Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 9, Problem 20AP
On October 18 of last year, a flood washed away heavy construction equipment owned by Company K. The adjusted tax basis in the equipment was $416,000. On December 8 of last year, Company K received a $480,000 reimbursement from its insurance company. On April 8 this year, Company K purchased new construction equipment for $450,000.
- a. How much of last year’s gain must Company K recognize because of the involuntary disposition of the equipment?
- b. What is Company K’s tax basis in the new equipment?
- c. How would your answers change if Company K paid $492,000 for the new equipment?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Company X incurred the following transactions in the current year. For each transaction, explain whether each transaction is tax deductible under the ITAA.
Depreciation on the buildings
The company incurred legal expenses opposing an application by its competitor to extend its patent on a brand of mower. If the patent was not extended, then Company X could produce a similar mower.
The company borrowed money to cover the purchase of a new plant. The loan is repayable in 10 years.
Because of a shortage of working capital, the company was forced to sell off some land. The land had originally been bought in October 1995
The company also purchased a new car for the managing director
AC/DC-Corporation owns a building that it uses in its operations that has a basis of $70,000. During the year, a tornado occurs and partially destroys the building. The fair market value of the building before the tornado was $200,000 and the value of the building afterwards is $120,000. They are reimbursed by an insurance company for $25,000. How much can AC/DC-Corporation deduct as a casualty loss?
Group of answer choices
$25,000.
$45,000.
$70,000.
$80,000.
Company X incurred the following transactions in the current year. For each transaction, explain the income tax implications.
Depreciation on the buildings
The company incurred legal expenses opposing an application by its competitor to extend its patent on a brand of mower. If the patent was not extended, then Company X could produce a similar mower.
The company borrowed money to cover the purchase of a new plant. The loan is repayable in 10 years.
Because of a shortage of working capital, the company was forced to sell off some land. The land had originally been bought in October 1995
The company also purchased a new car for the managing director
Chapter 9 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 9 - Prob. 1QPDCh. 9 - Prob. 2QPDCh. 9 - Prob. 3QPDCh. 9 - Prob. 4QPDCh. 9 - Prob. 5QPDCh. 9 - Prob. 6QPDCh. 9 - Prob. 7QPDCh. 9 - Prob. 8QPDCh. 9 - Prob. 9QPDCh. 9 - Explain the difference between a substituted basis...
Ch. 9 - Prob. 11QPDCh. 9 - Prob. 12QPDCh. 9 - Prob. 13QPDCh. 9 - Prob. 14QPDCh. 9 - Prob. 15QPDCh. 9 - Prob. 1APCh. 9 - Prob. 2APCh. 9 - Prob. 3APCh. 9 - Prob. 4APCh. 9 - Prob. 5APCh. 9 - Prob. 6APCh. 9 - This year, Neil Inc. exchanged a business asset...Ch. 9 - Prob. 8APCh. 9 - Prob. 9APCh. 9 - XYZ exchanged an old building for a new like-kind...Ch. 9 - Prob. 11APCh. 9 - Prob. 12APCh. 9 - Prob. 13APCh. 9 - Prob. 14APCh. 9 - Prob. 15APCh. 9 - Prob. 16APCh. 9 - Prob. 17APCh. 9 - Prob. 18APCh. 9 - Prob. 19APCh. 9 - On October 18 of last year, a flood washed away...Ch. 9 - Prob. 21APCh. 9 - Prob. 22APCh. 9 - Prob. 23APCh. 9 - Mr. ZJ owns a sole proprietorship. The business...Ch. 9 - Prob. 25APCh. 9 - Prob. 26APCh. 9 - Prob. 27APCh. 9 - Prob. 28APCh. 9 - Prob. 29APCh. 9 - Prob. 30APCh. 9 - Prob. 31APCh. 9 - Prob. 32APCh. 9 - Prob. 33APCh. 9 - Prob. 34APCh. 9 - Prob. 1IRPCh. 9 - Prob. 2IRPCh. 9 - Prob. 3IRPCh. 9 - Prob. 4IRPCh. 9 - Prob. 5IRPCh. 9 - Prob. 6IRPCh. 9 - Prob. 7IRPCh. 9 - Prob. 8IRPCh. 9 - Prob. 9IRPCh. 9 - Prob. 10IRPCh. 9 - Prob. 1RPCh. 9 - Prob. 2RPCh. 9 - Prob. 3RPCh. 9 - Prob. 1TPCCh. 9 - Prob. 2TPCCh. 9 - Prob. 3TPCCh. 9 - Croyden is a calendar year, accrual basis...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- In year 0, Canon purchased a machine to use in its business for $56,000. In year 3, Canon sold the machine for $42,000. Between the date of the purchase and the date of the sale, Canon depreciated the machine by $32,000. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) a. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a partnership? Total Gain/Loss Recognized Character of Recognized Gain/Loss Ordinary Gain/Loss 1231 gain/Lossarrow_forwardVCC Corporation's warehouse was destroyed by a tornado: The fair market value of the warehouse at the time of the tornado was $500,000. VCC originally purchased the warehouse years ago for $460,000 and has taken $110,000 in depreciation deductions related to the warehouse over time. VCC received $425,000 in insurance proceeds: $400,000 was used to buy a replacement warehouse and the other $25,000 was used for business expenses. Assuming VCC takes advantage of favorable tax provisions, what gain or loss will VCC recognize in the current year?arrow_forwardn year 0, Canon purchased a machine to use in its business for $56,000. In year 3, Canon sold the machine for $42,000. Between the date of the purchase and the date of the sale, Canon depreciated the machine by $32,000. (Loss amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) c. What are the amount and character of the gain or loss Canon will recognize on the sale, assuming that it is a corporation and the sale proceeds were increased to $60,000? Total Gain/Loss Recognized Character of Recognized Gain/Loss Ordinary Gain/Loss 1231 gain/lossarrow_forward
- 16. Erwin Company, a calendar year taxpayer, made only two purchases of depreciable personalty this year. The first purchase was five-year recovery property costing $312,800, and the second purchase was seven-year recovery property costing $574,000. Compute Erwin's first-year MACRS depreciation with respect to the personalty assuming that a. The first purchase occurred on February 2, and the second purchase occurred on June 18. b. The first purchase occurred on February 2, and the second purchase occurred on October 13.arrow_forwardNorthwestern Export Services purchased some computers for $80,000 in Year 1. The equipment is depreciated for financial reporting purposes over 5 years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 20%. Amounts for pretax GAAP accounting income, depreciation, and taxable income in Year 1, Year 2, Year 3, Year 4, and Year 5 are as follows: $ in thousands Year 1 Year 2 Year 3 Year 4 Year 5 Pretax accounting income $240 $195 $210 $285 $320 Depreciation on income statement 16 16 16 16 16 Depreciation on tax return (27) (35) (12) (6) 0 Taxable income $229 $176 $214 $295 $336 a) What type of book-tax difference is this? b) Prepare the appropriate journal entry related to the tax deferral ONLY at December 31, Year 1. (Note: The purchase of computers has already been recorded in Year 1.)Note: Round answers ($ in thousands) to the nearest whole number, if applicable. ($ in thousands)…arrow_forwardOn January 1, 2019, Uptown Builders purchased a machine for $200,000. Uptown's policy is to depreciate this type of machinery using straight-line depreciation, over five years, with no residual value. Because of a bookkeeping error, no depreciation was recognized in Uptown's 2019 or 2020 financial statements. The error was discovered during the preparation of the 2021 financial statements. Ignoring income taxes, the impact of this error on retained earnings prior to any 2021 adjustments is: Question 8 options: Overstatement of $80,000 Understatement of $120,000 Understatement of $80,000 Overstatement of $120,000arrow_forward
- The Johnson Company bought a truck costing $24,000 two and a half years ago. The truck's estimated life was four years at the time of purchase. It was accounted for by using straight line depreciation with zero salvage value. The truck was sold yesterday for $19,000. What taxable gain must be reported on the sale of the truck?arrow_forwardBowtock purchased an item of plant for $2,000,000 on 1 October 2000. It had an estimated life of eight years and an estimated residual value of $400,000. The plant is depreciated on straight-line basis. The tax authorities do not allow depreciation as a deductible expense.Instead, a tax expense of 40% of the cost of this type of asset can be claimed against income tax in the year of purchase and 20% per annum (on a reducing balance basis) of its tax base thereafter. The rate of income tax can be taken as 25%. REQUIRED:In respect of the above item of plant, calculate the deferred tax charge/credit in Bowtock’s income statement for the year to 30 September 2003 and the deferred tax balance in the balance sheet at that date. Note: work to the nearest $000arrow_forward18. Ryland Company, a calendar year taxpayer, purchased commercial realty for $2 million and allocated $200,000 cost to the land and $1.8 million cost to the building. Ryland placed the real estate in service on May 21. a. Compute Ryland's MACRS depreciation with respect to the realty for the year of purchase. b. How would your answer change if Ryland placed the realty in service on September 2 instead of May 21? c. How would your answer to part (a) change if the building was a residential apartment complex instead of a commercial office?arrow_forward
- A Hat company bought a new machine for $1,000. This equipment has a useful life of 15 years and a salvage value of $200. The company has been using the seven-year MACRS property class to depreciate the asset for tax purposes. At the end of year 5, the company sold the equipment for $800. The tax rate is 40%. What are the net proceeds (after tax) from the sale of the equipment?arrow_forwardDandy Corporation’s business building was destroyed by an earthquake this year and was located in a federally declared disaster area. Dandy had an adjusted basis in the building of $350,000. The fair market value of the building before the earthquake was $500,000. However, the building was insured for only $250,000 which was the amount received by Dandy’s insurance company. Dandy uses these funds and other resources to purchase a new business building for $400,000 by the end of the year. How much gain or loss must be recognized by Dandy? Group of answer choices $ 0 $50,000 gain. $100,000 loss. $150,000 gain.arrow_forwardCompany J bought a piece of equipment for $200,000. This equipment has a useful life of 10 years and a salvage value of $40,000. The company has been using the seven-year MACRS property class to depreciate the asset for tax pur poses. At the end of year 4, the company sold the equipment for $120,000. The tax rate is 40%. What are the net proceeds (after tax) from the sale of the equipment?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT
Depreciation -MACRS; Author: Ronald Moy, Ph.D., CFA, CFP;https://www.youtube.com/watch?v=jsf7NCnkAmk;License: Standard Youtube License