Question: Mitch travels extensively in his job as

> In each of the following situations, determine the depreciable basis of each asset. a. Melissa purchases furniture and fixtures from the estate of the owner of a business for $45,000. She plans to use these assets in her business. b. Quang purchased a c

> In each of the following situations, determine the depreciable basis of the asset: a. Rudy inherits his father's pickup truck. The truck is immediately placed in service in Rudy's delivery business. The fair market value of the truck at the date of Rud

> Jennifer owns a 40% interest in the Thomas Partnership. She also owns and operates an architectural consulting business. During the current year, the partnership purchases $516,000-worth of property qualifying under Section 179 and elects to expense $5

> Brad is a shareholder and full-time employee of an S corporation. During 2017, he earns a $50,000 salary from the S corporation and is allocated $12,000 as his share of its net operating loss. In addition, Brad owns a limited partnership interest from

> How much taxable should each of the following taxpayers report? a. Kimo builds custom surfboards. During the current year, his total revenues are $90,000, and he incurs $30,000 in expenses. Included in the $30,000 is a $10,000 payment to Kimo’s five-

> During 2017, Belk Corporation purchases $70,000-worth of equipment for use in its business. Belk's current taxable income before considering the Section 179 deduction is $26,000. Assume that Belk elects not to claim bonus depreciation. a. What is Belk's

> In 2017, Theo purchases $16,000 of Section 179 property for use in his delivery business. During 2017, he has $12,000 in taxable income from his business. Assume that Theo elects not to claim bonus depreciation. a. What is Theo's maximum Section 179 de

> In 2017, Terrell, Inc., purchases machinery costing $2,058,000. Its 2017 taxable income before considering the Section 179 deduction is $490,000. Assume that Terrell elects not to claim bonus depreciation. a. What is Terrell's maximum Section 179 deduc

> Jason is transferred to another city to work and is unable to sell his house. He rents out the house until it is sold. Determine the possible tax consequences of each issue that you identify.

> What is the effect of the capital recovery concept on income recognition?

> GM Corporation purchases equipment costing $18,000 and wants to claim the maximum deduction possible for this expenditure. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> During 2017, Schottenheim Corporation buys laptop computers and desktop computers to use in its general sales offices. Schottenheim buys laptops for $42,000 on March 29, additional laptops for $18,000 on September 26, and the desktop computers for $540,

> Gates, Inc., purchases a painting by a 16th-century Italian artist and displays it in the corporate headquarters. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> Bailey Construction Company purchases a bulldozer on December 20, 2017. An ice storm delays delivery until December 24. Because of the holidays, the equipment is not used until January 2. Identify the tax issue(s) posed by the facts presented. Identif

> Your client, Stone Mining Company, comes to you with a tax planning idea. This year's mining revenues are disappointing, but the company is very optimistic that next year's mining revenues will increase dramatically. To avoid concern among shareholders

> In December, Hilga sells her German language translation business to Chia-Ching. The sales agreement includes a provision that for an extra $6,000, Hilga will not open another German language translation business in the area for two years. Chia-Ching p

> How is the taxation of an alimony payment different from the taxation of a child support payment?

> Your client purchases land that has been severely eroded. He plans to fill the holes caused by the erosion with waste material. Prepare a memorandum discussing any cost recovery deductions that can be claimed on this property.

> Search the Internet for articles relating to the amortization of intangible assets. Trace the process you used to find the article (search engine or tax directory used). Summarize the information found in your research.

> Articles on tax topics are often useful in understanding the income tax law. CPA firms and other organizations publish tax articles on the Internet. Using a search engine or one of the tax directory sites provided in Exhibit 16-6, find an article that d

> Dawkins Logging Company buys 400 acres of forest land for $50,000. The purchase price is allocated as follows: $10,000 to the land and the remaining $40,000 to the timber. At the time of purchase, there was an estimated 400,000 board feet of timber on

> Oliver Company obtains a patent by paying $15,000 on June 21 of this year. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

> What are the two basic methods of accounting that may be used by taxpayers? How do the two basic methods differ?

> Joy opened a shop to sell concrete yard ornaments in 2013. She converted a building in front of her residence into a store. The fair market value of the building when she opened the store was $50,000. The land, her house, and the store building cost $10

> Steem Advertising Corporation acquires 100 laptop computers in 2016 for its account executives to use. Steem pays $300,000 for the computers and bundled software. You are the newly hired CPA and you expect to advise Steem on tax issues regarding tax ye

> In general, which types of property may be expensed under Section 179, and what is the current maximum limit on the deduction?

> Which types of property are allowed a deduction for depletion?

> Darcy borrowed $4,000 in 2014 from her employer to purchase a new computer. She repays $1,000 of the loan plus 6% interest on the unpaid balance in 2014, 2015, and 2016. After closing a big deal in 2017, she receives the original loan agreement stamped

> What limitations are placed on the maximum amount to be expensed under Section 179?

> What was the purpose of changing from the facts and circumstances depreciation method to the ACRS method?

> What is the depreciable basis of an asset? What role does depreciable basis play in determining the annual cost recovery on a depreciable asset?

> What types of capital expenditures are not deductible over time (i.e., their cost is recovered upon disposition of the asset)?

> Which two tests must be met to claim a periodic recovery deduction on a capital expenditure?

> How does the allowable capital recovery period affect the potential return on the investment in an asset?

> Why is the tax benefit rule necessary? That is, which concept drives the need for this construct? Explain.

> How are the costs of intangible assets recovered?

> Which income tax concepts might taxpayers who take depletion deductions be violating?

> How is cost depletion different from percentage depletion?

> Two Sisters is a partnership that owns and operates a farm. During the current year, the partnership raised and harvested hay at a cost of $20,000. It then traded half the hay for quarter horse breeding stock---young horses worth $30,000. Two Sisters fed

> When a taxpayer purchases an automobile for use in a trade or business, what limits are placed on the cost recovery on the automobile?

> Why are restrictions placed on the cost recovery of listed property?

> Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)?

> What is the Alternative Depreciation System? How is it different from a straight-line election under MACRS?

> Why is the calculation of depreciation using MACRS generally considered easier and more efficient than the calculation using the facts and circumstances method?

> What acquisition- and disposition-year conventions are used in MACRS and to what types of property does each of the conventions apply?

> What is the purpose of the acquisition- and disposition-year convention?

> What is the difference between a taxable entity and a conduit entity?

> In general, taxpayers want to depreciate property as rapidly as possible. Under what circumstances might a taxpayer not want to use accelerated depreciation? How can this be done under MACRS?

> Is the Section 179 election to expense an incentive to all businesses to invest in qualifying property?

> Fiona is a professional bass violinist with the St. Paul Symphony Orchestra. In February of the current year, she purchases at auction for $200,000 an eighteenth-century bass violin built by the renowned Asa Santavar. Fiona is thrilled by her acquisiti

> The tax law provides four methods of cost recovery for assets: (1) immediate deduction of the total cost when paid or incurred; (2) deferral of cost until property is sold or otherwise disposed of; (3) deduction based on a percentage of income from the

> Luther, 72, is a lifelong bachelor who has been very successful in his business and investment endeavors. He realizes that he should begin to do some tax planning for his death. Although he intends to leave the bulk of his $200,000,000 estate to the No

> Your client, Dale, is the president and sole stockholder of a steel fabrication company. He has been planning to buy a new piece of equipment for $500,000. He is upset to learn that the $500,000 cost would have to be depreciated over seven years. He c

> Barbara wanted to go into the long-distance trucking business. She bought a used tractor and trailer for $102,000. However, the trailer wasn't suitable for Barbara's needs, so she sold it for $24,000 and purchased the trailer she needed for $30,000. W

> Refer to problem 53. Alex uses the automobile for 3 years and then sells it. During this period, he properly deducts a total of $3,600 in depreciation. What is Alex's gain or loss on the automobile if he sells it for a. $4,000? b. $23,000? c. $9,000?

> Alex begins using his automobile for business purposes in his new job. The automobile cost $25,000 and has a fair market value of $9,000 on the date of conversion to business use. a. What is Alex's initial basis in the automobile? Explain. b. What is A

> Mikel's daughter, Liudmila, is planning to go to law school in the fall. Mikel has promised her that he will pay her tuition, fees, and book costs. Mikel has 1,000 shares of Konrad Corporation stock that he bought four years ago for $50 per share plus

> The controller of Newform Oil Company has come to you for advice. Newform recently cleared a forested area and began drilling an oil well on the site. The well is a gusher, and Newform's geologists estimate that it will produce for at least 10 years. En

> Florence's daughter, Eunice, needs $5,000 to start a business. Florence agrees to give her the money but will have to sell some securities to raise that much cash. Florence has 1,200 shares of Tom Corporation common stock, which is selling for $5 per s

> Quapaw Construction Company enters into an agreement with Paine County to resurface 30 miles of highway. The contract is for $600,000. Quapaw estimates its total cost of the project to be $500,000. During the current year, Quapaw completes 18 miles of

> Stockton pays $10,000 for 1,000 shares of Megacron, Inc., common stock on the day his niece Chama is born. Stockton's plan is to give the stock to Chama when she is ready to go to college. Eighteen years later, Chama is ready to leave for Eastern Priva

> For his birthday, Moose gives his son, Babe, a valuable basketball card. Moose paid $100 for the card 12 years earlier. On Babe's birthday, the card is valued in a basketball card guidebook at $90. What is Babe's basis in the card? Explain. a. Assume

> Calculate the basis for gain and basis for loss and the taxable gain or deductible loss for the following gifts which are received and sold in the current year: Donor's Adjusted Basis $100,000 100,000 100,000 FMV at Time of Gift $400,000 80,000 30,0

> Julia receives 1,000 shares of Cookery Corporation stock from her grandfather as a wedding present. The shares are selling for $24 per share on the date of the gift. Grandfather paid $8,000 for them 4 years earlier. He pays $3,000 in gift tax on the t

> Latham Corporation constructs a new factory building. The materials cost $300,000. Other costs include direct labor of $150,000, workers pension costs of $5,000, architectural fees of $15,000, and depreciation on equipment of $25,000. The land was pur

> Kieu Corporation constructs a new warehouse. It pays $100,000 for materials and $70,000 to the general contractor. Architectural fees total $18,000. The corporation pays $13,000 in interest on its loan to finance construction. The land costs $15,000, a

> ABC Company purchases all the assets of John's Saw Shop. Details on basis and fair market values of John's Saw Shop's assets are as follows: a. What is ABC's basis in the assets purchased if ABC pays $40,000 for them? b. What is ABC's basis in the ass

> Earl purchases all the assets and assumes the liabilities of Buddy's Market Shop. Details concerning the adjusted basis and fair market value of Buddy's assets and liabilities are as follows: Asset Adjusted Basis Fair M

> Hester Corporation purchases a building by giving stock with a fair market value of $30,000 (original cost was $21,000) and borrowing $210,000. Hester pays closing costs of $10,000 on the purchase. For property tax purposes, the land is assessed at $10

> The Prevetti Partnership is engaged in the purchase and management of apartment complexes. The partnership entered into an agreement with Parsnip Development Company on July 1 of the current year to purchase the Perry Apartments. The sales agreement st

> WCM Builders enters into a contract to build a shopping mall in 2017 for $6,000,000. Completion of the mall is expected to take 2 years and cost WCM $3,600,000. Upon signing the contract, WCM receives $600,000. During 2017, WCM incurs costs of $1,200,0

> Nathaniel purchases a house by paying $25,000 in cash and securing a home mortgage for $75,000. He also incurs $3,000 in legal fees, title search, and closing costs. He agrees to pay the property taxes for the entire year ($6,000), even though his shar

> Izzy is an employee of Kosmo's Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1956 Thunderbird for $15,000 from the company. A car like Izzy's Thunderbird generally sells for $28,000. On Decemb

> Fala is the sole shareholder of Campbell Inc. During the current year, Campbell sells Fala land that had a fair market value of $40,000 for $28,000. Campbell has paid $30,000 for the land. What are the tax effects of the sale for Fala and Campbell? W

> On October 1, 2017, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust's adjusted basis in the lot is $20,000. Real estate taxes attributable to the property are $1,000. The city in which the lot is

> Alphonse purchases a store and a warehouse. The asking price includes $150,000 for the store, $50,000 for the warehouse, and $90,000 for the land. Alphonse agrees to this price even though he does not want to buy the warehouse because it does not meet

> Florian Corporation purchases a piece of land for investment purposes on April 1. Florian pays the seller $2,000 cash and agrees to pay the seller $3,000 per year for the next 5 years plus interest at 9% per year on the outstanding balance. As part of

> Erin purchases 2 acres of land in 2017 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10%. In addition, Erin agrees to let the seller store farm equip

> Troy owns 600 of the 1,000 outstanding shares of Oiler Corporation. His adjusted basis in the Oiler stock at the beginning of the current year is $88,000. Oiler Corporation is organized as an S corporation and reports the following results for the curr

> Paula purchases a 40% interest in Dancer Enterprises for $52,000 on January 2, of the current year. Dancer is organized as a partnership and has an income of $50,000 in the current year. Dancer also distributes a total of $15,000 to the partners in the

> Return to the facts of problem 30. Assume that Show Corporation is organized as an S corporation. In its second year of operations, Show has an operating loss of $40,000 and pays out $20,000 in dividends. On December 31, Amos gives a 10% interest in S

> In 2014, Patricia purchases a rental property as an investment at a cost of $60,000. From 2014 through 2017, she takes $7,000 in depreciation on the property. In 2017, Patricia sells the rental property for $80,000, payable $20,000 per year for 4 years

> Barbara is going to purchase a car for $20,000. She has two financing options: She can finance the purchase through the dealer at 1 percent for 48 months, with monthly loan payments of $425, or she can take a $2,000 rebate on the purchase price and fin

> Amos and Thomas form the Show Corporation during the current year. Amos owns 40% of Show's stock, Thomas owns 20%, and Arthur owns the remaining 40%. Amos paid $50,000 for his interest, and Thomas paid $25,000. Amos and Thomas are responsible for Show'

> During the current year, Horace's personal residence is damaged by a tornado. The residence had an adjusted basis of $80,000 before the tornado. The cost of repairing the damage is $30,000. Horace's insurance company reimburses him $22,000 for the rep

> Determine whether each of the following transactions would result in an increase in basis, a decrease in basis, or no effect on basis: a. Dolly pays $3,000 for a survey to disprove her neighbor's claim that the boundaries dividing their properties are in

> Hannibal owns a farm. He purchases a tractor in 2013 at a cost of $25,000. Because 2013 is a bad year, he does not deduct any depreciation on the tractor in 2013. He sells the tractor in 2017 for $16,000. He takes straight-line depreciation on the tr

> Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2010. From 2010 through 2015, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net operating loss and deducts no depreciation in 2016, even

> Luana pays $40 per share for 100 shares of Manano Corporation common stock. At the end of the year, the market price of the stock is $60 per share. During the year, she receives a cash dividend of $4 per share. Manano reports that $3 per share is tax

> Alberta owns 5 acres of land she purchased several years ago for $6,500. A new housing development is being built on the north side of her property. The owner of the development needs part of Alberta's land to run utility and sewer lines to the new dev

> Determine the adjusted basis of each of the following assets: a. André purchased a parcel of land three years ago for $17,000. In the current year, the adjoining property owner sues him, claiming that part of André's property belongs to him under the ri

> Determine the adjusted basis of each of the following assets: a. Leineia purchased an automobile 2 years ago for $30,000. She uses it 75% in her business and 25% for personal use. To date, she has deducted $4,209 in allowable depreciation on the busine

> How is a transaction loss different from an annual loss?

> For each of the following assets, determine whether it is personal property, real property, intangible property, or personal use property: a. Woodrow spent $5,380 on trees and shrubs for use in his landscaping business. b. Woodrow spent $12,100 on a new

> Bonnie is married and has 1 child. She owns Bonnie's Rib Joint, which produces a taxable income of approximately $120,000 per year. a. Assume that Bonnie's taxable income is $40,000 without considering the income from the rib joint. How much tax will s

> For each of the following assets, determine whether it is personal property, real property, intangible property, or personal use property: a. Reagan gave her mother a new set of golf clubs for Christmas. b. Roberta bought a whistle and uniform for use in

> Lynn bought 100 shares of Filidelphia Corporation stock for $10,000 three years ago. On December 24, she sells 50 shares for $4,000. She plans to buy 100 more shares of Filidelphia stock for $7,000 on January 17. Explain the tax treatment of these trans

> On November 14, 2017, Noel sells 2,000 shares of Marker, Inc., stock for $6,000. He had purchased the stock 2 years earlier for $10,000. Because the price of the stock continued to drop, Noel purchases additional shares of Marker stock on December 10,

> Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2013. On December 14, 2017, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3, 2018, Eric purchases 500 shares of Razor, Inc., for $3 pe

> Clarece has the option of receiving 2 shares of common stock as a stock dividend on the 10 shares of Ramble Company common stock that she owns. She paid $30 per share for her 10 shares. The common stock is now selling for $20 per share. In lieu of rec