Exam 7: Property Acquisitions and Cost Recovery Deductions

NLT Inc.purchased only one item of tangible personalty in 2019.The cost of the item was $24,000.NLT's taxable income before any Section 179 deduction was $7,100.NLT can elect Section 179 for only $7,100 of the cost of the property.

Mann Inc.paid $7,250 to a leasing agent to negotiate Mann's 36-month lease for 18,000 square feet of space in a new commercial building.For tax purposes,Mann must:

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

Which of the following statements about the uniform capitalization (unicap)rules is false?

Pettit Company purchased heavy equipment by giving the seller a $30,000 cash down payment and a 5-year interest-bearing note for the $170,000 balance of the price.Compute Pettit's book basis and tax basis in the equipment.

JebSim Inc.was organized on June 1 and began business on August 10.JebSim elected a calendar year for tax purposes.The corporation incurred $25,160 of legal and other professional fees attributable to its formation.How much of these costs can JebSim deduct on its first tax return?

Gowda Inc.,a calendar year taxpayer,purchased $1,496,000 of equipment on March 23.This was Gowda's only purchase of depreciable property for the year.If the equipment has a 7-year recovery period,refer to Table 7.2 and compute Gowda's first and second-year MACRS depreciation.(Disregard the Section 179 deduction and bonus depreciation in making your calculation.)

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.

Song Company,a calendar year taxpayer,purchased a total of $2,574,400 tangible personalty in 2019.How much of this cost can Song elect to expense under Section 179?

D&R Company,a calendar year corporation,purchased $1,116,000 of equipment on August 3.This was D&R's only purchase of depreciable property for the year.If the equipment has a 7-year recovery period,refer to Table 7.2 and compute D&R's first and second-year MACRS depreciation.(Disregard the Section 179 deduction and bonus depreciation in making your calculation.)

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?

Marz Inc.made a $75,000 cash expenditure this year (year 0).Use Appendix A of your textbook provided to compute the after-tax cost if Marz must capitalize the expenditure and amortize it ratably over three years,beginning in year 0.Marz has a 21% marginal tax rate and uses a 7% discount rate.

Driller Inc.has $498,200 of unrecovered capitalized costs in Well #83.This year,cost depletion on the well is $356,000.Which of the following statements is true?

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

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.

WR&Z Company,a calendar year taxpayer,paid $6,400,000 for a commercial office building and allocated $400,000 of the cost to the land and $6,000,000 of the cost to the building.WR&Z place the realty in service on May 11.Refer to the appropriate MACRS Table in Chapter 7 to compute WR&Z's first-year depreciation on the realty.