Question 1

The expense of adapting an existing asset to a new or different use must be capitalized to the cost of the asset for tax purposes.

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

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 4

Richland Company purchased an asset in 2016 for $50,000 and sold it in 2019.The asset was 7-year recovery property.Richland's 2019 MACRS depreciation on the asset was $6,245.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements about MACRS is false?

Accepted Answer

A) Depreciable assets are assumed to have no residual or salvage value. 
B) Every depreciable asset is assigned to one of ten recovery periods. 
C) Allowable depreciation methods are based on the assets assigned recovery period. 
D) None of the above is false. 
A) Depreciable assets are assumed to have no residual or salvage value. 
B) Every depreciable asset is assigned to one of ten recovery periods. 
C) Allowable depreciation methods are based on the assets assigned recovery period. 
D) None of the above is false.

Question 6

Kigin Company spent $240,000 to clean up hazardous waste that had contaminated land used in Kigin's business.Which of the following statements is true?

Accepted Answer

A) Kigin must capitalize the $240,000 expenditure to the cost of the land. 
B) If Kigin purchased the land in an uncontaminated state,it can deduct the $240,000 because the expenditure is merely returning the land to its original condition. 
C) Kigin can deduct the $240,000 as a repair expense. 
D) None of the above is true. 
A) Kigin must capitalize the $240,000 expenditure to the cost of the land. 
B) If Kigin purchased the land in an uncontaminated state,it can deduct the $240,000 because the expenditure is merely returning the land to its original condition. 
C) Kigin can deduct the $240,000 as a repair expense. 
D) None of the above is true.

Question 7

Jaboy Inc.was incorporated three years ago.In its first year,Jaboy capitalized $72,000 organizational and start-up costs for tax purposes.However,it expensed these costs for financial statement purposes.Which of the following statements is true?

Accepted Answer

A) As a result of the accounting difference three years ago,Jaboy has a $4,800 favorable book/tax difference in the current year. 
B) As a result of the accounting difference three years ago,Jaboy has a $4,800 unfavorable book/tax difference in the current year. 
C) The accounting difference three years ago has no book/tax consequence in the current year. 
D) None of the above is true. 
A) As a result of the accounting difference three years ago,Jaboy has a $4,800 favorable book/tax difference in the current year. 
B) As a result of the accounting difference three years ago,Jaboy has a $4,800 unfavorable book/tax difference in the current year. 
C) The accounting difference three years ago has no book/tax consequence in the current year. 
D) None of the above is true.

Question 8

Repair costs incurred to keep a tangible asset in good working order must be capitalized to the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 9

Norwell Company purchased $1,413,200 of new business equipment on July 10,2019.This was Norwell's only asset purchase for its 2019 taxable year.Compute Norwell's total tax depreciation deduction for this 7-year recovery property.

Accepted Answer

A) $1,413,200 
B) $201,946 
C) $1,021,848 
D) $1,026,134 
A) $1,413,200 
B) $201,946 
C) $1,021,848 
D) $1,026,134

Question 10

Which of the following capitalized cost is not amortizable for tax purposes?

Accepted Answer

A) Purchase cost of a partnership interest 
B) Purchase cost of business goodwill 
C) Leasehold cost 
D) Purchase cost of a patent 
A) Purchase cost of a partnership interest 
B) Purchase cost of business goodwill 
C) Leasehold cost 
D) Purchase cost of a patent

Question 11

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 12

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2019.Which of the following statements is true?

Accepted Answer

A) Laven can elect to expense $561,240 of the cost with a Section 179 deduction. 
B) Laven can elect to expense $510,000 of the cost.The $51,240 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 2017 taxable income. 
A) Laven can elect to expense $561,240 of the cost with a Section 179 deduction. 
B) Laven can elect to expense $510,000 of the cost.The $51,240 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 2017 taxable income.

Question 13

For tax purposes,the cost basis of an asset does not include any portion of the purchase price paid through debt financing.

Accepted Answer

A) True 
 B)False

Question 14

Firms are allowed to deduct percentage depletion with respect to a productive asset even if the adjusted tax basis of the asset is zero.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements concerning business goodwill is false?

Accepted Answer

A) If a business creates goodwill by developing a loyal customer base and generating brand name recognition,the tax basis in the goodwill is zero. 
B) When a taxpayer purchases a business and capitalizes the cost allocated to goodwill,the cost basis is not amortized for financial reporting purposes. 
C) When a taxpayer purchases a business and capitalizes the cost allocated to goodwill,the cost basis may be amortized over 15 years for tax purposes. 
D) The tax deduction for goodwill amortization is an unfavorable book/tax difference. 
A) If a business creates goodwill by developing a loyal customer base and generating brand name recognition,the tax basis in the goodwill is zero. 
B) When a taxpayer purchases a business and capitalizes the cost allocated to goodwill,the cost basis is not amortized for financial reporting purposes. 
C) When a taxpayer purchases a business and capitalizes the cost allocated to goodwill,the cost basis may be amortized over 15 years for tax purposes. 
D) The tax deduction for goodwill amortization is an unfavorable book/tax difference.

Question 16

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 17

Burton Company acquired new machinery by performing professional services worth $8,250 for the seller of the machinery.Burton's tax basis in the machinery is $8,250.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements concerning MACRS depreciation is true?

Accepted Answer

A) MACRS depreciation for the year in which an asset is placed in service or sold is based on the number of days the asset was used in the year. 
B) MACRS depreciation for buildings is not accelerated but is computed using the straight-line method. 
C) The recovery period under MACRS is based on the estimated useful life of the particular asset under consideration. 
D) Salvage value is taken into account in computing MACRS depreciation. 
A) MACRS depreciation for the year in which an asset is placed in service or sold is based on the number of days the asset was used in the year. 
B) MACRS depreciation for buildings is not accelerated but is computed using the straight-line method. 
C) The recovery period under MACRS is based on the estimated useful life of the particular asset under consideration. 
D) Salvage value is taken into account in computing MACRS depreciation.

Question 19

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 20

Broadus,a calendar year taxpayer,purchased a total of $128,300 tangible personalty in 2019.Broadus' taxable income without regard to a Section 179 deduction was $92,600.Which of the following statements is true?

Accepted Answer

A) Broadus can elect to expense only $92,600 of the cost of the personalty under Section 179. 
B) Broadus can elect to expense the $128,300 cost of the personalty under Section 179 but can deduct only $92,600 of the expense. 
C) Broadus can elect to expense only $35,700 of the cost of the personalty under Section 179. 
D) Broadus can elect to expense the $128,300 cost of the personalty under Section 179 but can deduct only $35,700 of the expense. 
A) Broadus can elect to expense only $92,600 of the cost of the personalty under Section 179. 
B) Broadus can elect to expense the $128,300 cost of the personalty under Section 179 but can deduct only $92,600 of the expense. 
C) Broadus can elect to expense only $35,700 of the cost of the personalty under Section 179. 
D) Broadus can elect to expense the $128,300 cost of the personalty under Section 179 but can deduct only $35,700 of the expense.

The expense of adapting an existing asset to a new or different use must be capitalized to the cost of the asset for tax purposes.

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

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

Richland Company purchased an asset in 2016 for $50,000 and sold it in 2019.The asset was 7-year recovery property.Richland's 2019 MACRS depreciation on the asset was $6,245.

Which of the following statements about MACRS is false?

Kigin Company spent $240,000 to clean up hazardous waste that had contaminated land used in Kigin's business.Which of the following statements is true?

Jaboy Inc.was incorporated three years ago.In its first year,Jaboy capitalized $72,000 organizational and start-up costs for tax purposes.However,it expensed these costs for financial statement purposes.Which of the following statements is true?

Repair costs incurred to keep a tangible asset in good working order must be capitalized to the cost of the asset.

Norwell Company purchased $1,413,200 of new business equipment on July 10,2019.This was Norwell's only asset purchase for its 2019 taxable year.Compute Norwell's total tax depreciation deduction for this 7-year recovery property.

Which of the following capitalized cost is not amortizable for tax purposes?

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

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2019.Which of the following statements is true?

For tax purposes,the cost basis of an asset does not include any portion of the purchase price paid through debt financing.

Firms are allowed to deduct percentage depletion with respect to a productive asset even if the adjusted tax basis of the asset is zero.

Which of the following statements concerning business goodwill is false?

Burton Company acquired new machinery by performing professional services worth $8,250 for the seller of the machinery.Burton's tax basis in the machinery is $8,250.

Which of the following statements concerning MACRS depreciation is true?

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

Broadus,a calendar year taxpayer,purchased a total of $128,300 tangible personalty in 2019.Broadus' taxable income without regard to a Section 179 deduction was $92,600.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

The expense of adapting an existing asset to a new or different use must be capitalized to the cost of the asset for tax purposes.

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

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

Richland Company purchased an asset in 2016 for $50,000 and sold it in 2019.The asset was 7-year recovery property.Richland's 2019 MACRS depreciation on the asset was $6,245.

Which of the following statements about MACRS is false?

Kigin Company spent $240,000 to clean up hazardous waste that had contaminated land used in Kigin's business.Which of the following statements is true?

Jaboy Inc.was incorporated three years ago.In its first year,Jaboy capitalized $72,000 organizational and start-up costs for tax purposes.However,it expensed these costs for financial statement purposes.Which of the following statements is true?

Repair costs incurred to keep a tangible asset in good working order must be capitalized to the cost of the asset.

Norwell Company purchased $1,413,200 of new business equipment on July 10,2019.This was Norwell's only asset purchase for its 2019 taxable year.Compute Norwell's total tax depreciation deduction for this 7-year recovery property.

Which of the following capitalized cost is not amortizable for tax purposes?

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

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2019.Which of the following statements is true?

For tax purposes,the cost basis of an asset does not include any portion of the purchase price paid through debt financing.

Firms are allowed to deduct percentage depletion with respect to a productive asset even if the adjusted tax basis of the asset is zero.

Which of the following statements concerning business goodwill is false?

Burton Company acquired new machinery by performing professional services worth $8,250 for the seller of the machinery.Burton's tax basis in the machinery is $8,250.

Which of the following statements concerning MACRS depreciation is true?

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

Broadus,a calendar year taxpayer,purchased a total of $128,300 tangible personalty in 2019.Broadus' taxable income without regard to a Section 179 deduction was $92,600.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