Concepts In Federal Taxation 19th Edition Kevin E. Murphy, Mark Higgins, Tonya K. Flesher - Solutions

On November 14, 2011, Noel sells 2,000 shares of Marker, Inc., stock for $6,000. He had purchased the stock two years earlier for $10,000. Because the price of the stock continued to drop, Noel purchases additional shares of Marker stock on December 10, 2011. What are the tax effects of the sale of
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 transactions. Include a discussion of the
Leineia owns 1,000 shares of Serous Corporation common stock. She paid $26 per share several years ago. On December 31 of the current year, Serous distributes a $5 per share cash dividend. It reports that $3 per share is taxable and $2 is a nontaxable dividend.Identify the tax issue(s) posed by the
During the current year, Horace’s personal residence is damaged by a tornado. It had an adjusted basis of $40,000 before the tornado. The cost of repairing the damage is $11,000. Horace’s insurance company reimburses him $8,000 for the repairs. Horace itemizes his deductions and has an adjusted
Jolene owns a dry-cleaning business. During the current year, a rainstorm causes a roof leak that shorts out a dry-cleaning machine. The cost of repairing the machine is $300, none of which is compensated by Jolene’s insurance. The adjusted basis of the machine before it shorted was
Charles buys a car for $15,000 that has a fair market value of $10,000.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
Kendrick pays a construction company $20,000 to remodel a house.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
The Lester Partnership wants to develop a shopping mall on a former farm. The farmer wanted $260,000 for the land, $80,000 for the farm buildings, and $130,000 for the farmhouse. Although it wanted only the land, Lester agreed to the farmer’s terms. It then paid Ace Wrecking Company $20,000 to
Carter wants to retire from his florist business, and his long-time employee, Howard, would like to take over the business.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
For his 18th birthday, Kevin gave his son, Gabe, 5 gold coins for which he paid $500 each 2 years earlier. On Gabe’s birthday, coins were selling for $450. One month after his birthday, Gabe sells 2 of the coins for $525 each and uses the money to buy a motorcycle.Identify the tax issue(s) posed
Tommi inherits Dierhopf Corporation common stock from her uncle, Norvel. Norvel’s adjusted basis in the stock is $200,000, and the fair market value is $380,000.Six months after Norvel’s death, the stock’s value is $420,000. Nine months after his death, when the stock’s value is $350,000,
On September 14 of last year, Wenona purchased 100 shares of Campbell Corporation common stock at a total cost of $8,000. In December of the current year, Campbell pays a nontaxable stock dividend of 1 share of preferred stock for every 10 shares of common. On the date of the dividend announcement,
Monica owns 1,400 shares of Northeast Utilities common stock. In August of this year, when its stock was selling for $10 per share, Northeast announced a 20% stock dividend. In lieu of receiving the dividend shares, stockholders have the option of receiving $2 per share in cash.Identify the tax
Use the RIA Checkpoint database to answer the following questions. Cut and paste the relevant Internal Revenue Code and Treasury Regulation section(s) into your solution and explain how the authority answers the tax issue in question. Give the most specific citation applicable [e.g., Sec.
RIA RESEARCH EXERCISE Use the RIA Checkpoint database to answer the followingquestions. Cut and paste the relevant Internal Revenue Code and Treasury Regulation section(s) into your solution and explain how the authority answers the tax issue in question. Give the most specific citation applicable
Blair and Britain divorce in the current year. Blair agrees to transfer her interest in their principal residence to Britain. They had purchased the home for $80,000 four years before the divorce. At the time of the divorce, the house is worth $120,000.REQUIRED: Determine the income tax
In the United States, gifts of property are subject to the gift tax. To avoid double taxation, the income tax excludes the receipt of a gift from taxable income. To ensure that a subsequent sale of gift property does not tax the gift, a basis is assigned to property received by gift. Other methods
The basis of inherited property is generally the fair market value at the date of death. This enables the person who inherits the property to receive a ‘‘step-up’’ in basis. Use the Internet to find discussions related to this ‘‘stepped-up’’ basis.
Several years ago, Steve gave his nephew Rashan his coin collection valued at $12,000 with a basis of $3,000. Steve’s intent was to ensure that Rashan has money for college. Rashan is now a senior in high school, and the coins are worth $16,000. Rashan is considering selling some of the coins to
Harry and Freddi, a married couple, purchased 100 shares of OpaqueMutual Fund in 1996 for $2,800 as joint tenants with the right of survivorship. Freddi dies during the current year. The fair market value of the shares is $5,000 on the date of death. Six months later, the value is $5,100. Determine
Emelio and Charita are married taxpayers with 2 dependent children. Emelio starts a computer consulting business in 2011. Charita works as a real estate broker. During 2011, they have the following property transactions:a. Emelio purchases an office building on March 15, 2011, to use in his
Monica is planning to start her own accounting, tax, and financial planning business. Her uncle Gus has given her file cabinets, a desk, computer equipment, and bookcases that were in his den until he sold his house. Gus recently moved to a lakefront cottage and no longer needs the furniture and
Terry purchased stock in Yippee Corporation for $10,000 in May 1977. He bought stock in Zapper Corporation for $20,000 in June 1980. The Yippee Corporation stock is currently worth $90,000, and the Zapper Corporation stock is worth $15,000. Terry is in very poor health, and he comes to you for tax
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 Northern State Technical University School of
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 comes to you with an idea from his son, Dale Jr.,
Assume you are a CPA. A new client, Mark, a local chiropractor, has brought you the financial information for his business at the close of the past year. Previously, Mark prepared his own tax returns and had them reviewed by Blacke&Co. You find the information to be organized and fairly
How does the allowable capital recovery period affect the potential return on the investment in an asset?
Which two tests must be met to claim a periodic recovery deduction on a capital expenditure?
What types of capital expenditures are not deductible over time (i.e., their cost is recovered upon disposition of the asset)?
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 was the purpose of changing from the facts and circumstances depreciation method to the ACRS method?
In general, which types of property may be expensed under Section 179, and what is the current maximum limit on the deduction?
What limitations are placed on the maximum amount to be expensed under Section 179?
Is the Section 179 election to expense an incentive to all businesses to invest in qualifying property?
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?
What is the purpose of the acquisition- and disposition-year convention?
What acquisition- and disposition-year conventions are used in MACRS and to what types of property does each of the conventions apply?
Why is the calculation of depreciation using MACRS generally considered easier and more efficient than the calculation using the facts and circumstances method?
What is the Alternative Depreciation System? How is it different from a straight-line election under MACRS?
Why might a taxpayer elect to depreciate assets using the Alternative Depreciation System (ADS)?
Why are restrictions placed on the cost recovery of listed property?
When a taxpayer purchases an automobile for use in a trade or business, what limits are placed on the cost recovery on the automobile?
Which types of property are allowed a deduction for depletion?
How is cost depletion different from percentage depletion?
Which income tax concepts might taxpayers who take depletion deductions be violating?
How are the costs of intangible assets recovered?
Peter Corporation purchases the following assets during the current year. Identify which assets are not subject to cost recovery using depreciation, and state why that is so.a. Landb. Copyrightc. Buildingd. Goodwille. Inventory for sale in its storef. 500 shares of Excellent common stockg. A house
State whether each of the following expenditures incurred during the current year should be treated as a repair expense or capitalized and depreciated using MACRS:a. Replacement of the carpeting in a rental apartmentb. Replacement of the drill bit on a gas-powered post-hole diggerc. Replacement of
For each of the following expenditures incurred during the current year, indicate whether it should be treated as a repair expense or capitalized and depreciated using MACRS:a. Replacement of the roof on an apartment buildingb. Replacement of the condenser in a central air conditioning unitc.
A taxpayer purchases $507,000 worth of property that qualifies for the Section 179 deduction during the current year. The taxpayer would like to deduct the greatest depreciation expense possible (including the Section 179 deduction) on the property.Assuming that each of the following entities
Firefly, Inc., acquires business equipment in July 2011 for $2,005,000. Assume that Firefly elects not to claim bonus depreciation.a. What is Firefly's maximum Section 179 deduction for 2011? Explain.b. What happens to any portion of the annual limit not deducted in 2011? Explain.c. What is the
In 2011, Terrell, Inc., purchases machinery costing $2,018,000. Its 2011 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 deduction in 2011? Explain.b. What is the depreciable
In 2011, Theo purchases $16,000 of Section 179 property for use in his delivery business. During 2011, 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 deduction in 2011? Explain.b. Theo's business
During 2011, 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 maximum Section 179 deduction in 2011?
Brad is a shareholder and full-time employee of an S corporation. During 2011, 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 which he earns $12,000 during 2011. Kanika,
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 $500,000. Jennifer purchases $301,200 worth of
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 Rudy's father's death is $8,000, and the value on
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 computer from his employer for $4,000. He plans
Determine the class life, MACRS recovery period, and ADS recovery period of each of the following assets:a. Bargeb. Computer c. Automobile d. Breeding sheep e. Breeding horsesf. Barng. Office furnitureh. Land improvements
Determine the class life, MACRS recovery period, and ADS recovery period of each of the following assets acquired for a sports bar:a. Pool tableb. Safec. Photocopying machinesd. Pickup trucke. Electronic video gamesf. Brewing tanks for the bar's microbreweryg. Four-year-old racehorse named Go for
For each asset in problem 34, determine the correct IRS percentage table, recovery period, and applicable convention.a. Pool tableb. Safe c. Photocopying machines d. Pickup trucke. Electronic video gamesf. Brewing tanks for the bar's microbrewery g. Four-year-old racehorse named GofortheBrew
Determine the correct IRS percentage table, recovery period, and applicable convention for each of the following assets:a. Helicopterb. 68-unit apartment buildingc. The new Wings Field baseball stadium in Buffalod. Automobilee. Commercial office buildingf. Farm equipment storage building
The United Express Company begins business in August 2011 by purchasing the assets listed in the table below. If United Express elects not to claim bonus depreciation, calculate the maximum MACRS depreciation on the assets.Asset
Assume that in problem 37, the United Express Company sells a truck that cost $60,000 in 2011 for $15,000 in June 2014. Assume that none of the truck was expensed in 2011. Compute the adjusted basis of the truck and the gain or loss from the sale.
The Browser Company purchases a computer in August 2011 for $100,000. Browser elects not to claim bonus depreciation and does not elect to expense the asset but wants to claim the maximum depreciation. In May 2014, the company sells the computer. Calculate the adjusted basis of the computer at the
The Browser Company purchases a computer in December 2011 for $100,000. This is the only depreciable personal property acquired during the year. Browser elects not to claim bonus depreciation and does not elect to expense the asset but wants to claim the maximum depreciation. In May 2014, the
Larry purchases machinery for his business (7-year MACRS property) on April 1 at a cost of $547,000. On June 1, he spends $84,000 for equipment (5-year MACRS property). Larry does not want to claim bonus depreciation.a. What is the maximum deduction allowable?b. What is the minimum deduction
Kris starts a new business in 2011. She purchases 7-year MACRS property costing $12,000. Her business income before any cost-recovery deductions is $8,000. Kris does not want to claim bonus depreciation.a. What is the maximum cost-recovery deduction allowable for 2011?b. How does your answer change
Dikembe purchases 1,000 breeding hogs for $542,000 in April 2011. Dikembe does not want to claim bonus depreciation.a. What is his maximum 2011 cost-recovery deduction for the hogs?b. Dikembe's farming operation incurs a net loss this year and probably will next year before taking the cost recovery
Rograin Corporation purchases turning lathes costing $1,033,000 and a bus fleet costing $975,000 in June of the current year. The lathes are 7-year MACRS property, and the bus is 5-year MACRS property. Rograin does not want to claim bonus depreciation.a. What is Rograin's maximum Section 179
Baker, Inc., purchases office furniture (7-year MACRS property) costing $511,000 and a computer system (5-year MACRS property) costing $511,000 in 2011. Assuming that Baker elects not to claim bonus depreciation, what is the maximum cost-recovery deduction in 2011?
Chen Corporation purchases the following business assets during the current year:Assuming that Chen elects not to claim bonus depreciation, what is the maximum current year cost-recovery deduction on the assets purchased?
Harold purchases the following business assets on the dates indicated:a. What is Haroldâ€™s 2011 cost-recovery deduction if he elects not to claim bonus depreciation and does not elect to expense any of the assets under Section 179?b. What could Harold do to maximize his 2011deduction?
The Gladys Corporation buys office equipment costing $574,000 on May 12, 2011. In 2014, new and improved models of the equipment make it obsolete, and Gladys sells the old equipment for $34,000 on December 27, 2014. The corporation elected not to claim bonus depreciation in 2011.a. What is Gladys
In June 2011, Copper Kettle, Inc., purchases duplicating equipment for $541,000. Assume that Copper Kettle elects not to claim bonus depreciation.a. Compare cost-recovery deductions using maximum, minimum, and intermediate methods over the recovery period of the equipment.b. Explain why Copper
In July 2011, Surecut Sawmills buys office furniture for $570,000. Assume that Surecut elects not to claim bonus depreciation.a. Compare cost-recovery deductions using maximum, minimum, and intermediate methods over the recovery period of the equipment.b. Explain why Surecut would elect to use each
Stan purchases machinery costing $100,000 for use in his business in 2011. The machinery is 7-year MACRS property and has an ADS life of 12 years. Prepare a depreciation schedule using the regular MACRS method and ADS depreciation assuming that Stan does not make a Section 179 election and elects
Guadalupe purchases an office building to use in her business at a cost of $520,000. She properly allocates $20,000 of the cost to the land and $500,000 to the building. Assuming that Guadalupe would like to deduct the maximum depreciation on the building, what is her first-year depreciation on the
Refer to problem 52. Guadalupe sells the building on October 26, 2011. What is her 2011 depreciation deduction if she purchased the building ona. June 30, 1992?b. June 30, 1994?
Anton purchases a building on May 4, 1994, at a cost of $270,000. The land is properly allocated $30,000 of the cost. Anton sells the building on October 18, 2011, for $270,000. What is his gain or loss on the sale if he uses the regular MACRS system and the building isa. An apartment building?b.
On March 1, 2011, Babar Inc., pays $1,200,000 for a store building, moves into the building, and begins business on April 1. Babar properly allocates $1,000,000 of its cost to the building and $200,000 to the land. On May 21, 2011, it installs $523,000 worth of new display shelving. Babar wants to
On June 1, 2010, Kirsten buys an automobile for $60,000. Her mileage log for the year reveals the following: 20,000 miles for business purposes; 7,000 miles for personal reasons; and 3,000 miles commuting to and from work. What is Kirsten’s maximum cost-recovery deduction for 2010?
On May 15, 2010, Lurlene buys a used automobile for $17,000. She drives it 9,000 miles for business and 3,000 miles for personal trips during the year. What is Lurlene’s maximum cost recovery for 2010?
On July 4 of the current year, Lawrence invests $240,000 in a mineral property. He estimates that he will recover 800,000 units of the mineral from the deposit. During the current year, Lawrence recovers and sells 100,000 units of the mineral for $3.50 per unit.a. What are Lawrence’s cost
Isidro purchases an interest in an oil-producing property for $100,000 on November 3. His geologist estimates 15,000 barrels of oil are recoverable. The entity sells 1,000 barrels for $20,000 duringNovember and December of the year of acquisition. Assume the percentage depletion rate for oil is
On June 2, 2011, Lokar Corporation purchases a patent for $68,000 from the inventor of a new extrusion process. The patent has 12 years remaining on its legal life. Also, Lokar purchases substantially all the assets of the Barrios Corporation for $750,000 on September 8, 2011. The values of the
On April 18, 2011, Petros buys all the assets of Brigidâ€™s Muffler Shop. Included in the purchase price of $295,000 is a payment of $20,000 to Brigid not to open a competing shop in the state for a period of 5 years. Brigidâ€™s assets at the date of sale are as follows:The patent is on a
On October 1 of the current year, Lee Corporation enters negotiations with Kay Corporation to acquire a patent. The patent has 10 years remaining on its legal life.a. If Lee Corporation purchases the patent for $36,000, how much amortization expense may Lee Corporation deduct in the current year?b.
Bailey Construction Company purchases a bulldozer on December 20, 2011. 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. Determine the possible tax consequences of each issue
Jason is transferred to another city to work and is unable to sell his house. He rents out the house until it is sold.Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
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.
During 2011, Schottenheim Corporation buys 20 laptop computers and a mainframe computer to use in its general sales offices. Schottenheim buys 14 laptops for $42,000 on March 29, 6 laptops for $18,000 on September 26, and the mainframe for $510,000 on October 5. The Corporation makes no other
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.
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.
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 the land. During the first year, Dawkins cuts
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.
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, Stone Mining wants to minimize expenses
In problem 89 of Chapter 9, you were asked to determine the initial basis of Emelio and Charitaâ€™s business, investment, and personal use assets. In this problem, you are to determine the adjusted basis of the assets as of December 31, 2011. You should disclose all calculations made to arrive
Joy opened a shop to sell concrete yard ornaments in 2007. 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 $100,000 when she purchased them in 2001. The
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 As a Santavar. Fiona is thrilled by her acquisition. The violin is a treasured artwork and a

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Concepts In Federal Taxation 19th Edition Kevin E. Murphy, Mark Higgins, Tonya K. Flesher - Solutions

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