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### Ch 10 ICE's with solutions

Course: ACCT 403, Fall 2011
School: South Carolina
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Word Count: 752

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Tax Burkett I Chapter 10 Personal Property Example (page 1 &amp; 2) 1. Compute maximum deduction for 2011 &amp; 2012 for \$100,000, 5 year recovery property purchased on May 5, 2011 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing. Max = 200% DB Convention = 1/2 year 2011 = 100k/5yrs x 200% x 1/2 = 20k 2012 = (100k-20k)/5yrs x 200% = 32k 2. Compute 1 using table A...

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Tax Burkett I Chapter 10 Personal Property Example (page 1 & 2) 1. Compute maximum deduction for 2011 & 2012 for \$100,000, 5 year recovery property purchased on May 5, 2011 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing. Max = 200% DB Convention = 1/2 year 2011 = 100k/5yrs x 200% x 1/2 = 20k 2012 = (100k-20k)/5yrs x 200% = 32k 2. Compute 1 using table A 10-2 on page 47 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing. 2011 = 100k x 20% = 20k 2012 = 100k x 32% = 32k (continue to use original basis when using charts) 3. Compute 1 assuming it was purchased on 12/31/11 and it was the only personal property placed in service in 2011 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing. Convention = mid quarter as if placed in service on 11/15-12/31 = 1.5 months 2011 = 100k/5yrs x 200% x (1.5/12) = 5k 2012 = (100k - 5k)/5yrs x 200% = 38k 4. Compute 3 using the table A10-6 on page 51 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing. 2011 = 100k x 5% = 5k 2012 = 100k x 38% = 38k 1 Burkett Tax I Chapter 10 Personal Property Example (contd) 5. What other options are available and how are they chosen? Methods: Straightline (SL) & 150% Declicing balance (DB) Recovery Period: ADS - see table A10-1 on pg. 45-46 Elect by class for all property placed in service during a year. 6. Compute minimum deduction for 2011 & 2012 for \$100,000, 5 year recovery property with an Alternative Depreciation System (ADS) recovery period of 7 years purchased on May 5, 2011 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing. 2011 = 100k/7yrs x 1/2 = 7,143 2012 = 100k/7yrs = 14,286 (min = SL conv. = 1/2 yr) 7. Compute 6 using table A10-11 on page 54. 2011 = 100k x 7.14% = 7,140 2012 = 100k x 14.29% = 14,290 2 Burkett Tax I Chapter 10 Real Property Example Compute the maximum deduction for 2011 & 2012 for a retail store building purchased on May 31, 2011 for \$120,000, w/ \$20,000 allocated to land SL non-residential = 39 yrs convention = mid-month 2011 = 100k/39yrs x (7.5/12) = 1,603 2012 = 100k/39yrs = 2,564 Compute using Table A10-9 on p. 53. 2011 = 100k x 1.605% = 1,605 2012 = 100k x 2.564% = 2,564 3 Burkett Tax I Chapter 10 Immediate Expense/Section 179 Election Example How should the immediate expense amount be allocated between the property classes if the taxpayer purchases a \$500,000 used 5 year property and a \$500,000 used 7 year property in 2011 and wants to maximize the deductions? Choose sec. 179 for the 7-year property because there is a greater depreciation on 5-year property in the early years. 4 Burkett Tax I Chapter 10 Section 179/Immediate Expensing Bonus Election, Depreciation & MACRS Example Assume new office equipment with a 7 year recovery period is acquired for \$439,000 on April 1, 2012. If this is the only property acquisition in 2012, how would you maximize the 2012 deduction? 1. Immediate expense? max = 139k (2012 limitation) 139,000 2. Bonus Depreciation? 2012 = (439k-139k) x 50% = 150k 150,000 3. MACRS? 2012 = (300k-150k)/7yrs x 200% x 1/2 = 21,429 310,429 4. Immediate expense if new office equipment costs \$600,000 and the taxpayer also purchased a building costing \$2,000,000. Max sec. 179 for 2012 = 139k, Phaseout = 560k (600k - 560k) = 40k reduction of Sec. 179 139k (40k) 99k 5 Burkett Tax I Chapter 10 Limitation on Passenger Autos Auto w/ cost of \$30,000 was placed in service on July 5, 2011 and was used 80% for business. What is the maximum depreciation deduction for 2011 if TP elects out of bonus and does not choose to use Section 179/Immediate Expensing? Dep. = (30k x 80%)/5yrs x 200% x 1/2 = 4,800 max auto dep. 1st year = 3,060 x 80% = 2,448 (lower) = 2,448 With Bonus? 11,060 x 80% = 8,848 Would Sec 179 increase the deduction? Yes - No limit applies. What if business use was < 50%? Must use SL ADS (still 5-year property, see table A10-1 on pg. 43-46) No sec. 179 allowed. If we assume business % = 40% Dep. = (30k x 40%)/5yrs x 1/2 = 1,200 max auto dep. 1st year = 3,060 x 40% = 1,224 (lower) = 1,200 6 Burkett Tax I Chapter 10 Amortization of Sec 197 Intangibles Purchased Goodwill A going business is purchased on 09/01/2011. \$100K of the purchase price is allocated to goodwill. The business started back up on 10/01/2011 and has a 12/31 year end. Compute amortization for 2011 & 2012. 2011 = 100k/15yrs x (3/12) = 1,667 2012 = 100k/15 yrs = 6,667 7 Burkett Tax I Chapter 10 Leasehold Improvements Jimmy signs a 10 year lease on an empty part of a strip mall that was completed on January 1, 2011. He plans to open a retail store. He spends \$40K improving the space and opens his store on August 1, 2011. What is his 2011 deduction for the leasehold improvements? 2011 = 40k/39yrs x (4.5/12) = 2012 = 40k/39yrs 385 = 1,026 and What happens when the lease expires --Jimmy closes the store? or Deduction taken for the remaining basis. 8 Burkett Tax I Chapter 10 Depletion Example EX 38, p. 27 - Coal deposit w/ cost of \$50K, w/ estimated recovery of 350,000 tons. Taxable income before deducting depletion is \$10K. Mines & sells 40,000 tons in 2010 @ \$1.20/ton (\$48K). (Statutory % depletion for coal is10%) Cost Depletion? 50k/350,000 tons x 40,000 tons = 5,714 % Depletion? 48k x 10% = 4,800 (lower) = 4,800 ltd to 10k x 50% = 5,000 Maximum depletion deduction? Cost depl. (above) = 5,714 (greater) = 5,714 % depl. (above) = 4,800 9
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South Carolina - ACCT - 403
Burkett Tax I Chapter 12Sale of Principal Residence/Gain ExclusionCharlie, a single taxpayer sells his home on 08/01 realizing a gain of\$300,000. He has owned and used his home as his principal residencefor at least 2 of the past 5 years. How much gai
South Carolina - ACCT - 403
Burkett Tax 1 Chapter 131ABCD Corporate Formation (C or S Corp)ShareholderTransferorTransferredAssets/LiabilitiesTransferorAdj. BasisShareholder/TransferorConsideration Received% of StockOwnedALand\$ 10,000\$60,000(10,000)50,000100 Shs AB
South Carolina - ACCT - 403
Burkett Tax I Chapter 12Sale of Principal Residence/Gain ExclusionCharlie, a single taxpayer sells his home on 08/01 realizing a gain of\$300,000. He has owned and used his home as his principal residencefor at least 2 of the past 5 years. How much gai
South Carolina - ACCT - 403
Partner=s Outside BasisTina purchased an interest in TP Partnership on 1/1/11 for \$50,000 cash whenpartnership recourse liabilities = \$200,000. 2011 distributive shares for Tinaare as follows:Ordinary IncomeLong-term Capital GainsMunicipal Bond Inte
South Carolina - ACCT - 403
ABCD Corporate Formation (C or S Corp)ShareholderTransferorTransferredAssets/LiabilitiesTransferorAdj. BasisShareholder/TransferorConsideration Received% of StockOwnedALand\$ 10,000\$60,000(10,000)50,000100 Shs ABCD Corp StockNote receivab
South Carolina - ACCT - 403
South Carolina - ACCT - 403
Burkett Tax I Chapter 1 &amp; Part of 8Marginal Tax Rate ExamplesJane is single w/ taxable income of 100KWhat is Janes MTR?After Tax Rate of ReturnConsidering investing 10 K in a CD earning 6% or a Richland Countybond (tax exempt) earning 5%. ATR for CD
South Carolina - ACCT - 403
Burkett Tax I - Chapter 8Problem 28, pg 8 - 3428. Determine whether each of the following individuals can beclaimed as a dependent in the current year. Assume that any tests notmentioned have been satisfied.a.Nico is 20 and a full-time college stude
South Carolina - ACCT - 403
South Carolina - ACCT - 403
South Carolina - ACCT - 403
South Carolina - ACCT - 403
SBurkettTaxIChapter4tewart Scholarship ExampleJay received an athletic scholarship to Small State University. Under thescholarship agreement, he received tuition (\$4,500), books (\$400), androom and board (\$5,000).Exclusion?Gross Income?How is Jays
South Carolina - ACCT - 403
South Carolina - ACCT - 403
Stewart Tax I - Chapter 3Annuity Example Fixed TermGeorge invests \$6,000 and will receive \$1,000/year for 10 years. Whatamount is excludable each year from Georges income?Exclusion ratio?\$6,000/\$10,000 = .6 or 60%Exclusion each year?.6 x \$1,000 = \$
South Carolina - ACCT - 403
Stewart Tax I - Chapter 3Annuity Example Fixed TermGeorge invests \$6,000 and will receive \$1,000/year for 10 years. Whatamount is excludable each year from Georges income?Exclusion ratio?Exclusion each year?Gross Income each year?1Stewart Tax I -
South Carolina - ACCT - 403
ACCT 403CHAPTER 14 FALL 2011BUSINESS ENTITIES - OPERATIONS AND DISTRIBUTIONSPart 1 OperationsI.Sole ProprietorshipsA.II.Since we have extensively covered sole proprietorships in other chapters, we will not cover them inthis chapter (pages 2-4).P
South Carolina - ACCT - 403
ACCT 403CHAPTER 13 FALL 2011BUSINESS ENTITIES - GENERAL DIFFERENCESI.Types of Entity and Nontax FactorsA.Types of Entities1.Sole Proprietorshipsa.Defined as an unincorporated business with one owner.b.The companys revenue and deductions are re
South Carolina - ACCT - 403
ACCT 403CHAPTER 10 - COST RECOVERY DEDUCTIONSFall 2011I.Capital Expenditure Versus Current ExpenseA.General Concepts1.If tax rates do not change, the present value of tax savings resulting from a deduction isgreater the sooner it is deductible.a
South Carolina - ACCT - 403
ACCT 403CHAPTER 12 FALL 2011NONTAXABLE TRANSACTIONSI.Sale of Personal Residence.A.Taxpayers may exclude up to \$250,000 of gain, [\$500,000 for taxpayers filing a joint return]on the sale of their principal residence.1.If a single taxpayer who othe
South Carolina - ACCT - 403
Chapter 121. The basis of replacement property in a nonrecognition transaction is the adjusted basis ofthe property received less any deferred gain.ANS: FPTS: 1DIF: EasyNAT: AICPA Measurement | AACSB AnalyticOBJ: 32. The mechanism for effecting a
South Carolina - ACCT - 403
Chapter 121. The basis of replacement property in a nonrecognition transaction is the adjusted basis ofthe property received less any deferred gain.2. The mechanism for effecting a deferral in a nonrecognition transaction is an adjustmentof the replac
South Carolina - ACCT - 403
1. The earlier the depreciation deduction can be taken, the greater the present value of the taxsavings will be to the taxpayer.ANS: TPTS: 1DIF: EasyNAT: AICPA Measurement | AACSB AnalyticOBJ: 22. While Congress has enacted several different deprec
South Carolina - ACCT - 403
1. The earlier the depreciation deduction can be taken, the greater the present value of the taxsavings will be to the taxpayer.2. While Congress has enacted several different depreciation methods, all currently owned assetsare depreciated using the me
South Carolina - ACCT - 403
CHAPTER 31. Rachael purchased 300 shares of Smelt, Inc. stock for \$25 per share. At the end of the year,the stock price has risen to \$30 per share. Rachael does not recognize taxable income eventhough there has been a \$1,500 increase in wealth.ANS: T
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDEC - 250
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
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South Carolina - EDPY - 401
South Carolina - EDPY - 401
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South Carolina - EDPY - 401