Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

Mann Inc.,a calendar year taxpayer,incurred $49,640 start-up expenditures during the preoperating phase of a new business venture.The business started operations in November.Mann expensed the $49,640 on its current-year financial statements.Which of the following statements is true?

Accepted Answer

A) The start-up expenditures resulted in a $49,640 unfavorable book/tax difference. 
B) The start-up expenditures resulted in a $44,144 unfavorable book/tax difference. 
C) The start-up expenditures resulted in a $49,640 favorable book/tax difference. 
D) The start-up expenditures did not result in a book/tax difference. 
A) The start-up expenditures resulted in a $49,640 unfavorable book/tax difference. 
B) The start-up expenditures resulted in a $44,144 unfavorable book/tax difference. 
C) The start-up expenditures resulted in a $49,640 favorable book/tax difference. 
D) The start-up expenditures did not result in a book/tax difference.

Question 3

Which of the following statements about tax basis is false?

Accepted Answer

A) The tax basis in an asset can never be negative. 
B) Tax basis represents the taxpayer's unrecovered dollars invested in the asset. 
C) Tax basis reflects the asset's fair market value. 
D) Every asset owned by the taxpayer has a tax basis. 
A) The tax basis in an asset can never be negative. 
B) Tax basis represents the taxpayer's unrecovered dollars invested in the asset. 
C) Tax basis reflects the asset's fair market value. 
D) Every asset owned by the taxpayer has a tax basis.

Question 4

Maxcom Inc.purchased 15 passenger automobiles for use by its sales force.Which of the following statements is true?

Accepted Answer

A) Maxcom must use the straight-line method to depreciate the passenger automobiles for tax purposes. 
B) Maxcom's annual tax depreciation on the passenger automobiles may be limited to an amount less than MACRS depreciation. 
C) Maxcom's annual tax depreciation on the passenger automobiles is computed under MACRS. 
D) Even though Maxcom purchased the automobiles for business use,Maxcom is not allowed any tax depreciation for the automobiles. 
A) Maxcom must use the straight-line method to depreciate the passenger automobiles for tax purposes. 
B) Maxcom's annual tax depreciation on the passenger automobiles may be limited to an amount less than MACRS depreciation. 
C) Maxcom's annual tax depreciation on the passenger automobiles is computed under MACRS. 
D) Even though Maxcom purchased the automobiles for business use,Maxcom is not allowed any tax depreciation for the automobiles.

Question 5

Ferelli Inc.is a calendar year taxpayer.On September 1,Ferelli signed a 24-month lease on 3,600 square feet of commercial office space and paid a $3,240 fee to the agent who located the space and negotiated the lease.Ferelli paid $5,900 to install new overhead lighting in the office space.The lighting is 7-year recovery property.Compute Ferelli's current-year cost recovery deduction with respect to the $9,140 costs associated with the office space.

Accepted Answer

A) $540 
B) $843 
C) $1,523 
D) $1,383 
A) $540 
B) $843 
C) $1,523 
D) $1,383

Question 6

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?

Accepted Answer

A) -0- 
B) $699 
C) $5,000 
D) $5,560 
A) -0- 
B) $699 
C) $5,000 
D) $5,560

Question 7

Pratt Inc.reported $198,300 book depreciation on its financial statements and deducted $256,000 MACRS depreciation on its tax return.As a result,Pratt has a $57,800:

Accepted Answer

A) Unfavorable permanent book/tax difference 
B) Favorable permanent book/tax difference 
C) Unfavorable temporary book/tax difference 
D) Favorable temporary book/tax difference 
A) Unfavorable permanent book/tax difference 
B) Favorable permanent book/tax difference 
C) Unfavorable temporary book/tax difference 
D) Favorable temporary book/tax difference

Question 8

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.

Accepted Answer

A) Book basis $30,000; tax basis $170,000 
B) Book and tax basis $200,000 
C) Book basis $200,000; tax basis $30,000 
D) Book and tax basis $30,000 
A) Book basis $30,000; tax basis $170,000 
B) Book and tax basis $200,000 
C) Book basis $200,000; tax basis $30,000 
D) Book and tax basis $30,000

Question 9

If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year,the expenditure must be capitalized.

Accepted Answer

A) True 
 B)False

Question 10

Richland Company purchased an asset in 2014 for $50,000 and sold it in 2017.The asset was 7-year recovery property.Richland's 2017 MACRS depreciation on the asset was $6,245.

Accepted Answer

A) True 
 B)False

Question 11

A basic premise of federal income tax law is that an expense is deductible unless the Internal Revenue Code specifically prohibits the deduction.

Accepted Answer

A) True 
 B)False

Question 12

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements about amortization deductions is false?

Accepted Answer

A) Amortization deductions result in the recovery of the capitalized cost of an intangible asset. 
B) Amortization is computed ratably (on a straight-line basis)over the asset's determinable life. 
C) Amortization deductions reduce the tax basis of the amortized asset. 
D) None of the above is false. 
A) Amortization deductions result in the recovery of the capitalized cost of an intangible asset. 
B) Amortization is computed ratably (on a straight-line basis)over the asset's determinable life. 
C) Amortization deductions reduce the tax basis of the amortized asset. 
D) None of the above is false.

Question 14

Stanley Inc.,a calendar year taxpayer,purchased a building and placed it in service on June 12.The MACRS depreciation calculation assumes that the building was placed in service on May 15 (midquarter).

Accepted Answer

A) True 
 B)False

Question 15

Elakin Inc.,a calendar year taxpayer,paid $1,339,000 for new machinery (seven-year recovery property)placed in service on August 29,2017.The machinery was Elakin's only asset purchase during 2017,and Elakin's taxable income before any Section 179 deduction was $14 million.
a.Compute Elakin's 2017 cost recovery deduction with respect to the machinery.
b.How would your answer change if the cost of the machinery was $2,150,000 instead of $1,339,000?
c.How would your answer to a.change if Elakin's taxable income before any Section 179 deduction was $281,400 instead of $14 million?

Accepted Answer

a.Elakin can elect to expense $510,000 o

Question 16

MACRS depreciation for buildings is based on the straight-line method.

Accepted Answer

A) True 
 B)False

Question 17

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5.Which of the following statements is false?

Accepted Answer

A) Shelley must allocate the purchase price between the non-depreciable land and the depreciable building. 
B) Shelley is allowed one half-year of MACRS depreciation with respect to the apartment building this year. 
C) MACRS depreciation on the building is computed under the straight-line method. 
D) None of the above statements is false. 
A) Shelley must allocate the purchase price between the non-depreciable land and the depreciable building. 
B) Shelley is allowed one half-year of MACRS depreciation with respect to the apartment building this year. 
C) MACRS depreciation on the building is computed under the straight-line method. 
D) None of the above statements is false.

Question 18

B&P Inc.,a calendar year corporation,purchased only one operating asset during 2017: $599,900 of used computer equipment (5-year recovery property)placed in service on March 18.Assuming that B&P makes a Section 179 election,compute B&P's adjusted tax basis in the property at the end of 2017.

Accepted Answer

A) $99,900 
B) $71,920 
C) $79,920 
D) $0 
A) $99,900 
B) $71,920 
C) $79,920 
D) $0

Question 19

Terrance Inc.,a calendar year taxpayer,purchased used equipment for $2,765,000 and placed it in service on March 4,2017.The equipment was seven-year recovery property and was the only depreciable asset that Terrance purchased during 2017.
a.Compute Terrance's tax depreciation with respect to the equipment for 2017 and 2018.
b.Compute Terrance's adjusted basis in the equipment on December 31,2018.
c.How would your answer to a.change if the equipment was new instead of used?

Accepted Answer

a.Tax depreciation for 2017 is $395,119

Question 20

Belsap Inc.,a calendar year taxpayer,purchased a total of $590,000 depreciable personalty during May 2017.Which of the following statements is true?

Accepted Answer

A) Belsap can elect to expense 100% of the cost. 
B) The amount of cost that Belsap can elect to expense depends on Belsap's 2017 taxable income. 
C) Belsap can elect to expense $510,000 of the cost.The $80,000 remaining cost is capitalized and subject to MACRS depreciation. 
D) Belsap can elect to expense $510,000 of the cost.The $80,000 remaining cost is capitalized and is not depreciable. 
A) Belsap can elect to expense 100% of the cost. 
B) The amount of cost that Belsap can elect to expense depends on Belsap's 2017 taxable income. 
C) Belsap can elect to expense $510,000 of the cost.The $80,000 remaining cost is capitalized and subject to MACRS depreciation. 
D) Belsap can elect to expense $510,000 of the cost.The $80,000 remaining cost is capitalized and is not depreciable.

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.

Mann Inc.,a calendar year taxpayer,incurred $49,640 start-up expenditures during the preoperating phase of a new business venture.The business started operations in November.Mann expensed the $49,640 on its current-year financial statements.Which of the following statements is true?

Which of the following statements about tax basis is false?

Maxcom Inc.purchased 15 passenger automobiles for use by its sales force.Which of the following statements is true?

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?

Pratt Inc.reported $198,300 book depreciation on its financial statements and deducted $256,000 MACRS depreciation on its tax return.As a result,Pratt has a $57,800:

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.

If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year,the expenditure must be capitalized.

Richland Company purchased an asset in 2014 for $50,000 and sold it in 2017.The asset was 7-year recovery property.Richland's 2017 MACRS depreciation on the asset was $6,245.

A basic premise of federal income tax law is that an expense is deductible unless the Internal Revenue Code specifically prohibits the deduction.

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Which of the following statements about amortization deductions is false?

Stanley Inc.,a calendar year taxpayer,purchased a building and placed it in service on June 12.The MACRS depreciation calculation assumes that the building was placed in service on May 15 (midquarter).

MACRS depreciation for buildings is based on the straight-line method.

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5.Which of the following statements is false?

B&P Inc.,a calendar year corporation,purchased only one operating asset during 2017: $599,900 of used computer equipment (5-year recovery property)placed in service on March 18.Assuming that B&P makes a Section 179 election,compute B&P's adjusted tax basis in the property at the end of 2017.

Belsap Inc.,a calendar year taxpayer,purchased a total of $590,000 depreciable personalty during May 2017.Which of the following statements is true?

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

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.

Mann Inc.,a calendar year taxpayer,incurred $49,640 start-up expenditures during the preoperating phase of a new business venture.The business started operations in November.Mann expensed the $49,640 on its current-year financial statements.Which of the following statements is true?

Which of the following statements about tax basis is false?

Maxcom Inc.purchased 15 passenger automobiles for use by its sales force.Which of the following statements is true?

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?

Pratt Inc.reported $198,300 book depreciation on its financial statements and deducted $256,000 MACRS depreciation on its tax return.As a result,Pratt has a $57,800:

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.

If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year,the expenditure must be capitalized.

Richland Company purchased an asset in 2014 for $50,000 and sold it in 2017.The asset was 7-year recovery property.Richland's 2017 MACRS depreciation on the asset was $6,245.

A basic premise of federal income tax law is that an expense is deductible unless the Internal Revenue Code specifically prohibits the deduction.

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Which of the following statements about amortization deductions is false?

Stanley Inc.,a calendar year taxpayer,purchased a building and placed it in service on June 12.The MACRS depreciation calculation assumes that the building was placed in service on May 15 (midquarter).

MACRS depreciation for buildings is based on the straight-line method.

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5.Which of the following statements is false?

B&P Inc.,a calendar year corporation,purchased only one operating asset during 2017: $599,900 of used computer equipment (5-year recovery property)placed in service on March 18.Assuming that B&P makes a Section 179 election,compute B&P's adjusted tax basis in the property at the end of 2017.

Belsap Inc.,a calendar year taxpayer,purchased a total of $590,000 depreciable personalty during May 2017.Which of the following statements is true?

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