Exam 7: Property Acquisitions and Cost Recovery Deductions

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

Norwell Company purchased $1,413,200 of new business equipment on July 10,2017.This was Norwell's only asset purchase for its 2017 taxable year.Compute Norwell's total tax depreciation deduction for this 7-year recovery property.

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?

The uniform capitalization rules generally allow many indirect costs that were capitalized to inventory for financial statement purposes to be expensed and deducted for tax purposes.

Follen Company is a calendar year taxpayer.On September 1,Follen signed a 24-month lease on 3,800 square feet of commercial office space.Follen paid a $2,580 fee to the real estate agent who located the space and negotiated the lease.It also paid $10,925 to rewire the space to conform to its computing and other electrical requirements.The rewiring qualifies as five-year recovery property.Compute Follen's first-year cost recovery deductions relating to the lease space.

Which of the following statements concerning business goodwill is false?

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

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.

Kemp Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2017.Kemp made one asset purchase: manufacturing equipment costing $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 2017 cost recovery deduction.

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?

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.

Which of the following statements about the computation of cost of goods sold 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 2017.Broadus' taxable income without regard to a Section 179 deduction was $92,600.Which of the following statements is true?

Creighton,a calendar year corporation,reported $5,571,000 net income before tax on its financial statements prepared in accordance with GAAP.The corporate records reveal the following information. Creighton's depreciation expense per books was $40,980,and its MACRS depreciation deduction was $77,270. Creighton capitalized $32,670 indirect expenses to manufactured inventory for book purposes and $48,020 indirect expenses to manufactured inventory under the unicap tax rules. Creighton's cost of goods sold for book purposes was $1,093,800,and its cost of goods sold for tax purposes was $1,107,200. Creighton purchased a competitor's business on May 1 and allocated $468,000 to the business' goodwill. Compute Creighton's taxable income.

Research and experimental expenditures are not deductible if they result in the development of a patented formula or process.

On May 1,Sessi Inc.,a calendar year corporation,purchased a business for a $2 million lump-sum price.The business' balance sheet assets had the following appraised FMV. a.Compute the cost basis of the goodwill acquired by Sessi Inc.on the purchase of this business. b.Compute Sessi's goodwill amortization deduction for the year of purchase. c.Use a 35 percent tax rate to compute Sessi's deferred tax liability resulting from the amortization deduction.

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.

Inger Associates,which manufactures plastic containers,recently sold 12,000 containers to R&A Inc.The selling price per container was $18.R&A paid for the containers by transferring 864 shares of its common stock to Inger.On date of payment,R&A stock was selling on Nasdaq at $250 per share.Compute Inger's tax basis in the R&A stock.

In 2016,Rydin Company purchased one asset costing $38,400 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 2017,Rydin purchased tangible personalty costing $80,000.Rydin's taxable income without regard to any Section 179 deduction was $912,400.Compute Rydin's 2017 Section 179 deduction.