ACT 330 Unit 1 Study Guide
What is the second year MACRS depreciation deduction for seven‐year property with an original basis of $80,000 using the half‐year convention? (Ignore bonus depreciation for this question.)
$19,592
Griff LLC purchased an office building and land during the current year for $500,000. The purchase price was allocated as follows: $350,000 to the building and $150,000 to the land. The property was placed in service on August 22. Calculate Griff's maximum depreciation
$3,371
Hubern Incorporated is planning a transaction that will generate $275,000 taxable income and cash inflow. The transaction is structured so thatHubern will receive the cash and report the income this year (year 0). Use Appendix A of your textbook provided to compute the increase in theNPV of the transaction if it can be restructured so that Hubern will receive the cash this year, but report the income one year later (year 1). Hubern'smarginal tax rate is 21%, and it uses a 9% discount rate to compute NPV. -$6,276 -$17,938 -$4,793 -None of these choices are correct
$4,793
Suvi, Incorporated purchased two assets during the current year (a full 12‐month tax year). On August 10Suvi placed in service computer equipment (five‐year property) with a basis of $20,000 and on November 18 placed in service machinery (seven‐year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Round final answer to the nearest whole number.)
$5,429
Assume that Brittany acquires a competitor's assets on March 1st. The purchase price was $250,000. Of the amount, $150,000 is allocated to tangible assets and $100,000 is allocated to goodwill (a §197intangible asset). What is Brittany's amortization expense for the current year
$5,556 Amort: $5,556 (($100,000 / 180) × 10).
Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10th year, calculate Simmons's maximum depreciation in the 10th year.
$641
Beth's business purchased only one asset during the current year (a full 12‐month tax year). On December 1 Beth placed in service machinery (seven‐year property) with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation)
. $1,785 $50,000 × 0.0357 = $1,785.
The MACRS recovery period for automobiles and computers is
5 years
Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?
A deduction for the payment of a fine or penalty would be a subsidy for bad behavior and also against public policy.
Which of the following statements about tax fraud is true
A revenue agent can assess a civil fraud penalty in the course of an audit
which of the following is an earmarked tax? -A tax imposed on the purchase of specific items such as liquor or cigarettes -A tax that generates revenues that the government can spend only to build more National Parks -A tax imposed only on individuals who earn more than $1 million annually -A tax that generates revenues that the government can spend for any purpos
A tax that generates revenues that the government can spend only to build more National Parks
Both individual and corporate taxpayers must pay any balance due of their tax by the extended due date of the tax return for the year
False bc (Any balance of tax due must be paid by the unextended due date of the return)
which type of audit has the broadest scope and may involve a complete analysis of the taxpayer's accounting records? -Correspondence examination -Office examination -Field examination -All of these choices are correct
Field examination
Teague incurred a $35,000 expense. If her marginal tax rate is 20%, which of the following statements is true? -If the expense is nondeductible, Ms. Teague's after-tax cost is zero. -If the expense is deductible, Ms. Teague's after-tax cost is $28,000. -If only $17,500 of the expense is deductible, Ms. Teague's after-tax cost is $14,000. -If the expense is nondeductible, Ms. Teague's after-tax cost is zero and, if the expense is deductible, Ms. Teague's after-tax cost is$28,000
If the expense is deductible, Ms. Teague's after-tax cost is $28,000
Mrs. Lester has the choice between two transactions. Transaction A will generate $175,000 taxable cash flow in the current year (year 0).Transaction B will generate $160,000 cash flow in the current year, but Mrs. Lester will not be required to report $160,000 income for two years(year 2). Mrs. Lester has a 40% marginal tax rate and uses a 9% discount rate to compute NPV. Use Appendix A of your textbook provided todetermine which of the following statements is true?
Mrs. Lester should choose transaction B because its NPV exceeds transaction A's NPV
NWR Incorporated is structuring a transaction that will require a $200,000 deductible cash expenditure. Which of the following structures is themost effective in terms of the time period variable? -NWR will pay the cash and report the deduction in 20Y1. -NWR will pay the cash and report the deduction in 20Y2. -NWR will pay the cash in 20Y2 and report the deduction in 20Y1. -NWR will pay the cash in 20Y1 and report the deduction in 20Y
NWR will pay the cash in 20Y2 and report the deduction in 20Y1.
Ms. Lenz has $100,000 in an investment paying 9% annual interest. Her marginal tax rate is 25%. Which of the following statements is false? -Ms. Lenz's annual before-tax cash flow from this investment is $9,000. -If the interest is tax-exempt, Ms. Lenz's annual after-tax cash flow is $9,000. -If the interest is taxable, Ms. Lenz's annual after-tax cash flow is $6,750. -None of these choices are false
None of these choices are false
NC Company structured an income-generating transaction so that the income and cash flow shifted to Juno Incorporated presuming that JNCmakes rational decisions, which of the following statements is false? -JNC and Juno must be related parties that share a mutual economic interest. -JNC's marginal tax rate is higher than Juno's marginal tax rate. -The income shift should increase the NPV of the transaction. -None of these choices are false.
None of these choices are false.
An individual who didn't graduate from high school has less exposure to a negligence penalty from the IRS than a college graduate
True
Gretchen's 2020 tax return, due April 15, 2021, was filed on July 9, 2021. Her tax due with the return was $1,200. Gretchen owes a late filingpenalty of $180
True
T/F Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months' worth of office supplies on December 12. Elcox can deduct $950 in the year of payment
True
Which of the following is not a payment liability?
accrued compensation
On November 13, Underhill Inc., a calendar year taxpayer, purchased a business for a $750,000 lump‐sum price. The business's balance sheet assets had the following appraised FMV: b. . Compute Underhill's goodwill amortization deduction for the year of purchase d. How would this effect taxable income and the M‐1? What would the TJE be?
b. 1,500 135,000-180=750 .... 750x2= 1,500
Mr. Bearne paid $50,000 to a local spiritual healer and deducted the payment as a business expense of his sole proprietorship. The healerprovided personal counseling to Mr. and Mrs. Bearne. Upon audit of the sole proprietorship's accounting records, the IRS agent disallowed the deduction by applying the:
business purpose doctrine
