Question 1

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

Accepted Answer

This is a favorable temporary book/tax difference because the MACRS depreciation deduction on the tax return is greater than the book depreciation, reducing taxable income more in the current period. This difference will reverse in future periods as the total depreciation over the asset's life will be the same for both book and tax purposes.

Question 2

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

Accepted Answer

The answer of Shelley purchased a residential apartment for $1,400,000...

Question 3

Lisle Inc.manufactures small appliances in three plants in the Southeast.Which of the following 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.

Accepted Answer

The answer of Lisle Inc.manufactures small appliances in three plants...

Question 4

Which of the following expenditures must be capitalized for tax purposes?
A)Intangible drilling and development costs
B)Leasehold costs
C)Research and development costs
D)Advertising expenditures

Accepted Answer

The answer of Which of the following expenditures must be...

Question 5

Follen Company is a calendar year taxpayer.On September 1,Follen signed a 24-month lease on 3,800 square feet of commercial office space.Follen paid a $2,580 fee to the real estate agent who located the space and negotiated the lease.It also paid $10,925 to rewire the space to conform to its computing and other electrical requirements.The rewiring qualifies as five-year recovery property.Compute Follen's first-year cost recovery deductions relating to the lease space.

Accepted Answer

The answer of Follen Company is a calendar year taxpayer.On...

Question 6

Creighton,a calendar year corporation,reported $5,571,000 net income before tax on its financial statements prepared in accordance with GAAP.The corporate records reveal the following information.
Creighton's depreciation expense per books was $40,980,and its MACRS depreciation deduction was $77,270.
Creighton capitalized $32,670 indirect expenses to manufactured inventory for book purposes and $48,020 indirect expenses to manufactured inventory under the unicap tax rules.
Creighton's cost of goods sold for book purposes was $1,093,800,and its cost of goods sold for tax purposes was $1,107,200.
Creighton purchased a competitor's business on May 1 and allocated $468,000 to the business' goodwill.
Compute Creighton's taxable income.

Accepted Answer

The answer of Creighton,a calendar year corporation,reported $5,571,000 net income...

Question 7

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:
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

Accepted Answer

The answer of Four years ago,Bettis Inc.paid a $5 million...

Question 8

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

Accepted Answer

The correct answer is B because the Section 179 election allows B&P to expense the entire cost of the equipment in the year of purchase, resulting in an adjusted tax basis of $0.

Question 9

Which of the following intangible assets is not amortizable for tax purposes?
A)Organizational costs
B)Patent with a 12-year remaining life
C)Partnership interest
D)All of these assets are amortizable for tax purposes

Accepted Answer

Partnership interests are not considered amortizable intangible assets for tax purposes. Organizational costs and patents are allowed to be amortized over their useful lives.

Question 10

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?
A)If Driller's allowable percentage depletion is $313,000,Driller will deduct cost depletion.
B)If Driller's allowable percentage depletion is $515,000,Driller will deduct percentage depletion.
C)If Driller's allowable percentage depletion is $515,000,Driller's depletion deduction is limited to $498,200.
D)Both if Driller's allowable percentage depletion is $313,000,Driller will deduct cost depletion and if Driller's allowable percentage depletion is $515,000,Driller will deduct percentage depletion are both true statements.

Accepted Answer

In the context of depletion for tax purposes, a company can choose between cost depletion and percentage depletion, opting for the method that provides the larger deduction. Statement A is true because if the allowable percentage depletion ($313,000) is less than the cost depletion ($356,000), the company will choose cost depletion for a higher deduction. Statement B is true because if the allowable percentage depletion ($515,000) is more than the cost depletion ($356,000), the company will choose percentage depletion for a higher deduction. However, the total depletion deduction cannot exceed the property's adjusted basis, which is not directly addressed in these options but is an important consideration in general.

Question 11

On November 7,a calendar year business placed in service $900,000 of 3-year recovery property.If this was the only property placed in service during the year,MACRS depreciation is computed using the:
A)Mid-month convention
B)Mid-quarter convention
C)Mid-year convention
D)Daily pro-ration method

Accepted Answer

The answer of On November 7,a calendar year business placed...

Question 12

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

The answer of Terrance Inc.,a calendar year taxpayer,purchased used equipment...

Question 13

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

Accepted Answer

The answer of Which of the following statements about the...

Question 14

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 2,2017.
a.Compute NRW's MACRS depreciation with respect to the realty for 2017 and 2018.
b.Compute NRW's adjusted basis in the land and building on December 31,2018.
c.How would your answer to a.change if the building was a manufacturing plant instead of an apartment complex?

Accepted Answer

The answer of NRW Company,a calendar year taxpayer,purchased a residential...

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

The answer of Elakin Inc.,a calendar year taxpayer,paid $1,339,000 for...

Question 16

On May 1,Sessi Inc.,a calendar year corporation,purchased a business for a $2 million lump-sum price.The business' balance sheet assets had the following appraised FMV.   a.Compute the cost basis of the goodwill acquired by Sessi Inc.on the purchase of this business.
b.Compute Sessi's goodwill amortization deduction for the year of purchase.
c.Use a 35 percent tax rate to compute Sessi's deferred tax liability resulting from the amortization deduction.

Accepted Answer

The answer of On May 1,Sessi Inc.,a calendar year corporation,purchased...

Quiz 7: Property Acquisitions and Cost Recovery Deductions

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:

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

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

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

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.

Which of the following intangible assets is not amortizable for tax purposes?

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 November 7,a calendar year business placed in service $900,000 of 3-year recovery property.If this was the only property placed in service during the year,MACRS depreciation is computed using the:

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