SM07 - Solutions for Questions and Problems Chapter 7 159...

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Solutions for Questions and Problems – Chapter 7 159 CHAPTER 7 ACCOUNTING PERIODS AND METHODS AND DEPRECIATION Group 1 - Multiple Choice Questions 1. C (1/12 of $150,000) x 2 8 C (Section 7.5) (Section 7.1) 9. (Section 7.6) 2. D (Section 7.2) 10. D (Section 7.9) 3. A (Sections 7.4, 7.6) 11. A (Section 7.9) 4. C (20% x $35,000) 12. (Section 7.9) (Sections 7.4, 7.5) 13. 40% + 35% 5. B ($14,000 x 7.14%) (Section 7.4) (Section 7.9) 6. C (Section 7.4) 14. (Section 7.8) 7. C ($100,000 x 1.364%) 15. (Section 7.8) (Sections 7.3, 7.4) Group 2 - Problems 1. a. $11,000 = ($300,000 / 12 x 2 x (35% maximum rate + 1%)) – $7,000. b. May 15, 2007. (Section 7.1) 2. Sales income $65,000 Expenses: Other than rent and interest –40,000 Rent ($12,000 x 1/6) –2,000 Interest –0 Net Income $23,000 (Section 7.2) 3. Income: Other than rental $220,000 Rental 21,000 Expenses: Other than rental –170,000 Rental ($12,000 / 6) –2,000 Net Income $ 69,000 (Section 7.2) 4. a. $5,067 = ($39,080 – 1,080)/60 months x 8 months. b. $3,908 = $39,080 x 10%. The taxpayer must use the annual percentage rates from the optional straight-line table (Table 3). c. $7,816 = $39,080 x 20% (Table 2). (Section 7.4) 159
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160 Chapter 7 – Accounting Periods and Methods and Depreciation 5. Election to expense $ 6,500 Depreciation on automobile: $21,500 x 20% = $4,300, but limited to $2,960 2,960 Total depreciation $ 9,460 For 2006, the automobile is five-year recovery property; however, the depreciation deduction is subject to the annual automobile depreciation expense limitations. (Sections 7.4, 7.5, 7.7) 6. a. $20,762 = ($800,000 x 1.364%) + ($500,000 x 1.97%.) b. $47,268 = ($800,000 x 3.636%) + ($500,000 x 3.636%.) (Section 7.4) 7. a. $2,220 = ($2,960 x 75%); limit is less than MACRS of $5,250 = ($35,000 x 20% x 75%). b. $3,600 = $4,800 x 75%; limit is less than actual of $8,400 = ($35,000 x 75% x 32%). (Sections 7.4, 7.6, 7.7) 8. $540 = ($3,000 x 20%) x (80% + 10%). The total depreciation on the computer must be divided between the business use, $480, (80%/90% x $540); and the investment use, $60, (10%/90% x $540). (Sections 7.4, 7.6) 9. See Form 4562 on pages 161 and 162. (Sections 7.4, 7.6, 7.7) 10. a. 36% = 20% + (80% x 20%) b. 60% = 30% + 30% c. 60% = 30% + 30% d. $0 Brian owns more than 50% of JBC Corporation, directly or indirectly. (Section 7.9) 11. a. $85,000 = $40,000 + $45,000 b. $1,889 deductible for 2006. $85,000/(15 x 12) x 4 months = $1,889. 12. Section 267(a) is not reproduced here. 13. See the answer to Problem 9. Group 3 - Comprehensive Problems 1. See pages 163 through 166. 2. See pages 167 through 174. Group 4 - Cumulative Software Problem The solution to the Cumulative Software Problem is posted on the Internet site for the text at http://www.thomsonedu.com/taxation/whittenburg.
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Problem 9 D r a f t s o 0 6 / 2 1 OMB No. 1545-0172 Depreciation and Amortization 4562 Form (Including Information on Listed Property) Department of the Treasury Internal Revenue Service Attachment Sequence No. 67 ± See separate instructions. Identifying number Name(s) shown on return Business or activity to which this form relates Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. $108,000 1 Maximum amount. See the instructions for a higher limit for certain businesses 1 2 Total cost of section 179 property placed in service (see instructions) 2 $430,000 3 Threshold cost of section 179 property before reduction in limitation 3 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- 4 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions 5 5 (a) Description of property (b) Cost (business use only) (c) Elected cost 6 7 Listed property. Enter the amount from line 29
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This note was uploaded on 09/13/2010 for the course ACCOUNTING 45089 taught by Professor Kenn during the Spring '10 term at University of Phoenix.

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SM07 - Solutions for Questions and Problems Chapter 7 159...

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