Exam 7: Property Acquisitions and Cost Recovery Deductions

Uqua Inc.purchased a depreciable asset for $189,000.First-year depreciation for book purposes was $22,000,and first-year MACRS depreciation was $37,800.If Uqua's marginal tax rate is 35%,the excess tax depreciation results in a $5,530:

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

Elcox Inc.spent $2.3 million on a new advertising campaign this year.Which of the following statements is true?

Lisle Inc.manufactures small appliances in three plants in the Southeast.Which of the following statements is true?

Conant Company purchased only one item of tangible personalty in 2017.The cost of the item was $2,039,700.Conant can elect to expense $510,000 of this cost.

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?

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?

This year,Zulou Industries capitalized $552,000 indirect costs to inventory for book purposes and $591,600 indirect cost to inventory under unicap.Zulou's cost of goods sold for book purposes was $2,458,000,and its cost of goods sold for tax purposes was $2,707,000.If Zulou has no other book/tax differences,and its book income is $5,000,000,compute Zulou's taxable income.

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?

The MACRS calculation ignores any salvage or residual value of an asset.

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.)

Colby Company performed professional services for M&E Inc.In exchange for the services,M&E gave Colby a 12-month lease on commercial office space.M&E could have charged $4,350 monthly rent for the space on the open market.Compute Colby's tax basis in the lease.

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:

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:

Kassim Company purchased an asset by paying $35,000 cash and giving the seller its 3-year note for $240,000.Which of the following statements is true?

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

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

Lensa Inc.purchased machinery several years ago for $400,000.This year,book depreciation on the machinery was $40,000,MACRS depreciation was $35,720,and Lensa's marginal tax rate is 35%.Which of the following statements is true?

Moses Inc.purchased office furniture for $8,200 plus $492 sales tax and a $150 delivery charge.Which of the following is true?