...Bonus 50%: $25,000 MACRS Basis 25,000 April 1, 2010 new machine bonus 50%: $35,000 MACRS basis 35,000 October 1, 2010 used machine, no bonus MACRS basis 30,000 December 1, 2010 used machine, no bonus MACRS basis 40,000 First nine months of the year: 25,000 +35,000 = 60,000 less than 60% of the total: 130,000 – NO Half year convention For mid-quarter convention we verify 30,000+40,000=70,000 more than 40% in the last quarter Depreciation for 2010: (all 7 year table) Feb 1, New machine: 25% x 25,000 = 6,250 plus bonus: 25,000. Total $31,250 April 1, 2010 New machine: 17.85% of 35,000 = 6,247.5 plus bonus 35,000 Total $41,247.5 October 1, 2010 used machine 3.57% of 30,000= 1,071 December 1, 2010 used machine 3.57% of 40,000 = 1,428 Total 2010 Depreciation: $74,996.5 b. This changes the convention to half year convention: more than 60% in the first 9 months. New Calculations: Feb 1, 2010 machine 14.29% of 25,000 = 3,572.5 plus bonus 25,000. Total 28,572.5 April 1, 2010 machine 14.29 % of 35,000 = 5,001.5 plus bonus 35,000 Total 40,001.5 Sep 1, 2010 machine 14.29% of 30,000 = 4,287 Dec 1, 2010 machine 14.29% of 40,000 = 5,716 Total 2010 Depreciation: $78,577 Problem #2 a. Computer: MACRS Basis 16,000, 5 year table, half year, year two: 32% of 16,000 = 5,120 Machine: MACRS Basis 60,000, mid quarter convention, 7 year table, year three: 19.68% of 60,000= 11,808 Furniture: MACRS basis: 29,400 (70% of 42,000), mid quarter convention, 7 year property, first quarter...
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...immediately expensed. True False | 5. | The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion. True False | 6. | Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS). True False | 7. | The 200 percent or double declining balance method is allowable for five and seven year property. True False | 8. | Taxpayers may use historical data to determine the recovery period for tax depreciation. True False | 9. | Taxpayers use the half-year convention for all assets. True False | 10. | If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used. True False | 11. | The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method. True False | 12. | If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter...
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...law to recover the cost of personal property, real property, intangible assets, and natural resources. Determine the applicable cost recovery (depreciation) life, method, and convention for tangible personal and real property and calculate the deduction allowable under basic MACRS. Explain the additional special cost recovery rules (§179, bonus, listed property) and calculate the deduction allowable under these rules. Explain the rationale behind amortization, describe the four categories of amortizable intangible assets, and calculate amortization expense. Explain cost recovery of natural resources and the allowable depletion methods. LO 2-2 LO 2-3 LO 2-4 LO 2-5 Storyline Summary Taxpayer: Teton Mountaineering Technology, LLC (Teton)—a calendar-year single-member LLC (treated as a sole proprietorship for tax purposes) Cody, Wyoming Steve Dallimore Teton must acquire property to start manufacturing operations and wants to understand the tax consequences of property acquisitions. Location: President/ Founder: Current situation: cave waiting for the tempest to pass, Steve had an epiphany—a design for a better ice-climbing tool. Since that moment, Steve has been quietly consumed with making his dream—designing and selling his own line of climbing equipment—a reality. T wo years ago while climbing the Black Ice Couloir (pronounced “cool-wahr”) in Grand Teton National Park, Steve Although his current sales career is challenging and financially rewarding...
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...2 How To Depreciate Property Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 •Section 179 Deduction •Special Depreciation Allowance •MACRS •Listed Property For use in preparing 2014 Returns Chapter 1. Overview of Depreciation . . . . What Property Can Be Depreciated? . . . . What Property Cannot Be Depreciated? . . When Does Depreciation Begin and End? What Method Can You Use To Depreciate Your Property? . . . . . . . . . . . . . . . . . . What Is the Basis of Your Depreciable Property? . . . . . . . . . . . . . . . . . . . . . . How Do You Treat Repairs and Improvements? . . . . . . . . . . . . . . . . . Do You Have To File Form 4562? . . . . . . How Do You Correct Depreciation Deductions? . . . . . . . . . . . . . . . . . . . . Chapter 2. Electing the Section 179 Deduction . . . . . . . . . . . . . . . . . . . . . . . What Property Qualifies? . . . . . . . . . . . . . What Property Does Not Qualify? . . . . . . How Much Can You Deduct? . . . . . . . . . . How Do You Elect the Deduction? . . . . . . When Must You Recapture the Deduction? . . . . . . . . . . . . Feb 27, 2015 . . . . 3 4 6 7 . . . . . 11 . . . . . 13 . . . . . 13 . . . . . 13 . . . . . Chapter 4. Figuring Depreciation Under MACRS . . . . . . . . . . . . . . . . . . . . . . . . . . Which Depreciation System (GDS or ADS) Applies? . . . . . . . . . . . . . . . . . . . . . . . Which Property Class Applies...
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...CHAPTER 6 SELF-EMPLOYED BUSINESS INCOME SCHEDULE C Discussion Questions 1. Discuss the definition of a trade or business. Why does it matter whether a taxpayer is classified as an employee or self-employed? Answer: A trade or business is any activity that is engaged in for profit continually and regularly. The income from a sole proprietor is netted with related ordinary and necessary business expenses to determine the effect on AGI. 2. Discuss the concepts of ordinary, necessary, and reasonable in relation to trade or business expenses. Answer: According §162, in order for an expense to be deductible it must be an ordinary and necessary expenditure. The expense must also be reasonable (as established by the courts). A trade or business expense must not only be ordinary and necessary but also reasonable in amount and reasonable in relation to its purpose. The Supreme Court (in Welch, T., 1933, S Ct, 290 US 111) held that in order for an expense to be ordinary, in must be customary or usual in the taxpayers particular business. The necessary criterion refers to an expense that is appropriate and helpful, and not necessarily essential to the taxpayer’s business. Reasonableness is not specifically included by IRC §162, but has been added by the courts. In these cases, the courts held that a trade or business expense must not only be ordinary and necessary but also reasonable in amount and reasonable in relation to its purpose. 3. What...
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...Children and Young Persons Act 1963 (s.16) provides that ‘It shall be conclusively presumed that no child under the age of ten years can be guilty of an offence’. This means that once a child in the UK reaches the age of ten they are as exposed and liable to the full weight of the law the same as any adult. The UK currently has the lowest minimum age of criminal responsibility (except Scotland at 8 but cannot be prosecuted until 12) within the European Union. This places the UK significantly below the average of 14 years old. There seems to be little justification for this deviance from the norm in regards to the minimum age of responsibility in the UK and there have been considerable publications pushing for the UK to raise the minimum age of criminal responsibility in the last decade, providing substantial evidence in favour of doing so. The evidence supporting the need to raise this minimum age can be found not only in psychology and scientific research regarding the brain development of youth and autonomy of children at this age, but also the severe social implications of criminalizing our youth. In order to argue that the minimum age of criminal responsibility (MACR) should be raised it will be necessary to identify and evaluate this evidence, as well as identifying the issues that having a low MACR brings. This essay will first review the history of the MACR and discuss the effect of abolishing the doctrine of Doli Incapax on youth offenders, before presenting the neurological...
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...Problems and Solutions Chapter 10 3. Find the opering cash flow for the year for Spacely Sprockets if they had sales revenue of $300,000,000, cost of goods sold of $140,000,000, sales and administrative costs of $40,000,000, depreciation expense of $65,000,000 and a tax rate of 40%. Solution: Using income statement format we have, Sales $300,000,000 COGS $140,000,000 SG&A $ 40,000,000 Depreciation $ 65,000,000 EBIT $55,000,000 Taxes (@ 40%) $22,000,000 Net Income $33,000,000 Operating Cash Flow = EBIT + Depreciation – Taxes Operating Cash Flow = $55,000,000 + $65,000,000 - $22,000,000 = $98,000,000 4. Find the operating cash flow for the year for Cogswell Cogs if they had sales revenue of $80,000,000, cost of goods sold of $35,000,000, sales and administrative costs of $6,400,000, depreciation expense of $7,600,000 and a tax rate of 30%. Solution: Using income statement format we have, Sales $80,000,000 COGS $35,000,000 SG&A $ 6,400,000 Depreciation $ 7,600,000 EBIT $31,000,000 Taxes (@ 30%) $ 9,300,000 Net Income $33,000,000 Operating Cash Flow = EBIT + Depreciation – Taxes Operating Cash Flow = $31,000,000 + $7,600,000 - $9,300,000 = $14,100,000 11. Erosion Costs – Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon tire bike, selling for $90.00 with a production and shipping cost of $35.00. The company is thinking of introducing an off-road...
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...depreciation Methods of depreciation that call for recognition of relatively large amounts of depreciation in the early years of an asset’s useful life and relatively small amounts in the later years. amortization The systematic write-off to expense of the cost of an intangible asset over the periods of its economic usefulness. book value The cost of a plant asset minus the total recorded depreciation, as shown by the Accumulated Depreciation account. The remaining undepreciated cost is also known as carrying value. capital expenditures Costs incurred to acquire a long-lived asset. Expenditures that will benefit several accounting periods. capitalize A verb with two different meanings in accounting. The first is to debit an expenditure to an asset account, rather than directly to expense. The second is to determine the amount of an investment by dividing the annual return by the investor’s required rate of return. depletion Allocating the cost of a natural resource to the units removed as the resource is mined, pumped, cut, or otherwise consumed. depreciation The systematic allocation of the cost of an asset to expense over the years of its estimated useful life. fixed-percentage-of-declining-balance depreciation An accelerated method of depreciation in which the rate is a multiple of the straight-line rate and is applied each year to the undepreciated cost of the asset. The most commonly used rate is double the straight-line rate. goodwill The present...
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...flow for a firm with $500,000 profit before tax, $100,000 depreciation expense, and a 35% marginal tax rate? A. $260,000 B. $325,000 C. $360,000 D. $425,000 5. What nominal annual return is required on an investment for an investor to experience a 12% gain in purchasing power? Assume inflation to be 4%. A. 7.69% B. 9.29% C. 12.00% D. 16.48% 6. A parcel of corporate land was recently dedicated as the new plant site. What cost allocation should the land receive, based on the following: original cost of $200,000, market value of $300,000, net book value of $200,000, a recent offer to purchase for $250,000. A. $200,000 B. $250,000 C. $275,000 D. $300,000 7. Assuming that an asset has been fully depreciated according to its MACRS class life, which of the following statements is correct concerning the value of the asset? A. Its market value is zero. B. Its book value is zero. C. Its book value is the current market value. D. It has neither book value nor market value 8. Working capital will...
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...an individual taxpayer who has elected in 2010 to amortize the premium on a bond that yields taxable interest? |[pic] |A. The amortization is treated as an itemized deduction. | |[pic] |B. The amortization is not treated as a reduction of taxable income. | |[pic] |C. The bond's basis is reduced by the amortization. | | |An individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest may reduce the | | |bond's basis by the amortization of the premium. In addition, the amount of bond premium attributable to the tax year | | |may be used to offset interest received on the bond in computing the taxpayer's taxable income. | | |This response correctly states that the bond's basis is reduced by the amortization. | |[pic] |D. The bond's basis is increased by the amortization. | |Question #2 (AICPA.921101REG-P2-AR) | |[pic] | Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their 2010 adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule...
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...remarry before the end of the current year II. The surviving spouse was eligible to file a joint tax return in the year of the spouse’s death III. The surviving spouse maintains the cost of the principal residence for six months. A. I, II, and III B. I and II, but not III C. I and III, but not II D. I only A. Incorrect. A taxpayer may file a tax return as a qualifying widow or widower for 2 tax years after the year in which a spouse dies provided the couple qualified to file a joint return for the year of death; that the taxpayer provided over 50% of the cost of maintaining the principal residence of a dependent child or stepchild; and that the taxpayer has not remarried as of the end of the current year. Maintaining the cost of the taxpayer’s principal residence for six months is not sufficient. B. Correct! A taxpayer may file a tax return as a qualifying widow or widower for 2 tax years after the year in which a spouse dies provided the couple qualified to file a joint return for the year of death; that the taxpayer provided over 50% of the cost of maintaining the principal residence of a dependent child or stepchild; and that the taxpayer has not remarried as of the end of the current year. Maintaining the cost of the taxpayer’s principal residence for six months is not sufficient. C. Incorrect. A taxpayer may file a tax return as a qualifying widow or widower for 2 tax years after the year in which a spouse dies provided the...
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...In Year 1, Brun Corp. properly accrued $10,000 for an income item on the basis of a reasonable estimate. In Year 2, Brun determined that the exact amount was $12,000. Which of the following statements is true? | | A. | Brun is required to file an amended return to report the additional $2,000 of income. | B. | Brun is required to notify the IRS within 30 days of the determination of the exact amount of the item. | C. | The $2,000 difference is includible in Brun’s Year 2 income tax return. | | ABC Corporation ends its tax year on October 30. When must ABC’s income tax return be filed for the year ending October 30, Year 1? | | A. | January 15, Year 2. | | An S corporation engaged in manufacturing has a year end of June 30. Revenue consistently has been more than $10 million under both cash and accrual basis of accounting. The stockholders would like to change the tax status of the corporation to a C corporation using the cash basis with the same year end. Which of the following statements is correct if it changes to a C corporation? | | A. | The year end will be December 31, using the cash basis of accounting. | B. | The year end will be December 31, using the accrual basis of accounting. | C. | The year end will be June 30, using the accrual basis of accounting. | | In order to adopt a fiscal tax year on its first federal income tax return, a corporate taxpayer must | | A. | Maintain books and records and report income and expenses using that...
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... Cost of goods sold is going up: net income is going down Purchase Date Quantity Unit Cost Total Cost April 9 70 1200 84,000 May 1 30 1250 375000 = 100 = 121500 Sold 90 laptops on May 10..FIFO sold 70@1200=84000 20 @1250=25000 COGS= 109,000 Lower of cost of market rule: Write- down on the amount of the cost of the inventory Material Non-Material Dr. Loss from write-down of inventory Dr. Cost of goods sold Cr. inventory Cr. Inventory Errors in Inventory If inventory is understated at year-end; then it will be understated at the beginning of the following year Ex: Inventory Actual $1,000,000 Physical Count $1,000,100 If inventory is overstated at year-end; then it will be overstated at the beginning of the following year Ex: Inventory...
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...Sample Final Exam 1. The term planning involves a. the development of future objectives and the preparation of various budgets to achieve these objectives. b. the steps taken to ensure that objectives set down by management are attained. c. the steps taken to ensure that all parts of the organization function in a manner consistent with organizational policies. d. comparing budgeted and actual results and taking steps to remedy unacceptable variations. 2. Self-imposed budgets typically are a. not subject to review by higher levels of management since to do so would contradict the participative aspect of the budgeting processing. b. not subject to review by higher levels of management except in specific cases where the input of higher management is required. c. subject to review by higher levels of management in order to prevent such self-imposed budgets from becoming too loose and allowing too much freedom in activities. d. not critical to the success of a budgeting program. 3. Which of the following statements is not correct? a. The sales budget is the starting point in preparing the master budget. b. The sales budget is constructed by multiplying the expected sales in...
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...term below) and the dividend yield (the second term): Rt = (end price – beginning price) / beginning price + dividend / beginning price where Rt is the return for time period t. Example You purchase a stock for $50, sell it one year later for $53. During that year, you received a dividend of $2. What are your absolute and percent returns? Separate the percent return into the two components. Capital gain = 53 – 50 = 3 Dividend = 2 Absolute dollar return = 3 + 2 = 5 Percent return = 5/50 = 3/50 + 2/50 = 6% + 4% = 10% Capital gain yield = 6% Dividend yield = 4% Example You purchase a $1000, 5%, 20 year semi-annual bond for $1050 right after a coupon payment. One year later you sell the bond for $1025. What are your absolute and percent returns? Capital loss = 1025 – 1050 = -25 Coupon payments = 5% ( 1000 = 50 Absolute dollar return = -25 + 50 = 25 Percent return = 25 / 1050 = 2.38% Portfolio returns • The return on the portfolio is the weighted average of the individual security returns • The weight on each security is the percent of the portfolio invested in that security Example You have 50% of your portfolio in IBM stock, 20% in Microsoft, and 30% in Intel. IBM returned 25% over the last year, Microsoft returned –15%, and Intel returned 5%. What is your...
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