...The corporation should expense $192,000 of the furniture’s cost because the amount eligible to be expensed under Section 179 for automobiles is subject to the ceiling limitations for depreciation of automobiles. The warehouse is not eligible for Section 179 expensing because it is not personality. 17. $125,000. Anne uses the lower of her basis or fair market value at the date the condo is converted from personal to rental property. 22. Azona’s first-year depreciation is $550,000 consisting of $275,000 ($550,000 x 50%) additional bonus depreciation and $55,000 [($550,000 - $275,000) x 20%] regular MACRS depreciation. b. Azona’s first-year depreciation is $320,000 57. a. Sidewalks are 15-year property; MACRS depreciation = 5% x $6,000 = $300. b. The barn is 20-year property; MACRS depreciation = 3.75% x $120,000 = $4,500. c. The tugboat is 10-year property; MACRS depreciation is 10% x $85,000 = $8,500. 21. a. DDF has $507,000 ($575,000 - $68,000) Section 1231 gain on the land sale. It has a $635,000 ($125,000 - $760,000) Section 1231 loss on the sale of the equipment. b. The $635,000 loss is netted against the $507,000 gain. The result is a $128,000 net Section 1231 loss that is deducted against DDF Corporation’s ordinary 23. a. Machine 8: $12,000 – $14,000 = $2,000 loss realized. Machine 6: $24,000 - $19,000 = $5,000 gain realized. b. The machines are Section 1231 property. The loss on Machine 8 is a Section 1231 loss; the gain on Machine 6 is ordinary...
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...Part 1 Harry Pickart P. O. Box 100 Sun River, OR 97600 Dear Harry, After reviewing the information you provided to me, I advise you that the aircraft parts should be depreciated based on 5-year cost recovery rules. Revenue Procedure 87-56, 1987-2 C.B. 674, which is reproduced as "Table B" in IRS Publication 946, classifies your property as an Asset Class 00.21, and as such, they will be subject to the 5-year MACRS schedule of depreciation. If you have any further questions, feel free to contact me. Sincerely, Part 2 RE: Harry Pickart (Tax Year 2011) Facts: Harry Pickart has qualified property, IRC § 167(a), consisting of used aircraft parts which he rents to movie studios. He estimates that the useful life of the parts is less than four years because of the wear and tear while they are being used by the movie studios. Therefore, he believes the cost recovery period is three years. Issue: Determination of the asset class and cost recovery rules for airplane parts to establish the correct MACRS depreciation schedule. Conclusion: The aircraft parts should be classed as five-year recovery property, per Table B, IRS Publication 946, 00.21, as defined by Rev. Proc. 87-56, 1987-2 C.B. 674. Analysis: From Rev. Proc. 87-56, classifying an asset according to the business activity in which the asset is primarily used, the Tax Court held that the useful life of a particular asset is not controlling in determining the applicable recovery period under 168, as in...
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...class on Feb. 12, 2013: http://10.101.116.223/F435/W13/F435All4Feb12.html Problem #2: (Winter 2013) Salvage value = $28,000 tax basis = $19,000 tax rate = 30%. Presented and discussed in class on Feb. 12, 2013: http://10.101.116.223/F435/W13/F435All4Feb12.html Problem 3: (Winter 2013) Salvage Value = $84,000 tax basis $92,000 tax rate = 30% Presented and discussed in class on Feb. 12, 2013: http://10.101.116.223/F435/W13/F435All4Feb12.html Problem #4: (Spring 2014) Machine costs $50,000 now Depreciation over a 5-year MACRS life Three years from now, we will sell this machine for $11,000. What will be the ATSV of the machine in three years? 34% Presented and discussed in May 7, 2014, class: http://10.101.116.223/F435/S14/F435All4May7.html Problem #5: (From Quiz #3-B, Fall 2014) initial cost = $10,417,000.00 expected salvage value in 10 years= $3,260,000 marginal tax rate = 34% 15-year MACRS depreciation Problem #6: (From class on Nov. 4, 2014, when preparing for HW#5) Old Machine: marginal tax rate = 34% if sold now, salvage value = $4,000 net book value or tax basis = $2,100 if sold in 4 years, salvage value = $2,500 If kept, then depreciation will be: time depr(old) 1 $300 2 $200 3 $150 4 $100 Presented and discussed in Nov. 4, 2014, class:...
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...Introduction Macroeconomics can be defined as the study of the entire economy (Chari & Kehoe, 2006, p. 3).The key problems facing policy makers are how to improve people standard of living in order to achieve economic growth while at the same time controlling inflation and unemployment (Gans, King, Stonecash and Mankiw, 2009, p. 11). However, the aim of discussion is to analyses how “a country’s standard of living depends on its ability to produce goods and services”. Review Lessons (principles) 8 Gans, et al (2009, p. 11) stipulated that “a country’s standard of living may be measured by comparing personal incomes or by comparing the total market value of a nation’s production”. People living in high-income countries may have a better standard of living than people living in low-income countries because they can afford cars, houses, clothes, furniture, appliances, foods, education and more (Chari & Kehoe, 2006, p. 3). Hobijn and Steindel (2009, p. 2) suggested that the living standard can be determined by looking at the country GDP which stands for “gross domestic product”. Nevertheless, the focus of this discussion is on the real GDP because it measures the production of goods and services at constant prices as it is a pretty good indicator of individual material standard (Hobijn & Steindel, 2009, p. 2). Appendices A and B highlights countries with the highest and lowest GDP per capita in the world. GDP per capita gives the average amount of income that each...
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...68. Suppose that David adopted the last-in first-out (LIFO) inventory-flow method for his business inventory of widgets (purchase prices below). Widget Purchase Date Direct Cost Other Costs Total Cost #1 August 15 $ 2,100 $ 100 $ 2,200 #2 October 30 $ 2,200 $ 150 $ 2,350 #3 November 10 $ 2,300 $ 100 $ 2,400 In late December, David sold widget #2 and next year David expects to purchase three more widgets at the following estimated prices: Widget Purchase Date Estimated Cost #4 Early spring $ 2,600 #5 Summer $ 2,260 #6 Fall $ 2,400 a. What cost of goods sold and ending inventory would David record if he elects to use the LIFO method this year? b. If David sells two widgets next year, what will be his cost of goods sold and ending inventory next year under the LIFO method? c. How would you answer (a) and (b) if David had initially selected the first-in, first-out (FIFO) method instead of LIFO? d. Suppose that David initially adopted the LIFO method, but wants to apply for a change to FIFO next year. What would be his §481 adjustment for this change, and in what year(s) would he make the adjustment? a. Under the LIFO method, this year David should record a cost of goods sold of $ 2,400 and an ending inventory of $ 4,550. b. Under LIFO, David would be deemed to sell widgets # 5 and #6 so his cost of goods sold next year would be $4,660 and his ending inventory would consist of widgets # 1, #2, and #4 for a total ending inventory of $7,150...
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...a. Feb 1, 2010 New Machine 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...
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...Comprehensive Problems 61. Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired during 2012: Asset Cost Date Place in Service Office furniture $10,000 02/03/2012 Machinery 560,000 07/22/2012 Used delivery truck* 15,000 08/17/2012 *Not considered a luxury automobile, thus not subject to the luxury automobile limitations During 2012, TM had huge success (and had no §179 limitations) and Steve acquired more assets the next year to increase its production capacity. These are the assets acquired during 2013: Asset Cost Date Place in Service Computers & Info. System $40,000 03/31/2013 Luxury Auto† 80,000 05/26/2013 Assembly Equipment 475,000 08/15/2013 Storage Building 400,000 11/13/2013 †Used 100% for business purposes. Use 2012 limitations for 2013. TM generated taxable income in 2013 before any §179 expense of $732,500. Required a. Compute 2012 depreciation deductions including §179 expense (ignoring bonus depreciation). b. Compute 2013 depreciation deductions including §179 expense (ignoring bonus depreciation). c. Compute 2013 depreciation deductions including §179 expense, but now assume that Steve would like to take bonus depreciation. d. Ignoring part c, now assume that during 2013,...
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...CHAPTER 8 Making Capital Investment Decisions I. DEFINITIONS INCREMENTAL CASH FLOWS a 1. The changes in a firm’s future cash flows that are a direct consequence of accepting a project are called _____ cash flows. a. incremental b. stand-alone c. after-tax d. net present value e. erosion Difficulty level: Easy EQUIVALENT ANNUAL COST e 2. The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost. a. incremental b. sunk c. opportunity d. erosion e. equivalent annual Difficulty level: Easy SUNK COSTS c 3. A cost that has already been paid, or the liability to pay has already been incurred, is a(n): a. salvage value expense. b. net working capital expense. c. sunk cost. d. opportunity cost. e. erosion cost. Difficulty level: Easy OPPORTUNITY COSTS d 4. The most valuable investment given up if an alternative investment is chosen is a(n): a. salvage value expense. b. net working capital expense. c. sunk cost. d. opportunity cost. e. erosion cost. Difficulty level: Easy EROSION COSTS e 5. The cash flows of a new project that come at the expense of a firm’s existing projects are called: a. salvage value expenses. b. net working capital expenses. c...
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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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...Chapter 8 Homework For Questions the following questions (1-4), please complete the appropriate assigned to your group. 1. Group A & B Juan acquires a new five year class asset on March 14, 2014, for $200,000. This is the only asset acquired by Juan during the year. He does not elect immediate expensing under Section 179.He does not claim any available additional first-year depreciation. On July 15, 2015, Juan sells assets. a. Determine Juan’s cost recovery for 2014. for 2014 and following MACRS cost recovery showed in table 8.1 total would be 40000 {200000*20%} b. Determine Juan’s cost recovery for 2015. for 2015 and following MACRS cost recovery as showed in table 8.1 total would be 32000 which is {200000*32%} and then multiplied by .5 because it is for half of the year. see page 8-36 Group C & D Debra acquired the following new assets during 2014: Date Asset Cost April 11 Furniture $40,000 July 28 Trucks $40,000 November 3 Computers $70,000 Determine the cost recovery deductions for the current year. Debra does not elect immediate expensing under Section 179. She does take additional first-year depreciation. 2. Group A & B On April 3, 2014, Terry purchased and placed in service a building. The building cost $2 million. An appraisal determined that 25% of the total cost was attributed to the value of the land. The bottom floor of the building is leased to a retail business for $32,000. The other floors of the building are rental apartments...
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... | An asset's capitalized cost basis includes only the actual purchase price; whereas the other expenses associated with the asset are 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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...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 evidence regarding the lack of development that has taken place in a child’s brain by the age of ten. The severely detrimental social, psychological and physiological effects of...
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...Income taxes and financial accounting Abstract: The paper discusses the basic elements of tax allocation, analyzes extensively the principal timing difference: accelerated depreciation for tax purposes and straight-line depreciation for published financial reporting, looks into the major aspects of SFAS No. 109, and explores the difference of GAAP and IFRS on tax allocation. 1. Income tax allocation In order to comply with IRS tax code and make sense of the tax expands for income statement analysis, income tax allocation involves with high level of complexity for financial statement. This paper tries to explain how income tax allocation works by comparing of accelerated tax depreciation versus straight-line for financial reporting. The paper will focus on the change from SFAS No. 109 from SFAS No. 96. The discounting of deferred tax liabilities is also mentioned and analyzed. Because of the timing difference between time of the tax return and the time of the publication of the financial statement, different taxable results incur from the IRS tax basis and the financial reporting basis. Although the different exist, the difference will be smooth out in the cumulated ways for years and years. Income tax expense and income tax liability are always differ from each other in figures, but with the difference deferred in next year. 1.1 History In 1967, APB Opinion No.11 replaced ARBs 43 and 44 under the requirement of comprehensive allocation. If there is any difference...
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...Medium, and T = Tough) Multiple Choice: Problems (Note: MACRS accelerated depreciation rates should be given for many of these problems. These rates are provided in the text in Chapter 11, Table 11-2.) Easy: Investment outlay Answer: c Diff: E [i]. The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $60,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $30,000 versus a current market value of $24,000. Target's corporate tax rate is 40 percent. If Target sells the old machine at market value, what is the initial after-tax outlay for the new printing machine? a. -$22,180 b. -$30,000 c. -$33,600 d. -$36,000 e. -$40,000 Risk-adjusted discount rate Answer: c Diff: E [ii]. Dandy Product's overall weighted average required rate of return is 10 percent. Its yogurt division is riskier than average, its fresh produce division has average risk, and its institutional foods division has below-average risk. Dandy adjusts for both divisional and project risk by adding or subtracting 2 percentage points. Thus, the maximum adjustment is 4 percentage points. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division? a. 6% b. 8% c. 10% d. 12% e. 14% Medium: [MACRS table required] New project NPV Answer: d Diff: M [iii]. Mars...
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...would require an investment of $1.5 million to purchase machinery and to refurbish Sheetbend's plant in Pleasantboro, Maine. Mr. Tar set to work and by the end of the week had collected the following facts and assumptions: The plant in Pleasantboro had been built in the early 1900s and is now idle. The plant was fully depreciated on Sheetbend's books, except for the purchase cost of the land (in 1947) of $10,000. Now that the land was valuable shorefront property, Mr. Tar thought the land and the idle plant could be sold, immediately or in the near future, for $600,000. Refurbishing the plant would cost $500,000. This investment would be depreciated for tax purposes on the 10-year MACRS schedule. The new machinery would cost $1 million. This investment could be depreciated on the 5-year MACRS schedule. The refurbished plant and new machinery would last for many years. However, the remaining market for duffel canvas was small, and it was not clear that additional orders could be obtained once the navy contract was finished. The machinery was custom-built and could be used only for duffel canvas. Its secondhand value at the end of 5...
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