Exam 7: Property Acquisitions and Cost Recovery Deductions

Lisle Inc.manufactures small appliances in three plants in the Southeast.Which of the following statements is true?

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?

Belsap Inc.,a calendar year taxpayer,purchased a total of $590,000 depreciable personalty during May 2019.Which of the following statements is true?

The MACRS calculation ignores any salvage or residual value of an asset.

Lensa Inc.purchased machinery several years ago for $400,000.This year,book depreciation on the machinery was $40,000,MACRS depreciation was $35,720,and Lensa's marginal tax rate is 21%.Which of the following statements is true?

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.

This year,Nigle Inc.'s auditors required the corporation to write down the $1 million book value of purchased goodwill to $850,000.Nigle can deduct the $150,000 impairment expense on this year's tax return.

Which of the following statements about amortization deductions is false?

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

Firms engaged in the extraction of natural resources such as oil,gas,or minerals can deduct the lesser of cost depletion or percentage depletion on their productive wells or mines.

A book/tax difference resulting from application of the unicap rules to manufactured inventory reverses in the year in which the inventory is sold.

If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year,the expenditure must be capitalized.

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

Szabi Inc.,a calendar year taxpayer,purchased two assets during 2019: a machine costing $380,000 and computer equipment costing $403,500.The machine is 7-year recovery property and the computer equipment is 5-year recovery property.Which of the following statements is true?

Environmental clean-up costs are generally deductible in the year incurred.

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

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.

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 21%,the excess tax depreciation results in a $3,318:

In 2018,Rydin Company purchased one asset costing $48,400 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 2019,Rydin purchased tangible personalty costing $990,000.Rydin's taxable income without regard to any Section 179 deduction was $1,912,400.Compute Rydin's 2019 Section 179 deduction.

The difference between the before-tax cost and after-tax cost of an asset equals the net present value of the tax savings from any cost recovery deductions with respect to the asset.