Exam (elaborations)
TAX 4001 Midterm.
Exam of 31 pages for the course TAX 4001 at TAX 4001 (TAX 4001 Midterm.)
[Show more]
Seller
Follow
Content preview
TAX 4001 Midterm1. A calendar year taxpayer made two asset purchases this year. First, a machine
costing $836,000 was placed into service on July 21. Second, equipment costing
$494,000 was placed into service on October 14. Both assets are 7-year recovery
property. How many months of MACRS depreciation is the company allowed for each
asset this year?
- 1.5 months of depreciation for both the machine and the equipment.
- 7.5 months depreciation for the machine and 1.5 months of depreciation for the
equipment.
- 6 months of depreciation for both the machine and the equipment.
- 6 months depreciation for the machine and 1.5 months of depreciation for the
equipment. - ANS-- 6 months of depreciation for both the machine and the equipment.
- 494,000/1,330,000 = 37%. This means that less than 40% of the depreciable assets
were put in place during the fourth quarter, therefore, the midyear convention can be
used
1. Jason engaged in a transaction that generated $50,000 of cash. Assuming Jason's
marginal tax rate is 40% and only $40,000 of the income is taxable, what is Jason's
after tax cashflow?
$20,000
$40,000
$34,000
$24,000 - ANS-$34,000
(40,000*.4) = 16,000
50,000 - 16,000 = 34,000
10. In 2022, Driving Inc purchased assets and elected to expense the entire cost using
Section 179. However, Driving could not deduct $100,000 of the Section 179 expense
because of the taxable income limitation. In 2022, Driving purchased tangible personalty
costing $1,090,000. Driving's taxable income before any Section 179 deduction was
$1,912,400. Compute Driving's 2022 Section 179 deduction.
- $100,000
- $1,190,000
- $0
- $1,080,000 - ANS-- $1,080,000
,100. Assuming Jessica has $100,000 in an investment paying 9% annual interest and
her marginal tax rate is 25%, which of the following statements is false?
- If the interest is taxable, Jessica's annual after-tax cash flow is $6,750.
- If the interest is tax-exempt, Jessica's annual after-tax cash flow is $9,000.
- Jessica's annual before-tax cash flow from this investment is $9,000.
- None of these choices are false. - ANS-- None of these choices are false.
101. Which of the following statements is true?
- The annual tax depreciation on passenger automobiles is always equal to the amount
computed under MACRS.
- The annual tax depreciation on passenger automobiles may be limited to an amount
less than MACRS depreciation.
- The straight-line method must be used to depreciate passenger automobiles for tax
purposes.
- No tax depreciation is allowed for passenger automobiles. - ANS-- The annual tax
depreciation on passenger automobiles may be limited to an amount less than MACRS
depreciation.
102. Which of the following statements is false?
- A single percentage that applies to the entire tax base is described as a flat rate.
- A tax base is an item, occurrence, transaction, or activity with respect to which a tax is
levied.
- When designing a tax, governments try to identify tax bases that taxpayers can easily
avoid or conceal.
- With regard to tax systems, the term revenue refers to the total tax collected by the
government. - ANS-- When designing a tax, governments try to identify tax bases that
taxpayers can easily avoid or conceal.
103. Cedarville imposes an individual income tax based on the following schedule.
Rate Income bracket
5% $-0- to $50,000
+ 8% $50,001 to $200,000
+ 12% $200,001 and above
Which of the following statements is true?
- If Mrs. Bee's taxable income is $227,000, her average tax rate is 12%.
- If Mr. Poe's taxable income is $41,200, his marginal tax rate is 8%.
- If Ms. Kaye's taxable income is $63,800, her marginal tax rate is 8%.
- None of the choices are correct. - ANS-- If Ms. Kaye's taxable income is $63,800, her
marginal tax rate is 8%.
,104. In October, XYZ Corp received a $18,000 cash payment from a tenant who leases
space in a commercial office building it owns. Assume XYZ Corp is a calendar year
accrual basis taxpayer and the payment was rent for the 18-month period beginning on
November 1. As a result of the payment, XYZ should report:
- None of these choices are correct
- $2,000 book income and taxable income
- $2,000 book income and $18,000 taxable income
- $18,000 book income and taxable income - ANS-- $2,000 book income and $18,000
taxable income
105. A calendar year accrual basis taxpayer received a $72,000 cash payment in June
from a tenant who leases space in a commercial office building. The payment was rent
for the 24-month period beginning on July 1, of the current year. As a result of the
payment, the taxpayer should report (with respect to the income received and for the
current year):
- None of these choices are correct
- $18,000 book income and taxable income
- No book income and $72,000 taxable income
- $72,000 book income and taxable income - ANS-- None of these choices are correct
Book income: $18,000 Taxable income: $72,000
106. A citator:
- Provides an editorial explanation of tax judicial decisions.
- Is published by the federal government.
- May be used to determine the status of tax judicial decisions, revenue rulings, and
revenue procedures.
- Is not an important tax research resource. - ANS-- May be used to determine the
status of tax judicial decisions, revenue rulings, and revenue procedures.
107. A calendar year accrual basis taxpayer is involved in a legal dispute over an
alleged trademark violation. At the end of the year, the taxpayer recorded a $750,000
accrued expense for the estimated settlement cost of the dispute. Which of the following
statements is true?
- The taxpayer can deduct the $750,000 accrued expense.
- The taxpayer can deduct the accrued expense only if the dispute is settled within eight
and one-half months after the close of the taxable year.
- The taxpayer can never deduct the $750,000 expense.
, - The taxpayer can't deduct the $750,000 accrued expense yet because the liability fails
the all-events test. - ANS-- The taxpayer can't deduct the $750,000 accrued expense
yet because the liability fails the all-events test.
108. Which of the following is/are not a primary source of authority for the tax law?
- A revenue ruling published by the Internal Revenue Service
- Treasury Reg. §1.351-2
- Section 162 of the Internal Revenue Code
- All of these choices are primary sources of authority - ANS-- All of these choices are
primary sources of authority
109. Varson Incorporated and Vonsell Incorporated are owned by the same family. The
family decides to purchase $150,000 of deductible advertising that will benefit the
businesses operated by both corporations. Which of the following statements is true?
- If Varson's marginal tax rate is higher than Vonsell's marginal tax rate, the tax law
requires Vonsell to purchase the advertising.
- If Varson's marginal tax rate is higher than Vonsell's marginal tax rate, Varson can
claim a $150,000 deduction on its tax return regardless of which corporation purchases
the advertising.
- None of these choices are true.
- If Varson's marginal tax rate is higher than Vonsell's marginal tax rate, Vonsell should
purchase the advertising to minimize after-tax cost. - ANS-- None of these choices are
true.
11. Which of the following statements is true?
- The value of tax deferral increases as the taxpayer's discount rate for computing NPV
decreases.
- The greater the length of time that the payment of a tax is deferred, the less the tax
costs in NPV terms.
- The value of tax deferral increases as the taxpayer's discount rate for computing NPV
decreases and the greater the length of time that the payment of a tax is deferred, the
less the tax costs in NPV terms.
- Tax deferral is not an effective planning strategy if the taxpayer's marginal tax rate is
stable over time. - ANS-- The greater the length of time that the payment of a tax is
deferred, the less the tax costs in NPV terms.
110. A calendar year taxpayer purchased $1,496,000 of equipment on March 23. If the
equipment has a 7-year recovery period, compute the first and second-year MACRS
depreciation deduction for the new equipment. (Disregard the Section 179 deduction
and bonus depreciation in making your calculation.)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller lydiaomutho. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £6.23. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72799 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now