Question & Answer

Acorn Construction (calendar-year-end C corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has record income and would like to maximize its cost recovery deduction for the current year. Acorn provided the following information:

] There are two recovery period classifications for real property. What reasons might Congress have to allow residential real estate a shorter recovery period than nonresidential real property?

Allison, Keesha, and Steven each own an equal interest in KAS Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, Steven’s basis in his partnership interest is $27,000. During January and February, the partnership generates $30,000 of ordinary income and $4,500 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $45,000. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV Cash $ 30,000 $ 30,000 Land held for investment 30,000 60,000   Totals $ 60,000 $ 90,000 a. Assuming KAS’s operating agreement provides for an interim closing of the books when partners’ interests change during the year, what is Steven’s basis in his partnership interest on March 1 just prior to the sale? b. What are the amount and character of Steven’s recognized gain or loss on the sale? c. What is Juan’s initial basis in the partnership interest? d. What is the partnership’s basis in the assets following the sale?

Starr Co. had sales revenue of $540,000 in 2014. Other items recorded during the year were: Cost of goods sold $330,000 Salaries and wages expense 120,000 Income tax expense 25,000 Increase in value of company reputation 15,000 Other operating expenses 10,000 Unrealized gain on value of patents 20,000 Prepare a single-step income statement for Starr for 2014. Starr has 100,000 shares of stock outstanding.

How suitable are legal restrictions in the following cases? (a)  Ensuring adequate vehicle safety (e.g. that tyres have sufficient tread or that the vehicle is roadworthy). (b)  Reducing traffic congestion. (c)  Preventing the abuse of monopoly power. (d)  Ensuring that mergers are in the public interest. (e)  Ensuring that firms charge a price equal to marginal cost.

Compare and contrast for and from AGI deductions. Why are for AGI deductions likely more valuable to taxpayers than from AGI deductions?

Would this argument still hold if prices rose?

Tamika Meer purchased a new car for use in her business during 2024 for $75,000. The auto was the only business asset she purchased during the year, and her business was very profitable. Calculate Tamika’s maximum depreciation deductions for the automobile in 2024 and 2025 under the following scenarios: a. Tamika does not want to take §179 expense and she elects out of bonus depreciation. b. Tamika wants to maximize her 2024 depreciation using bonus depreciation.

True or False. For purposes of determining head of household filing status, the taxpayer’s mother or father is considered to be a qualifying person of the taxpayer (even if the mother or father does not qualify as the taxpayer’s dependent) as long as the taxpayer pays more than half the costs of maintaining the household of the mother or father. Explain.

What is the relationship between the mpc, the mpcd and the mpw?

On December 31, 2014, Kate Holmes Company has $7,000,000 of short-term debt in the form of notes payable to Gotham State Bank due in 2015. On January 28, 2015, Holmes enters into a refinancing agreement with Gotham that will permit it to borrow up to 60% of the gross amount of its accounts receivable. Receivables are expected to range between a low of $6,000,000 in May to a high of $8,000,000 in October during the year 2015. The interest cost of the maturing short-term debt is 15%, and the new agreement calls for a fluctuating interest at 1% above the prime rate on notes due in 2019. Holmes’s December 31, 2014, balance sheet is issued on February 15, 2015. Instructions Prepare a partial balance sheet for Holmes at December 31, 2014, showing how its $7,000,000 of short-term debt should be presented, including footnote disclosure.

How does an entity choose its tax year? Is it the same process no matter the type of tax year-end the taxpayer adopts?

Using the data in BE3-3, journalize the entry on July 1 and the adjusting entry on December 31 for Zubin Insurance Co. Zubin uses the accounts Unearned Service Revenue and Service Revenue.

Compare and contrast how a Land Rover SUV and a Mercedes-Benz sedan are treated under the luxury auto rules. Also include a discussion of the similarities and differences in available §179 expense.

Armelio operates a business that acts as a sales representative for a client that produces and sells precious metals to electronic manufacturers. Armelio contacts manufacturers and convinces them to sign contracts for delivery of metals, and his company earns a commission on the sales. This year, Armelio contacted a jeweler to engrave small lapel buttons for his client’s employees. Armelio paid $20 each for the lapel buttons, and the jeweler charged Armelio an additional $7 for engraving. Can Armelio deduct the cost of the lapel buttons as business gifts? (Hint: see §274(b) and Reg. §1.274-3.)

Assume you asked your favorite AI learning tool “Would a taxpayer classify a car used for business as a capital asset for tax purposes?” and the AI tool responded as follows:

An extruder has a diameter of 5.0 in and a length to diameter ratio of 26. The barrel heats the polypropylene melt to 450°F, which provides a melt viscosity of 0.0025 lb-s/in2 . The pitch of the screw is 4.2 in and the channel depth is 0.15 in. In operation the screw rotates at 50 rev/min and a head pressure of 450 lb/in2 is generated. What is the volume flow rate of polypropylene from the die at the end of the barrel?

Suppose you asked your favorite AI query tool “Under the timing strategy, does it make sense for a person to accelerate income recognition when tax rates are increasing?” and the AI tool responded as follows:

What are the most common legal entities used for operating a business? How are these entities treated similarly and differently for state law purposes?

What does the degree of polymerization indicate?

On what form does an S corporation report its income to the IRS?  When is the tax return due?  What information does the S corporation provide to shareholders to allow them to complete their tax returns?

Salazar Inc., a Colorado company, is relocating to a nearby town. It would like to trade its real property for some real property in the new location. While Salazar has found several prospective buyers for its real property and has also located several properties that are acceptable in the new location, it cannot find anyone willing to trade Salazar Inc. for its property in a like-kind exchange. Explain how a third-party intermediary could facilitate Salazar’s like-kind exchange.

Risk profiling You are required to offer advice to a small but growing community bank. Describe the steps you would take to prepare a risk profile for this organisation. (LO6)

Generally accepted accounting principles usually require the use of accrual accounting to “fairly present” income. If the cash receipts and disbursements method of accounting will “clearly reflect” taxable income, why does this method not usually also “fairly present” income?

Ray Albertson is 72 years old and lives by himself in an apartment in Salt Lake City. Ray’s gross income for the year is $3,000. Ray’s support is provided as follows: himself (9 percent), his daughters Diane (20 percent) and Karen (15 percent), his sons Mike (20 percent) and Kenneth (10 percent), his friend Milt (14 percent), and his cousin Henry (12 percent).