Exam 7: Property Acquisitions and Cost Recovery Deductions

JebSim Inc. was organized on June 1, 2012, 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?

Which of the following statements concerning business goodwill is false?

Which of the following statements about tax basis is false?

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.

Mann Inc. paid $7,250 to a leasing agent to negotiate Mann's 36-month lease for 18,000 square feet of space in a new commercial building. For tax purposes, Mann must:

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.

Deitle Inc. manufactures small appliances. This year, Deitle capitalized $3,679,000 indirect costs to inventory for book purposes and $3,865,000 indirect costs to inventory for tax purposes. The consequence of the different accounting methods is a $186,000:

Stanley Inc., a calendar year taxpayer, purchased a building and placed it in service on June 3. The MACRS depreciation calculation assumes that the building was placed in service on June 15.

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.

The after-tax cost of an expenditure is minimized when the expenditure is deductible in the current year.

Which of the following capitalized cost is not amortizable for tax purposes?

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

Puloso Company, a calendar year taxpayer, incurred the following start-up expenditures before the opening of its new health and fitness center. The Puloso Center opened its doors for business on March 21, 2011. How much of the start-up expenditures can Puloso deduct in 2011?

BriarHill Inc. purchased four items of tangible personalty in 2012 at a total cost of $2,798,000. BriarHill cannot elect to expense any of the cost of the property under Section 179.

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.

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?

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

Which of the following statements about amortization deductions is false?

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.

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