We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Balance Sheet

The whole doc is available only for registered users

A limited time offer! Get a custom sample essay written according to your requirements urgent 3h delivery guaranteed

Order Now

1) Assuming a 25 percent tax rate, compute the after-tax cost of $23,000 worth of advertising costs.

(part c)

a) $23,000
b) $20,125
c) $17,250

d) $27,500

Because the advertising cost is deductible, its after-tax cost is $17,250 ($23,000 – [$23,000 × 25%]).

2) In 2013, Firm A paid $50,000 cash to purchase a tangible business asset. In 2013 and 2014, it deducted $3,140 and $7,200 depreciation with respect to the asset. Firm A’s marginal tax rate in both years was 35 percent. Compute Firm A’s adjusted basis in the asset at the end of each year.

(part b)

a) 2013: $39,660; 2014: $29,320

b) 2013: $46,860; 2014: $39,660

Initial cost basis – $50,000
Year 1 depreciation (3,140)
Adjusted basis at end of 2013 – $46,860
Year 2 depreciation (7,200)
Adjusted basis at end of 2014 – $39,660
c) 2013: $50,000; 2014: $50,000
d) 2013: $47,959; 2014: $43,279

3) Refer to the facts in problem 2 above. Now assume that Firm A borrowed $50,000 to purchase the asset. In each year, it paid $3,800 annual interest on the debt. The interest payments were deductible. How does this change in facts affect Firm A’s adjusted basis in the asset at the end of each year? (part b) a) It decreases the basis by $3,800 each year.

b) It decreases the basis by $2,470 ($3,800 – [$3,800 x 35% tax rate]).

c) It increases the basis by $3,800 each year.
d) It has no effect on the basis.

The use of leverage has no effect on Firm A’s adjusted basis in the asset.

4) Company XYZ manufactures a tangible product and sells the product at wholesale. In its first year of operations, XYZ manufactured 1,000 units of product and incurred $200,000 direct material cost and $130,000 direct labor costs. For financial statement purposes, XYZ capitalized $85,000 indirect costs to inventory. For tax purposes, it had to capitalize $116,000 indirect costs to inventory under the unicap rules. At the end of its first year, XYZ held 260 units in inventory. Compute XYZ’s cost of goods sold for book purposes and for tax purposes.

a) Book: $415,000; Tax: $446,000

b) Book: $307,100; Tax: $330,040
Company XYZ’s cost of goods sold for its first year of operations is computed as follows. BookTax
Direct material cost $200,000$200,000
Direct labor cost 130,000130,000
Indirect costs 85,000116,000
Total cost of 1,000 units $415,000 $446,000
Cost of ending inventory (260 units)(107,900)(115,960)
Cost of goods sold (740 units)$307,100 $330,040
[$415,000/1,000 = $415 each unit of inventory (book)]
[$446,000/1,000 = $446 each unit of inventory (tax)]
c) Book: $107,900; Tax: $115,960
d) Book: $350,400; Tax: $298,700

5) Herelt Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2014. The equipment was seven-year recovery property, and Hertel used the half-year convention to compute MACRS depreciation. Compute Herelt’s MACRS depreciation for 2016 if it disposes of the equipment on February 9, 2016.

(part c)

a) $25,483

b) $67,092
c) $42,421
d) $33,546
Herelt’s MACRS depreciation for the year of disposition is based on the half-year convention. Thus, 2016 depreciation is $33,546 (50% [$383,600 × 17.49%]).

6) The Section 179 expense election applies to what type of assets? a) Only startup expenses.
b) Intangible assets.
c) Depreciable personalty.
d) Only residential real property.

7) Start-up costs may be only partially deductible in the year incurred, but expansion costs are fully deductible in the year incurred. a) True
b) False

8) Bonus depreciations allows the purchaser of qualified tangible personal property to take an extra depreciation deduction in the year acquired.

a) True
b) False

9) What are two tax recovery methods used frequently in the natural resource industry? a) Allocable & non-allocable recovery.
b) Cost & percentage depletion.
c) Going-concern value & goodwill impairment.
d) Leasehold costs & leasehold improvements.

10) For both financial reporting purposes and tax purposes, goodwill is capitalized and only expensed when impaired. a) True
b) False

Related Topics

We can write a custom essay

According to Your Specific Requirements

Order an essay
Materials Daily
100,000+ Subjects
2000+ Topics
Free Plagiarism
All Materials
are Cataloged Well

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
Sorry, but only registered users have full access

How about getting this access

Your Answer Is Very Helpful For Us
Thank You A Lot!


Emma Taylor


Hi there!
Would you like to get such a paper?
How about getting a customized one?

Can't find What you were Looking for?

Get access to our huge, continuously updated knowledge base

The next update will be in:
14 : 59 : 59