Exam 7: Property Acquisitions and Cost Recovery Deductions

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?

Tregor Inc.,which manufactures plastic components,rents equipment on a monthly basis for use in its manufacturing process.The monthly rent is a deductible expense when incurred.

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.

Mann Inc.negotiated a 36-month lease on office space in a new commercial building.Mann paid $19,000 to a local carpenter to construct special-purpose shelving in the rented office.For tax purposes,Mann must:

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.)

Which of the following statements about tax basis is false?

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 this year?

Stanley Inc.,a calendar year taxpayer,purchased a building and placed it in service on June 3.The MACRS depreciation calculation assumes that the building was placed in service on June 15.

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

On November 7,a calendar year business placed in service $900,000 of 3-year recovery property.If this was the only property placed in service during the year,MACRS depreciation is computed using the:

Pyle Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2019.Pyle made one asset purchase: new heating and air conditioning system for existing nonresidential real property at a cost of $1,322,000.The system has a 39-year recovery period and was placed in service on February 9.Assuming that Pyle made the Section 179 election with respect to the acquisition,compute Pyle's 2019 cost recovery deduction.

Elcox Inc.spent $2.3 million on a new advertising campaign this year.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?

Hoopin Oil Inc.was allowed to deduct $5.3 million of intangible drilling and development costs on this year's tax return.Which of the following statements is false?

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: Which of the following statements is true?

Ingol,Inc.was organized on June 1 and began business on September 13.Ingol elected a calendar year for tax purposes.The corporation incurred $60,300 of legal and other professional fees attributable to its formation.How much of these costs can Ingol deduct on its first tax return?

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:

Kemp Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2019.Kemp made one asset purchase: used manufacturing equipment costing $1,543,600.The equipment has a 7-year recovery period and was placed in service on June 14.Assuming that Kemp made the Section 179 election with respect to the equipment,compute Kemp's 2019 cost recovery deduction.

Purchased goodwill is amortizable both for book and tax accounting purposes.

Deitle Inc.manufactures small appliances.This year,Deitle capitalized $3,679,000 indirect costs to inventory for book purposes and $3,865,000 indirect costs to inventory for tax purposes.The consequence of the different accounting methods is a $186,000: