Question 1

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

Accepted Answer

A)  Moses' tax basis in the furniture is $8,842. 
B)  Moses' tax basis in the furniture is $8,692, and it can deduct the delivery charge. 
C)  Moses' tax basis in the furniture is $8,350, and it can deduct the sales tax. 
D)  Moses' tax basis in the furniture is $8,200, and it can deduct the sales tax and delivery charge. 
A)  Moses' tax basis in the furniture is $8,842. 
B)  Moses' tax basis in the furniture is $8,692, and it can deduct the delivery charge. 
C)  Moses' tax basis in the furniture is $8,350, and it can deduct the sales tax. 
D)  Moses' tax basis in the furniture is $8,200, and it can deduct the sales tax and delivery charge.

Question 2

A corporation that incurs $28,500 organization costs must capitalize the costs and amortize them over 180 months.

Accepted Answer

A) True 
 B)False

Question 3

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?

Accepted Answer

A)  Kassim's book basis and tax basis in the asset is $275,000. 
B)  Kassim's book basis is $275,000, but its tax basis is $35,000. 
C)  Kassim's book basis and tax basis in the asset is $35,000. 
D)  If Kassim is a cash basis taxpayer, its initial tax basis in the asset is zero. 
A)  Kassim's book basis and tax basis in the asset is $275,000. 
B)  Kassim's book basis is $275,000, but its tax basis is $35,000. 
C)  Kassim's book basis and tax basis in the asset is $35,000. 
D)  If Kassim is a cash basis taxpayer, its initial tax basis in the asset is zero.

Question 4

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 5

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 6

NRW Company, a calendar year taxpayer, purchased a residential apartment complex for $5.8 million and allocated $1 million cost to the land and $4.8 million cost to the building. NRW placed the realty in service on August 2, 2016.
a. Compute NRW's MACRS depreciation with respect to the realty for 2016 and 2017.
b. Compute NRW's adjusted basis in the land and building on December 31, 2017.
c. How would your answer to a. change if the building was a manufacturing plant instead of an apartment complex?

Accepted Answer

a. MACRS depreciation for 2016 is $65,47

Question 7

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 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about the computation of cost of goods sold is true?

Accepted Answer

A)  Manufacturing and retail businesses must use the specific identification method for tax purposes. 
B)  Manufacturing and retail businesses must use the FIFO costing convention for tax purposes. 
C)  Manufacturing and retail businesses must use the LIFO costing convention for tax purposes. 
D)  Manufacturing and retail businesses that use the LIFO costing convention for tax purposes must also use LIFO for book purposes. 
A)  Manufacturing and retail businesses must use the specific identification method for tax purposes. 
B)  Manufacturing and retail businesses must use the FIFO costing convention for tax purposes. 
C)  Manufacturing and retail businesses must use the LIFO costing convention for tax purposes. 
D)  Manufacturing and retail businesses that use the LIFO costing convention for tax purposes must also use LIFO for book purposes.

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  If Lisle uses LIFO to compute the cost of goods sold for tax purposes, it must use LIFO for financial statement purposes. 
B)  If Lisle uses FIFO to compute the cost of goods sold for tax purposes, it must use LIFO for financial statement purposes. 
C)  Lisle is not allowed to use LIFO to compute the cost of goods sold for tax purposes. 
D)  None of the above statements is true. 
A)  If Lisle uses LIFO to compute the cost of goods sold for tax purposes, it must use LIFO for financial statement purposes. 
B)  If Lisle uses FIFO to compute the cost of goods sold for tax purposes, it must use LIFO for financial statement purposes. 
C)  Lisle is not allowed to use LIFO to compute the cost of goods sold for tax purposes. 
D)  None of the above statements is true.

Question 13

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 a. and c. 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 a. and c. are true.

Question 14

Richland Company purchased an asset in 2013 for $50,000 and sold it in 2016. The asset was 7-year recovery property. Richland's 2016 MACRS depreciation on the asset was $6,245.

Accepted Answer

A) True 
 B)False

Question 15

Mr. and Mrs. Schulte paid a $750,000 lump-sum price to purchase a business. At date of purchase, the appraised FMVs of the balance sheet assets were: $$\begin{array} { l r } 
\text { Accounts receivable } & \$ 38,000 \
\text { Inventory } & \mathbf { 4 1 5 , 0 0 0 } \
\text { Fixtures and equipment } & \underline { 147,000 } \
& \$ \underline { \underline { 600,000 } }
\end{array}$$ Which of the following statements is true?

Accepted Answer

A)  The Schultes must allocated the $750,000 cost to the balance sheet assets based on the assets' relative FMV. 
B)  The Schultes must capitalize $150,000 of the cost to nonamortizable goodwill. 
C)  The Schultes may deduct $150,000 of the cost as business goodwill. 
D)  None of the above is true. 
A)  The Schultes must allocated the $750,000 cost to the balance sheet assets based on the assets' relative FMV. 
B)  The Schultes must capitalize $150,000 of the cost to nonamortizable goodwill. 
C)  The Schultes may deduct $150,000 of the cost as business goodwill. 
D)  None of the above is true.

Question 16

L&P Inc., which manufactures electrical components, purchased new equipment for use in its manufacturing process. The MACRS depreciation on the equipment must be capitalized to the cost of inventory under the unicap rules.

Accepted Answer

A) True 
 B)False

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

A corporation that incurs $28,500 organization costs must capitalize the costs and amortize them over 180 months.

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?

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.

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?

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.

Which of the following statements about the computation of cost of goods sold is true?

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

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

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

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

Richland Company purchased an asset in 2013 for $50,000 and sold it in 2016. The asset was 7-year recovery property. Richland's 2016 MACRS depreciation on the asset was $6,245.

Mr. and Mrs. Schulte paid a $750,000 lump-sum price to purchase a business. At date of purchase, the appraised FMVs of the balance sheet assets were: Accounts receivable \ 38,000 Inventory Fixtures and equipment \ Which of the following statements is true?

L&P Inc., which manufactures electrical components, purchased new equipment for use in its manufacturing process. The MACRS depreciation on the equipment must be capitalized to the cost of inventory under the unicap rules.

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

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

A corporation that incurs $28,500 organization costs must capitalize the costs and amortize them over 180 months.

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?

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.

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?

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.

Which of the following statements about the computation of cost of goods sold is true?

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

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

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

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

Richland Company purchased an asset in 2013 for $50,000 and sold it in 2016. The asset was 7-year recovery property. Richland's 2016 MACRS depreciation on the asset was $6,245.

Mr. and Mrs. Schulte paid a $750,000 lump-sum price to purchase a business. At date of purchase, the appraised FMVs of the balance sheet assets were: Accounts receivable \ 38,000 Inventory Fixtures and equipment \ Which of the following statements is true?

L&P Inc., which manufactures electrical components, purchased new equipment for use in its manufacturing process. The MACRS depreciation on the equipment must be capitalized to the cost of inventory under the unicap rules.

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