bettis Inc. paid a $5 million lump-sum price to purchase a business. Bettis allocated $600,000 of the price to goodwill. This year, Bettis' auditors required Bettis to write the goodwill down to $500,000 and record a $100,000 impairment expense. Because of the accounting treatment of goodwill, Bettis has a current:

Accepted Answer

A)  $60,000 unfavorable temporary book/tax difference 
B)  $100,000 unfavorable temporary book/tax difference 
C)  $100,000 unfavorable permanent book/tax difference 
D)  $40,000 favorable temporary book/tax difference 
A)  $60,000 unfavorable temporary book/tax difference 
B)  $100,000 unfavorable temporary book/tax difference 
C)  $100,000 unfavorable permanent book/tax difference 
D)  $40,000 favorable temporary book/tax difference

Question 19

Research and experimental expenditures are not deductible if they result in the development of a patented formula or process.

Accepted Answer

A) True 
 B)False

Question 20

Mr. and Mrs. Carleton founded Carleton Industries in 1993. This year, an independent appraiser placed a $25 million value on Carleton's business; $5 million of the value was attributable to unrecorded goodwill. Which of the following statements is true?

Accepted Answer

A)  Mr. and Mrs. Carleton are allowed to amortize the $5 million value of their business goodwill over 15 years. 
B)  Mr. and Mrs. Carleton have a zero tax basis in their business goodwill. 
C)  Mr. and Mrs. Carleton cannot amortize the $5 million value of their business goodwill because it is an intangible asset with an indeterminable life. 
D)  None of the above is true. 
A)  Mr. and Mrs. Carleton are allowed to amortize the $5 million value of their business goodwill over 15 years. 
B)  Mr. and Mrs. Carleton have a zero tax basis in their business goodwill. 
C)  Mr. and Mrs. Carleton cannot amortize the $5 million value of their business goodwill because it is an intangible asset with an indeterminable life. 
D)  None of the above is true.

MACRS depreciation for buildings is based on the straight-line method.

The after-tax cost of an expenditure is minimized when the expenditure is deductible in the current year.

Which of the following statements about tax basis is false?

Song Company, a calendar year taxpayer, purchased a total of $214,400 tangible personalty in 2015. How much of this cost can Song elect to expense under Section 179?

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5. Which of the following statements 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?

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.

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.

Cobly Company, a calendar year taxpayer, made only one asset purchase this year: machinery costing $1,932,500. The machinery is 7-year recovery property, and Cobly placed it in service on October 12. How many months of MACRS depreciation on the machinery is Cobly allowed?

Richland Company purchased an asset in 2012 for $50,000 and sold it in 2015. The asset was 7-year recovery property. Richland's 2015 MACRS depreciation on the asset was $6,245.

Mallow Inc., which has a 35% tax rate, purchased a new business asset. First-year book depreciation was $37,225, and first-year MACRS depreciation was $55,025. As a result of this book/tax difference, Mallow recorded a $6,230 deferred tax asset.

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:

The MACRS calculation is based on the estimated useful life of the depreciable asset.

Research and experimental expenditures are not deductible if they result in the development of a patented formula or process.

Mr. and Mrs. Carleton founded Carleton Industries in 1993. This year, an independent appraiser placed a $25 million value on Carleton's business; $5 million of the value was attributable to unrecorded goodwill. Which of the following statements is true?

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

Filters

Exam 7: Property Acquisitions and Cost Recovery Deductions

MACRS depreciation for buildings is based on the straight-line method.

The after-tax cost of an expenditure is minimized when the expenditure is deductible in the current year.

Which of the following statements about tax basis is false?

Song Company, a calendar year taxpayer, purchased a total of $214,400 tangible personalty in 2015. How much of this cost can Song elect to expense under Section 179?

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5. Which of the following statements 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?

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.

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.

Cobly Company, a calendar year taxpayer, made only one asset purchase this year: machinery costing $1,932,500. The machinery is 7-year recovery property, and Cobly placed it in service on October 12. How many months of MACRS depreciation on the machinery is Cobly allowed?

Richland Company purchased an asset in 2012 for $50,000 and sold it in 2015. The asset was 7-year recovery property. Richland's 2015 MACRS depreciation on the asset was $6,245.

Mallow Inc., which has a 35% tax rate, purchased a new business asset. First-year book depreciation was $37,225, and first-year MACRS depreciation was $55,025. As a result of this book/tax difference, Mallow recorded a $6,230 deferred tax asset.

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:

The MACRS calculation is based on the estimated useful life of the depreciable asset.

Research and experimental expenditures are not deductible if they result in the development of a patented formula or process.

Mr. and Mrs. Carleton founded Carleton Industries in 1993. This year, an independent appraiser placed a $25 million value on Carleton's business; $5 million of the value was attributable to unrecorded goodwill. Which of the following statements is true?

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

Filters