Question 1

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

Accepted Answer

A) Firms can deduct the greater of cost depletion or percentage depletion for the year. 
B) Percentage depletion is a tax preference item. 
C) The depletion deduction can never exceed the unrecovered cost basis in the depletable asset. 
D) Percentage depletion is not based on any actual decrease in the expected productive value of a mine or well. 
A) Firms can deduct the greater of cost depletion or percentage depletion for the year. 
B) Percentage depletion is a tax preference item. 
C) The depletion deduction can never exceed the unrecovered cost basis in the depletable asset. 
D) Percentage depletion is not based on any actual decrease in the expected productive value of a mine or well.

Question 2

Song Company,a calendar year taxpayer,purchased a total of $2,034,400 tangible personalty in 2017.How much of this cost can Song elect to expense under Section 179?

Accepted Answer

A) -0- 
B) $510,000 
C) $2,034,400 
D) None of the above 
A) -0- 
B) $510,000 
C) $2,034,400 
D) None of the above

Question 3

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2017.Which of the following statements is true?

Accepted Answer

A) Laven can elect to expense $510,000 of the cost.The $51,240 remaining cost is capitalized and subject to 50% bonus and MACRS depreciation. 
B) Laven can elect to expense $510,000 of the cost.The $51,240 remaining cost is capitalized and is not depreciable. 
C) Laven can expense the entire $561,240 cost using 100% bonus depreciation. 
D) The amount of the cost that Laven can elect to expense depends on Laven's 2016 taxable income. 
A) Laven can elect to expense $510,000 of the cost.The $51,240 remaining cost is capitalized and subject to 50% bonus and MACRS depreciation. 
B) Laven can elect to expense $510,000 of the cost.The $51,240 remaining cost is capitalized and is not depreciable. 
C) Laven can expense the entire $561,240 cost using 100% bonus depreciation. 
D) The amount of the cost that Laven can elect to expense depends on Laven's 2016 taxable income.

Question 4

An asset's adjusted book basis and adjusted tax basis convey no information about the asset's fair market value.

Accepted Answer

A) True 
 B)False

Question 5

Ingol,Inc.was organized on June 1 and began business on September 13.Ingol elected a calendar year for tax purposes.The corporation incurred $60,300 of legal and other professional fees attributable to its formation.How much of these costs can Ingol deduct on its first tax return?

Accepted Answer

A) -0- 
B) $1,340 
C) $6,229 
D) None of the above 
A) -0- 
B) $1,340 
C) $6,229 
D) None of the above

Question 6

This year,Nigle Inc.'s auditors required the corporation to write down the $1 million book value of purchased goodwill to $850,000.Nigle can deduct the $150,000 impairment expense on this year's tax return.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements about the tax treatment of research and experimental expenditures is true?

Accepted Answer

A) The treatment violates the tax principle of conservatism. 
B) The treatment creates a favorable book/tax difference. 
C) The treatment minimizes the after-tax cost of the expenditures. 
D) Both the treatment violates the tax principle of conservatism and the treatment minimizes the after-tax cost of the expenditures are true. 
A) The treatment violates the tax principle of conservatism. 
B) The treatment creates a favorable book/tax difference. 
C) The treatment minimizes the after-tax cost of the expenditures. 
D) Both the treatment violates the tax principle of conservatism and the treatment minimizes the after-tax cost of the expenditures are true.

Question 8

Cosmo Inc.purchased an asset costing $67,500 by paying $13,500 cash at date of purchase and giving the seller a 5-year interest-bearing note for the $54,000 balance.Cosmo's tax basis in the asset is $13,500.

Accepted Answer

A) True 
 B)False

Question 9

Firms engaged in the extraction of natural resources such as oil,gas,or minerals can deduct the lesser of cost depletion or percentage depletion on their productive wells or mines.

Accepted Answer

A) True 
 B)False

Question 10

Szabi Inc.,a calendar year taxpayer,purchased two assets during 2017: a machine costing $380,000 and computer equipment costing $403,500.The machine is 7-year recovery property and the computer equipment is 5-year recovery property.Which of the following statements is true?

Accepted Answer

A) Szabi should elect to expense the $380,000 cost of the machine and $130,000 of the cost of the computer equipment. 
B) Szabi should elect to expense the $403,500 cost of the computer equipment machine and $106,500 of the cost of the machine. 
C) Szabi must elect to expense $255,000 of the cost of the machine and $255,000 of the cost of the computer equipment. 
D) Szabi is indifferent as to which costs to expense. 
A) Szabi should elect to expense the $380,000 cost of the machine and $130,000 of the cost of the computer equipment. 
B) Szabi should elect to expense the $403,500 cost of the computer equipment machine and $106,500 of the cost of the machine. 
C) Szabi must elect to expense $255,000 of the cost of the machine and $255,000 of the cost of the computer equipment. 
D) Szabi is indifferent as to which costs to expense.

Question 11

Cosmo Inc.paid $15,000 plus $825 sales tax plus a $200 delivery charge for a new business asset.Cosmo's tax basis in the asset is $15,200,and it can deduct the sales tax.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following expenditures must be capitalized for tax purposes?

Accepted Answer

A) Intangible drilling and development costs 
B) Leasehold costs 
C) Research and development costs 
D) Advertising expenditures 
A) Intangible drilling and development costs 
B) Leasehold costs 
C) Research and development costs 
D) Advertising expenditures

Question 13

Kigin Company spent $240,000 to clean up hazardous waste that had contaminated land used in Kigin's business.Which of the following statements is true?

Accepted Answer

A) Kigin must capitalize the $240,000 expenditure to the cost of the land. 
B) If Kigin purchased the land in an uncontaminated state,it can deduct the $240,000 because the expenditure is merely returning the land to its original condition. 
C) Kigin can deduct the $240,000 as a repair expense. 
D) None of the above is true. 
A) Kigin must capitalize the $240,000 expenditure to the cost of the land. 
B) If Kigin purchased the land in an uncontaminated state,it can deduct the $240,000 because the expenditure is merely returning the land to its original condition. 
C) Kigin can deduct the $240,000 as a repair expense. 
D) None of the above is true.

Question 14

Four years ago,Bettis Inc.paid a $5 million lump-sum price to purchase a business.Bettis allocated $600,000 of the price to goodwill.This year,Bettis' auditors required Bettis to write the goodwill down to $500,000 and record a $100,000 impairment expense.Because of the accounting treatment of goodwill,Bettis has a current:

Accepted Answer

A) $60,000 unfavorable temporary book/tax difference 
B) $100,000 unfavorable temporary book/tax difference 
C) $100,000 unfavorable permanent book/tax difference 
D) $40,000 favorable temporary book/tax difference 
A) $60,000 unfavorable temporary book/tax difference 
B) $100,000 unfavorable temporary book/tax difference 
C) $100,000 unfavorable permanent book/tax difference 
D) $40,000 favorable temporary book/tax difference

Question 15

The difference between the before-tax cost and after-tax cost of an asset equals the net present value of the tax savings from any cost recovery deductions with respect to the asset.

Accepted Answer

A) True 
 B)False

Question 16

Mallow Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $37,225,and first-year MACRS depreciation was $55,025.As a result of this book/tax difference,Mallow recorded a $6,230 deferred tax asset.

Accepted Answer

A) True 
 B)False

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

Song Company,a calendar year taxpayer,purchased a total of $2,034,400 tangible personalty in 2017.How much of this cost can Song elect to expense under Section 179?

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2017.Which of the following statements is true?

An asset's adjusted book basis and adjusted tax basis convey no information about the asset's fair market value.

Ingol,Inc.was organized on June 1 and began business on September 13.Ingol elected a calendar year for tax purposes.The corporation incurred $60,300 of legal and other professional fees attributable to its formation.How much of these costs can Ingol deduct on its first tax return?

This year,Nigle Inc.'s auditors required the corporation to write down the $1 million book value of purchased goodwill to $850,000.Nigle can deduct the $150,000 impairment expense on this year's tax return.

Which of the following statements about the tax treatment of research and experimental expenditures is true?

Cosmo Inc.purchased an asset costing $67,500 by paying $13,500 cash at date of purchase and giving the seller a 5-year interest-bearing note for the $54,000 balance.Cosmo's tax basis in the asset is $13,500.

Firms engaged in the extraction of natural resources such as oil,gas,or minerals can deduct the lesser of cost depletion or percentage depletion on their productive wells or mines.

Szabi Inc.,a calendar year taxpayer,purchased two assets during 2017: a machine costing $380,000 and computer equipment costing $403,500.The machine is 7-year recovery property and the computer equipment is 5-year recovery property.Which of the following statements is true?

Cosmo Inc.paid $15,000 plus $825 sales tax plus a $200 delivery charge for a new business asset.Cosmo's tax basis in the asset is $15,200,and it can deduct the sales tax.

Which of the following expenditures must be capitalized for tax purposes?

Kigin Company spent $240,000 to clean up hazardous waste that had contaminated land used in Kigin's business.Which of the following statements is true?

The difference between the before-tax cost and after-tax cost of an asset equals the net present value of the tax savings from any cost recovery deductions with respect to the asset.

Mallow Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $37,225,and first-year MACRS depreciation was $55,025.As a result of this book/tax difference,Mallow recorded a $6,230 deferred tax asset.

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 statements about the depletion deduction is false?

Song Company,a calendar year taxpayer,purchased a total of $2,034,400 tangible personalty in 2017.How much of this cost can Song elect to expense under Section 179?

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2017.Which of the following statements is true?

An asset's adjusted book basis and adjusted tax basis convey no information about the asset's fair market value.

Ingol,Inc.was organized on June 1 and began business on September 13.Ingol elected a calendar year for tax purposes.The corporation incurred $60,300 of legal and other professional fees attributable to its formation.How much of these costs can Ingol deduct on its first tax return?

This year,Nigle Inc.'s auditors required the corporation to write down the $1 million book value of purchased goodwill to $850,000.Nigle can deduct the $150,000 impairment expense on this year's tax return.

Which of the following statements about the tax treatment of research and experimental expenditures is true?

Cosmo Inc.purchased an asset costing $67,500 by paying $13,500 cash at date of purchase and giving the seller a 5-year interest-bearing note for the $54,000 balance.Cosmo's tax basis in the asset is $13,500.

Firms engaged in the extraction of natural resources such as oil,gas,or minerals can deduct the lesser of cost depletion or percentage depletion on their productive wells or mines.

Szabi Inc.,a calendar year taxpayer,purchased two assets during 2017: a machine costing $380,000 and computer equipment costing $403,500.The machine is 7-year recovery property and the computer equipment is 5-year recovery property.Which of the following statements is true?

Cosmo Inc.paid $15,000 plus $825 sales tax plus a $200 delivery charge for a new business asset.Cosmo's tax basis in the asset is $15,200,and it can deduct the sales tax.

Which of the following expenditures must be capitalized for tax purposes?

Kigin Company spent $240,000 to clean up hazardous waste that had contaminated land used in Kigin's business.Which of the following statements is true?

The difference between the before-tax cost and after-tax cost of an asset equals the net present value of the tax savings from any cost recovery deductions with respect to the asset.

Mallow Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $37,225,and first-year MACRS depreciation was $55,025.As a result of this book/tax difference,Mallow recorded a $6,230 deferred tax asset.

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