TAX ********

Holter Incorporated owns an investment that generated $120,000 cash revenue and required $26,500 cash expenses this year. Holter's marginal tax rate is 30%. Which of the following statements is false?

None of these choices are false.

Company Z, which has its home office in Atlanta, Georgia, conducts business in the United States, Canada, and Mexico. Which of the following statements is true?

None of these choices are true.

Varson Incorporated and Vonsell Incorporated are owned by the same family. The family decides to purchase $150,000 of deductible advertising that will benefit the businesses operated by both corporations. Which of the following statements is true?

None of these choices are true.

In 2022, Driving Inc purchased assets and elected to expense the entire cost using Section 179. However, Driving could not deduct $100,000 of the Section 179 expense because of the taxable income limitation. In 2022, Driving purchased tangible personalty costing $1,090,000. Driving's taxable income before any Section 179 deduction was $1,912,400. Compute Driving's 2022 Section 179 deduction.

$1,080,000

Banana Co is a calendar year taxpayer. On September 1, Banana 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. Banana paid $5,900 to install new overhead lighting in the office space. The lighting is 7-year recovery property. Compute Banana's current-year cost recovery deduction with respect to the $9,140 costs associated with the office space.

$1,383

A taxpayer purchased only one asset in 2022: $1,413,200 of new business equipment on July 10. Compute the total tax depreciation deduction for this 5-year recovery property (assuming the taxpayer has sufficient income for the Section 179 deduction and elects to take bonus depreciation).

$1,413,200

Cedarville imposes an income tax on businesses operating within its jurisdiction. The tax equals 1% of income up to $100,000 and 1.5% of income in excess of $100,000. The Applewood Bar and Grill generated $782,000 net income this year. Compute its city income tax.

$11,230

This year, DDT incurred $25 million of business interest expense, earned no business interest income, and has adjusted taxable income of $42 million. Assuming DDT Corp must apply the limitation on net interest expense, what is DDT's current deduction for business interest?

$12.6 million

Out of a $24,000 expense, only $18,000 was deductible. Compute the after-tax cost of the expense if the taxpayer has a 40% marginal tax rate.

$16,800

In October, XYZ Corp received a $18,000 cash payment from a tenant who leases space in a commercial office building it owns. Assume XYZ Corp is a calendar year accrual basis taxpayer and the payment was rent for the 18-month period beginning on November 1. As a result of the payment, XYZ should report:

$2,000 book income and $18,000 taxable income

Jason engaged in a transaction that generated $50,000 of cash. Assuming Jason's marginal tax rate is 40% and only $40,000 of the income is taxable, what is Jason's after tax cashflow?

$34,000

Webo Corp was organized on June 1 and began business on August 10. Webo 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 Webo deduct on its first tax return?

$5,560

Based on the information provided in the below reconciliation of bad debt expense, an accrual taxpayer would have which of the following (based on the difference between GAAP and tax rules)? Beginning allowance for bad debts$ 950,000Actual write-offs of accounts receivable during the year(899,600)Addition to allowance845,000Ending allowance for bad debts$ 895,400

$54,600 temporary excess of book income over taxable income.

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

$60,000 unfavorable temporary book/tax difference

Based on the information provided in the below reconciliation of bad debt expense, an accrual taxpayer would have which of the following (based on the difference between GAAP and tax rules)? Beginning allowance for bad debts$ 61,150Actual write-offs of accounts receivable during the year(80,000)Addition to allowance88,500Ending allowance for bad debts$ 69,650

$8,500 temporary excess of taxable income over book income.

A calendar year taxpayer paid $6,400,000 for a commercial office building and allocated $400,000 of the cost to the land and $6,000,000 of the cost to the building. The realty in service on May 11. Compute the first-year depreciation on the realty.

$96,300

A calendar year taxpayer, purchased a total of $2,774,400 tangible personalty in 2022. Assuming it has $1 million in income before the deduction, how much of this cost can the company expense under Section 179?

1 million

A calendar year taxpayer made two asset purchases this year. First, a machine costing $874,000 was placed into service on March 27. Second, equipment costing $660,000 was placed into service on December 14th. Both assets are 7-year recovery property. How many months of MACRS depreciation is the company allowed for each asset this year?

10.5 months depreciation for the machine and 1.5 months of depreciation for the equipment.

Speedo Co. pays a 35% marginal tax rate and has $500,000 in an investment paying 8% annual taxable interest. Assuming Speedo pays a $3,000 deductible cash expense each year to maintain the investment, compute the annual after-tax cash flow.

24,050

Cedarville imposes an income tax on businesses operating within its jurisdiction. The tax equals 3% of income up to $500,000 and 5% of income in excess of $500,000. Applewood Bar and Grill generated $782,000 net income this year. Compute its city income tax.

29,100

A calendar year taxpayer paid $3,350,000 for a residential apartment complex and allocated $350,000 of the cost to the land and $3,000,000 of the cost to the building and placed the realty in service on September 29. Compute the first-year depreciation on the realty.

31830

A calendar year taxpayer paid $6,400,000 for a commercial office building and allocated $400,000 of the cost to the land and $6,000,000 of the cost to the building. The realty in service on May 11. Compute the first-year depreciation on the realty.

96,300

Which of the following is a primary authority on which to base research conclusions? A Treasury regulation An editorial explanation in a commercial tax service Textbook used in this class A treatise written by a tax attorney and published in a

A Treasury regulation

Which of the following statements is false?

A convenient tax should have a method of collection that offers maximum opportunity for noncompliance.

Which of the following statements is true? Regressive rate structures are illegal in the United States. A tax with a graduated rate structure must be either regressive or progressive. None of the choices are true. A proportionate rate structure is the only structure resulting in vertical equity.

A tax with a graduated rate structure must be either regressive or progressive.

Which of the following statements is false? A theoretical justification for a proportionate rate is its superior potential for wealth redistribution. Under a proportionate rate structure, the marginal rate equals the average rate. Under a proportionate rate structure, the taxpayer with the least income pays the same percentage of income to the government as the taxpayer with the most income. None of the choices are false.

A theoretical justification for a proportionate rate is its superior potential for wealth redistribution.

ABC has the opportunity to engage in a transaction that will generate $250,000 taxable cash flow. Alternatively, CBA could engage in the transaction. However, CBA would incur an extra $60,000 deductible cash expense with respect to the transaction. Assume ABC Incorporated and CBA Incorporated are owned by the same family and that ABC's marginal tax rate is 30% while CBA's marginal tax rate is 21%.Which of the following statements is true?

ABC should engage in the transaction to generate $24,900 more after-tax cash flow.

Which of the following is a source of federal tax law?

All of these are sources of federal tax law.

Which of the following is/are not a primary source of authority for the tax law?

All of these choices are primary sources of authority

Assuming Jessica has $100,000 in an investment paying 9% annual interest and her marginal tax rate is 25%, which of the following statements is false?

None of the above

The arm's length transaction presumption:

Assumes that each party is dealing in its own economic self-interest.

Based on the information provided in the below reconciliation of bad debt expense for an accrual taxpayer, which of the following statements is true? Beginning allowance for bad debts$ 950,000Actual write-offs of accounts receivable during the year(899,600)Addition to allowance845,000Ending allowance for bad debts$ 895,400

Bad debt expense per books is $845,000, and the deduction for bad debts is $899,600.

Reid Incorporated received a $90,000 cash payment, of which only $50,000 was taxable income. If Reid's marginal tax rate is 40%, compute Reid's after-tax cash flow.

None of these choices are correct.

Which of the following statements is true? As the marginal rate increases, the tax savings from a deduction increases. A taxpayer's marginal rate can change with every transaction. As the marginal rate increases, the tax cost of an income-generating transaction decreases. Both a taxpayer's marginal rate can change with every transaction and, as the marginal rate increases, the tax savings from a deduction increases.

Both a taxpayer's marginal rate can change with every transaction and, as the marginal rate increases, the tax savings from a deduction increases.

Angela Jones is considering two investments. The first produces $5,000 of tax-exempt income. The second produces income that will be subject to tax at a rate of 15%. Which of the following statements is true regarding Angela's choice?

Both if the second investment generates $5,500 of before-tax income, Angela should choose the first investment and if the second investment generates $6,500 of before-tax income, Angela should choose the second investment are true.

Assume that Congress plans to amend the federal individual income tax to eliminate the deduction for child care expenses. Which of the following statements is true?

Both the amendment will reduce the complexity of the tax and will increase the neutrality of the tax.

Carter Incorporated and CCC Incorporated are owned by the same family. Carter's marginal tax rate is 21%, and CCC's marginal tax rate is 10%. Carter has the opportunity to engage in a transaction that will generate $500,000 taxable cash flow. Alternatively, CCC could engage in the transaction. However, CCC would incur an extra $42,500 deductible cash expense with respect to the transaction. Which of the following statements is true?

CCC should engage in the transaction to generate $16,750 more after-tax cash flow.

A taxpayer purchased a depreciable asset for $189,000. First-year depreciation for book purposes was $22,000, and first-year MACRS depreciation was $37,800. If the marginal tax rate is 21%, the excess tax depreciation results in a $3,318:

Deferred tax liability

Frank recently traveled to another state to buy furniture and paid that state's 4% sales tax. Frank resides in a state with a 6% sales and use tax. Which of the following statements is true?

Frank's use tax liability to his home state equals 2% of the purchase price of the furniture.

Which of the following is not a proper citation to an Internal Revenue Code section? Section 1001 §1001 Sec. 1001 IRC 1001

IRC 1001

Cedarville imposes an individual income tax based on the following schedule. RateIncome bracket5%$-0- to $50,000+ 8%$50,001 to $200,000+ 12%$200,001 and above Which of the following statements is false?

If Ms. Lui's taxable income is $33,400, her average tax rate is 5%. If Mr. Bell's taxable income is $519,900, his marginal tax rate is 12%. If Ms. Vern's taxable income iterm-12s $188,000, her average tax rate is 7.2%. None of the choices are false.

On December 19, Microsoft Corp. (an accrual basis corporation) accrued $50,000 compensation expense for a routine year-end bonus payable to Tim, who is the CFO. Microsoft paid the $50,000 to Tim on January 15 of the following year. Which of the following statements is false?

If Tim owns 75 percent of Microsoft's stock (i.e. is a related party), Microsoft can never deduct the bonus expense.

Amy pays a 20% marginal tax rate and incurred a $35,000 business expense. Which of the following statements is true?

If the expense is deductible, Amy's after-tax cost is $28,000.

Bob has $200,000 in an investment paying 8% annual interest. His marginal tax rate is 40%. Which of the following statements is false?

If the interest is taxable, Bob's annual after-tax cash flow is $6,400.

Consider the following three $100,000 investments. The income from investment 1 would be taxed at a 24% regular tax rate, the income from investment 2 would be taxed at a 15% preferential rate, and the income from investment 3 is tax-exempt. The investments offer the following before-tax yields. Investment 1: 9.0% Investment 2: 7.5% Investment 3: 6.0% Which investment should provides the highest after tax cashflow?

Investment 1

Consider the following three $100,000 investments. The income from investment 1 would be taxed at a 32% regular tax rate, the income from investment 2 would be taxed at a 15% preferential rate, and the income from investment 3 is tax-exempt. The investments offer the following before-tax yields. Investment 1: 8.5% Investment 2: 7.5% Investment 3: 6.0% Which investment should provides the highest after tax cashflow?

Investment 2

Which of the following statements is true?

Manufacturing and retail businesses that use the LIFO costing convention for tax purposes must also use LIFO for book purposes.

Which of the following statements is true? Many states that impose a sales tax do not impose a complementary use tax. If an individual pays a sales tax on the purchase of an item, she will also have to pay a use tax on the purchase. If an individual pays a sales tax on the purchase of an item, she will not have to pay a use tax on the purchase. None of these choices are true.

None of these choices are true.

Which of the following statements is true? Many states that impose a sales tax do not impose a complementary use tax. None of these choices are true. If an individual pays a sales tax on the purchase of an item, she will not have to pay a use tax on the purchase. If an individual pays a sales tax on the purchase of an item, she will also have to pay a use tax on the purchase.

None of these choices are true.

A calendar year taxpayer made only one asset purchase this year: machinery costing $1,932,500. The machinery is 7-year recovery property, and was placed into service on October 12. How many months of MACRS depreciation on the machinery is allowed this year?

One and one-half months

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

One half-year of MACRS depreciation is allowed with respect to the apartment building this year.

Which of the following statements is false? A technical advice memorandum is requested by a revenue agent or appeals officer during the examination or appeal of a taxpayer's return. Private letter rulings are considered authoritative only for the taxpayer to whom they were issued. Private letter rulings can only be obtained for a fee from the IRS. Revenue procedures are considered secondary authority.

Revenue procedures are considered secondary authority.

Which of the following statements is false? Private letter rulings can only be obtained for a fee from the IRS. Revenue procedures are considered secondary authority. A technical advice memorandum is requested by a revenue agent or appeals officer during the examination or appeal of a taxpayer's return. Private letter rulings are considered authoritative only for the taxpayer to whom they were issued.

Revenue procedures are considered secondary authority.

Which of the following statements is false? Sales taxes apply to the purchase of most types of consumer services. Sales taxes imposed on the purchaser of retail items are consumption taxes. Sales taxes apply to the purchase of most types of consumer goods. Sales taxes are collected by the seller when the sale is made.

Sales taxes apply to the purchase of most types of consumer services.

Based on the information provided in the table below and assuming a 21% marginal tax rate, compute tax expense per books and taxes payable. Book income before tax$ 9,882,590Net permanent differences447,600Net temporary differences(802,100)Taxable income$ 9,528,090

Tax expense per books $2,169,340; tax payable $2,000,899.

Based on the information provided in the table below and assuming a 21% marginal tax rate, compute tax expense per books and taxes payable. Book income before tax$ 2,405,600Net permanent differences(512,000)Net temporary differences(189,000)Taxable income$ 1,704,600

Tax expense per books $397,656; tax payable $357,966.

ABC Corp signed a four-year contract with an advertising agency for $100,0000. After the contract is signed (but before the end of the year), Congress enacted legislation disallowing any deduction for advertising expense for future tax years. ABC underestimated the after-tax cost of the contract because of:

Tax law uncertainty

A calendar year accrual basis taxpayer is involved in a legal dispute over an alleged trademark violation. At the end of the year, the taxpayer recorded a $750,000 accrued expense for the estimated settlement cost of the dispute. Which of the following statements is true?

Th taxpayer can't deduct the $750,000 accrued expense yet because the liability fails the all-events test.

Mr. and Mrs. Dean own an investment that generated $60,000 cash revenue and required $12,000 cash expenses this year. The Deans' marginal tax rate is 25%. Which of the following statements is true?

The Deans' before-tax cash flow is $48,000.

Fey is a Brazilian citizen who permanently resides in Houston, Texas. Which of the following statements is true?

The U.S. government has jurisdiction to tax Fey.

A taxpayer spent $2.3 million on a new advertising campaign this year. Which of the following statements is true?

The company is allowed to deduct the $2.3 million cost.

Cedarville levies a 4% excise tax on restaurant meals. It is considering reducing the rate to 2% on meals served in restaurants that do not serve soda and to increase the rate to 5% in restaurants that do serve soda. Which of the following statements is true?

The rate change is intended to affect social behavior.

Which of the following statements is true? The value of tax deferral increases as the taxpayer's discount rate for computing NPV decreases. The value of tax deferral increases as the taxpayer's discount rate for computing NPV decreases and the greater the length of time that the payment of a tax is deferred, the less the tax costs in NPV terms. Tax deferral is not an effective planning strategy if the taxpayer's marginal tax rate is stable over time. The greater the length of time that the payment of a tax is deferred, the less the tax costs in NPV terms.

The greater the length of time that the payment of a tax is deferred, the less the tax costs in NPV terms.

Which of the following statements is true?

The higher the degree of risk involved in a transaction, the higher the discount rate for future cash flows should be.

When performing step two of the tax research process: Research questions should be as broadly stated as possible. The identification of tax issues precedes the formulation of research questions. The order in which research questions are addressed is irrelevant. Each tax issue is always associated with a single research question.

The identification of tax issues precedes the formulation of research questions.

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

The start-up expenditures resulted in a $44,144 unfavorable book/tax difference.

Which of the following statements is false? When a taxpayer purchases a business and capitalizes the cost allocated to goodwill, the cost basis may be amortized over 15 years for tax purposes. If a business creates goodwill by developing a loyal customer base and generating brand name recognition, the tax basis in the goodwill is zero. The tax deduction for goodwill amortization is an unfavorable book/tax difference.

The tax deduction for goodwill amortization is an unfavorable book/tax difference.

A dynamic forecast presumes that:

The tax rate and the tax base are correlated.

A calendar year cash basis taxpayer prepaid $4,800 to a security firm for night-time and weekend security services for the 24-month period beginning with October. Which of the following is true?

The taxpayer can deduct $600 in the current year, $2,400 next year, and $1,800 in the third year. PreviousNext

On April 2, a calendar year taxpayer paid a $750,000 lump-sum price to purchase a business. The appraised FMVs of the balance sheet assets were: Accounts receivable$ 38,000Inventory415,000Fixtures and equipment147,000 Total$ 600,000 Which of the following statements is false?

The taxpayer may amortize the $150,000 cost for both book and tax purposes.

Based on the information provided in the table below and assuming a 21% marginal tax rate, which of the following statements is true? Book income before tax$ 1,016,200Net permanent differences77,930Net temporary differences475,200Taxable income$ 1,569,330

The temporary differences caused a $99,792 net increase in Goff's deferred tax assets.

Who, in most instances, bears the incidence of a state sales tax on retail goods?

The ultimate purchaser of the goods.

Which of the following statements is false? The unicap rules apply to all taxpayers with inventory, regardless of size. The unicap rules may result in a book/tax difference for cost of goods sold. The unicap rules may require capitalization of more indirect costs to inventory for tax purposes than for book purposes. The unicap rules determine the annual costs that firms must capitalize to inventory for tax purposes.

The unicap rules apply to all taxpayers with inventory, regardless of size.

Which of the following statements is false? With regard to tax systems, the term revenue refers to the total tax collected by the government. A tax base is an item, occurrence, transaction, or activity with respect to which a tax is levied. A single percentage that applies to the entire tax base is described as a flat rate. When designing a tax, governments try to identify tax bases that taxpayers can easily avoid or conceal.

When designing a tax, governments try to identify tax bases that taxpayers can easily avoid or conceal.

A static forecast presumes that:

the tax base will not change because of the rate increase.