FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 5: Business Deductions

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

True/False

Review LaterAdd Note

Review Later

If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.

A) True
B) False

Correct Answer

verified

Show Answer

Question 52

True/False

Review LaterAdd Note

Review Later

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

A) True
B) False

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year: $\begin{array} { l c r } & \underline { \text { Basis } } & \underline { \text { Fair Market } } \\&&\underline { \text { Value } }\\\text { Cash donation to State University } & \$30,000&\$30,000 \\\text { Unimproved land to the City of Terre Haute, } & 70,000 & \$ 210,000 \\\text { Indiana }\end{array}$ ? The land had been held as an investment and was acquired 4 years ago.Shortly after receipt, the City of Terre Haute sold the land for $210,000.Karen's AGI is $450,000.The allowable charitable contribution deduction this year is:

Martin is a sole proprietor of a sandwich business.On March 4, 2017, Martin purchased and placed in service new seven-year class assets costing $570,000.Martin's business reports taxable income for the year, before any deductions associated with the purchased assets, of $160,000.Martin also received $30,000 of interest income for the year, which is not related to the business.Martin wants his adjusted gross income for the year to be as low as possible.With this objective in mind, determine how Martin should recover the cost of the acquired assets.

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation? $\begin{array} { l r r } \text { Income } & & \$ 800,000 \\\text { Expenses: } & & \\& \text { Rent } & 24,000 \\& \text { Utilities } & 9,000 \\& \text { Bribes to police } & 55,000 \\& \text { Medical expense } & 5,000 \\& \text { Legal fees } & 25,000 \\& \text { Depreciation } & 30,000 \\& \text { Illegal kickbacks } & 30,000 \\& \text { Cost of goods sold } & 300,000\end{array}$

Two-thirds of treble damage payments under the antitrust law are not deductible.

In 2016, Robin Corporation incurred the following expenditures in connection with the development of a new product: $\begin{array} { l r } \text { Salaries } & \$ 100,000 \\\text { Supplies } & 40,000 \\\text { Market survey } & 10,000 \\\text { Depreciation } & 25,000\end{array}$ In 2017, Robin incurred the following additional expenditures in connection with the development of the product: $\begin{array} { l r } \text { Salaries } & \$ 125,000 \\\text { Supplies } & 50,000 \\\text { Depreciation } & 30,000 \\\text { Advertising } & 10,000\end{array}$ In October 2017, Robin began receiving benefits from the project.If Robin elects to expense research and experimental expenditures, determine the amount and year of the deduction.

The limit for the domestic production activities deduction (DPAD) uses all W-2 wages paid to employees by the taxpayer during the tax year.

Intangible drilling costs must be capitalized and recovered through depletion.

Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the property drops to 50% or less during the recovery period.

Which of the following is not a related party for constructive ownership purposes under § 267?

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

If more than 40% of the value of property, other than real property, is placed in service during the last quarter, all of the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. $\begin{array}{lr}\text { Revenue } & \$ 250,000 \\\text { Salaries and commissions } & 100,000 \\\text { Rent } & 10,000 \\\text { Insurance } & 5,000 \\\text { Utilities } & 6,000 \\\text { Accounts receivable, } 1 / 1 / 2017 & 40,000 \\\text { Accounts receivable, } 12 / 31 / 2017 & 38,000 \\\text { Accounts payable, } 1 / 1 / 2017 & 12,000 \\\text { Accounts payable, } 12 / 31 / 2017 & 11,000\end{array}$ Calculate Sandra's net profit using the cash method for 2017.

Jim acquires a new seven-year class asset on September 20, 2017, for $80,000.He placed the asset in service on October 5, 2017.He does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery.He takes additional first-year depreciation.He sells the asset on August 25, 2018.This is the only asset he acquires in 2017.Determine Jim's cost recovery in 2017 and 2018.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000.For the current year, determine the amount of goodwill Orange Corporation may amortize.

Carlos purchased an apartment building on November 16, 2017, for $3,000,000.Determine the cost recovery for 2017.

If a taxpayer operates an illegal business, no deductions are permitted.

On July 10, 2017, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2017, assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation.

On May 30, 2016, Jane purchased a factory building to use for her business.In August 2017, Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2017.