Question 1

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 2

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.)

Accepted Answer

A) First year $106,889; second year $366,370 
B) First year $106,889; second year $340,193 
C) First year $213,778; second year $183,185 
D) None of the above 
A) First year $106,889; second year $366,370 
B) First year $106,889; second year $340,193 
C) First year $213,778; second year $183,185 
D) None of the above

Question 3

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?

Accepted Answer

A) The deduction is a tax preference for Hoopin. 
B) The deduction minimizes Hoopin's after-tax cost of locating and preparing oil wells for production. 
C) Hoopin was allowed to deduct the costs only because they did not result in any long-term economic benefit. 
D) None of the above is false. 
A) The deduction is a tax preference for Hoopin. 
B) The deduction minimizes Hoopin's after-tax cost of locating and preparing oil wells for production. 
C) Hoopin was allowed to deduct the costs only because they did not result in any long-term economic benefit. 
D) None of the above is false.

Question 4

BriarHill Inc.purchased four items of tangible personalty in 2017 at a total cost of $2,579,000.BriarHill cannot elect to expense any of the cost of the property under Section 179.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) The unicap rules determine the annual costs that firms must capitalize to inventory for tax purposes. 
B) The unicap rules may require capitalization of more indirect costs to inventory for tax purposes than for book purposes. 
C) The unicap rules may result in a book/tax difference for cost of goods sold. 
D) None of the above is false. 
A) The unicap rules determine the annual costs that firms must capitalize to inventory for tax purposes. 
B) The unicap rules may require capitalization of more indirect costs to inventory for tax purposes than for book purposes. 
C) The unicap rules may result in a book/tax difference for cost of goods sold. 
D) None of the above is false.

Question 6

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 7

Hextone Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $14,890,and first-year MACRS depreciation was $27,090.As a result of this book/tax difference,Hextone recorded a $4,270 deferred tax liability.

Accepted Answer

A) True 
 B)False

Question 8

Puloso Company,a calendar year taxpayer,incurred the following start-up expenditures before the opening of its new health and fitness center.     The Puloso Center opened its doors for business on March 21,2017.How much of the start-up expenditures can Puloso deduct in 2017?

Accepted Answer

A) -0- 
B) $5,000 
C) $5,520 
D) $14,360 
A) -0- 
B) $5,000 
C) $5,520 
D) $14,360

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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:

Accepted Answer

A) Capitalize the $7,250 cost as a nonamortizable intangible asset. 
B) Capitalize the $7,250 cost and amortize it over 36 months. 
C) Capitalize the $7,250 cost and depreciate it as 5-year recovery property. 
D) Deduct the $7,250 cost in the year of payment. 
A) Capitalize the $7,250 cost as a nonamortizable intangible asset. 
B) Capitalize the $7,250 cost and amortize it over 36 months. 
C) Capitalize the $7,250 cost and depreciate it as 5-year recovery property. 
D) Deduct the $7,250 cost in the year of payment.

Question 12

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 13

W&F Company,a calendar year taxpayer,purchased a total of $2,034,700 tangible personalty in 2017.How much of this cost can W&F elect to expense under Section 179?

Accepted Answer

A) -0- 
B) $4,700 
C) $505,300 
D) $510,000 
A) -0- 
B) $4,700 
C) $505,300 
D) $510,000

Question 14

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?

Accepted Answer

A) If Vane already operates seven other health and fitness centers,it can deduct the $10,415 preoperating expenditures of the eighth center as expansion costs. 
B) If Vane is a cash basis taxpayer,it can deduct $10,415 in the year of payment. 
C) If the new center represents a new business for Vane,it must capitalize the $10,415 preoperating expenditures. 
D) None of the above is true 
A) If Vane already operates seven other health and fitness centers,it can deduct the $10,415 preoperating expenditures of the eighth center as expansion costs. 
B) If Vane is a cash basis taxpayer,it can deduct $10,415 in the year of payment. 
C) If the new center represents a new business for Vane,it must capitalize the $10,415 preoperating expenditures. 
D) None of the above is true

Question 15

In an inflationary economy,the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory.

Accepted Answer

A) True 
 B)False

Question 16

Essco Inc.,a calendar year taxpayer,made two asset purchases this year.The first purchase was a machine costing $836,000,and the second purchase was equipment costing $494,000.Both assets are 7-year recovery property.Essco placed the machine in service on July 21 and the equipment in service on October 14.How many months of MACRS depreciation is Essco allowed for each asset?

Accepted Answer

A) Essco is allowed six months depreciation for the machine and 1.5 months of depreciation for the equipment. 
B) Essco is allowed 7.5 months depreciation for the machine and 1.5 months of depreciation for the equipment. 
C) Essco is allowed 1.5 months of depreciation for both the machine and the equipment. 
D) Essco is allowed six months of depreciation for both the machine and the equipment. 
A) Essco is allowed six months depreciation for the machine and 1.5 months of depreciation for the equipment. 
B) Essco is allowed 7.5 months depreciation for the machine and 1.5 months of depreciation for the equipment. 
C) Essco is allowed 1.5 months of depreciation for both the machine and the equipment. 
D) Essco is allowed six months of depreciation for both the machine and the equipment.

Question 17

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:

Accepted Answer

A) Mid-month convention 
B) Mid-quarter convention 
C) Mid-year convention 
D) Daily pro-ration method 
A) Mid-month convention 
B) Mid-quarter convention 
C) Mid-year convention 
D) Daily pro-ration method

Question 18

NLT Inc.purchased only one item of tangible personalty in 2017.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.

Accepted Answer

A) True 
 B)False

Question 19

Pyle Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2017.Pyle made one asset purchase: new transportation equipment costing $322,000.The equipment has a 5-year recovery period and was placed in service on February 9.Assuming that Pyle made the Section 179 election with respect to the equipment,compute Pyle's 2017 cost recovery deduction.

Accepted Answer

A) $193,200 
B) $322,000 
C) $64,400 
D) $510,000 
A) $193,200 
B) $322,000 
C) $64,400 
D) $510,000

Question 20

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.)

Accepted Answer

A) First year $156,800; second year $282,240 
B) First year $78,400; second year $282,240 
C) First year $156,800; second year $245,016 
D) None of the above 
A) First year $156,800; second year $282,240 
B) First year $78,400; second year $282,240 
C) First year $156,800; second year $245,016 
D) None of the above

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

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?

BriarHill Inc.purchased four items of tangible personalty in 2017 at a total cost of $2,579,000.BriarHill cannot elect to expense any of the cost of the property under Section 179.

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

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

Hextone Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $14,890,and first-year MACRS depreciation was $27,090.As a result of this book/tax difference,Hextone recorded a $4,270 deferred tax liability.

Puloso Company,a calendar year taxpayer,incurred the following start-up expenditures before the opening of its new health and fitness center. The Puloso Center opened its doors for business on March 21,2017.How much of the start-up expenditures can Puloso deduct in 2017?

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.

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?

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:

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

W&F Company,a calendar year taxpayer,purchased a total of $2,034,700 tangible personalty in 2017.How much of this cost can W&F elect to expense under Section 179?

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?

In an inflationary economy,the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory.

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:

NLT Inc.purchased only one item of tangible personalty in 2017.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.

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

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

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?

BriarHill Inc.purchased four items of tangible personalty in 2017 at a total cost of $2,579,000.BriarHill cannot elect to expense any of the cost of the property under Section 179.

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

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

Hextone Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $14,890,and first-year MACRS depreciation was $27,090.As a result of this book/tax difference,Hextone recorded a $4,270 deferred tax liability.

Puloso Company,a calendar year taxpayer,incurred the following start-up expenditures before the opening of its new health and fitness center. The Puloso Center opened its doors for business on March 21,2017.How much of the start-up expenditures can Puloso deduct in 2017?

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.

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?

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:

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

W&F Company,a calendar year taxpayer,purchased a total of $2,034,700 tangible personalty in 2017.How much of this cost can W&F elect to expense under Section 179?

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?

In an inflationary economy,the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory.

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:

NLT Inc.purchased only one item of tangible personalty in 2017.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.

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