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Chapter_9_Solutions_to_assigned_Solutions - Chapter 9...

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Chapter 9 Solutions to assigned problems 22. Determine the adjusted basis of each of the following assets: a. Leineia purchased an automobile two years ago for $30,000. She uses it 75% in her business and 25% for personal use. To date, she has deducted $4,209 in allowable depreciation on the business use portion of the automobile. Because the automobile is a mixed-use asset, the business basis and the personal use basis must be kept separately. The initial basis allocation is based on the percentage of business and personal use. The business portion of the automobile is depreciable and depreciation deductions will reduce its basis: 100% 75% 25% Total Business Use Personal Use Initial Basis $30,000 $22,500 $7,500 Less: Depreciation (4,209 ) (4,209 ) - 0- Adjusted Basis $25,791 $18,291 $7,500 b. Three years ago, Quon purchased an office building for $330,000. The purchase price was properly allocated as $250,000 to the building and $80,000 to the land. The building remodeling cost $8,000. He paid $12,000 for the installation of a parking lot and sidewalks. Insurance premiums on the building are $5,000 per year. He has deducted total allowable depreciation on the building of $70,620 and $1,000 on the land improvements for the three years. The adjusted basis of the land and the building must be determined separately because the building is subject to depreciation while the land is not. The land improvements must be accounted for separately since the depreciable life for the improvements is shorter than the depreciable life of the building. The property taxes and the insurance premiums of $5,000 are expensed in the current year. The adjusted basis of each is: Building Land Land Improvements Original Cost $250,000 $80,000 Remodeling cost 8,000 Parking lot and sidewalks $12,000 Depreciation (70,620 ) (1,000 ) Adjusted basis $187,380 $80,000 $11,000
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35. Florian Corporation purchases a piece of land for investment purposes on April 1. Florian pays the seller $2,000 cash and agrees to pay the seller $3,000 per year for the next 5 years plus interest at 9% per year on the outstanding balance. As part of the purchase agreement, Florian agrees to pay all property taxes for the year, a total of $360. In addition, Florian pays legal fees of $500 connected with the purchase and gives the seller a car worth $4,000 (Florian's basis is $11,000). What is Florian Corporation's basis in the land? The initial basis is equal to the cost of acquiring the land. In this case, Florian has paid $2,000 cash and agreed to pay an additional $15,000 ($3,000 x 5) over the next 5 years. The interest paid on the installment purchase is not capitalized as part of the cost of the land; it will be deducted each year according to the rules for deducting interest. The property taxes of $90 [$360 x (3 ÷ 12) are the seller's obligation and is part of
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Chapter_9_Solutions_to_assigned_Solutions - Chapter 9...

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