The company also purchased for the managing director a new car at a cost of $120,000. The car was purchased by the company on 1 July of the current year. The effective life of the car is 7.5 years. For accounting purposes the financial accountant has claimed depreciation in the accounts of $12,000 being 10% of the cost. The company directors come to you as the taxation adviser of the company and wish to know how each of the items mentioned above are to be treated for taxation purposes.

The company also purchased for the managing director a new car at a cost of $120,000. The car was purchased by the company on 1 July of the current year. The effective life of the car is 7.5 years. For accounting purposes the financial accountant has claimed depreciation in the accounts of $12,000 being 10% of the cost. The company directors come to you as the taxation adviser of the company and wish to know how each of the items mentioned above are to be treated for taxation purposes.

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter7: Property Transactions: Basis, Gain And Loss, And Nontaxable Exchanges

Section: Chapter Questions

Problem 1BD

See similar textbooks

Similar questions

During the current year, Black Corporation incurred the following expenditures which should be recorded either as operating expenses or as intangible assets and name the asset and explain why you categorize particular asset. a. Expenditures were made for the training of new employees. The average employee remains with the company for five years, but is trained for a new position every two years. b. Black purchased a controlling interest in a vinyl flooring company. The expenditure resulted in the recording of a significant amount of goodwill. Black expects to earn above-average returns on this investment indefinitely. c. Black incurred large amounts of research and development costs in developing a dirt- resistant carpet fiber. The company expects that the fiber will be patented and that sales of the resulting products will contribute to revenue for at least 25 years. The legal life of the patent, however, will be only 20 years. d. Black made an expenditure to acquire the patent on a…
The following information applies to the questions displayed below.] The following transactions relate to Academy Towing Service. Assume the transactions for the purchase of the wrecker and any capital improvements occur on January 1 of each year. Year 1 Acquired $73,000 cash from the issue of common stock. Purchased a used wrecker for $35,000 cash. It has an estimated useful life of three years and a $6,000 salvage value. Paid sales tax on the wrecker of $4,000. Collected $59,100 in towing fees. Paid $12,300 for gasoline and oil. Recorded straight-line depreciation on the wrecker for Year 1. Closed the revenue and expense accounts to Retained Earnings at the end of Year 1. Year 2 Paid for a tune-up for the wrecker’s engine, $1,200. Bought four new tires, $1,550. Collected $65,000 in towing fees. Paid $18,300 for gasoline and oil. Recorded straight-line depreciation for Year 2. Closed the revenue and expense accounts to Retained Earnings at the end of Year 2. Year 3 Paid to…
During the current year, Omega Products Corporation incurred the following expenditures whichshould be recorded either as operating expenses or as intangible assets:a. Expenditures were made for the training of new employees. The average employee remainswith the company for five years, but is trained for a new position every two years.b. Omega purchased a controlling interest in a wallpaper company. The expenditure resulted inrecording a significant amount of goodwill. Omega expects to earn above-average returns onthis investment indefinitely.c. Omega incurred large amounts of research and development costs in developing a superiorproduct. The company expects that it will be patented and that sales of the resulting productswill contribute to revenue for at least 40 years. The legal life of the patent, however, will be only20 years.d. Omega made an expenditure to acquire the patent on a whatsa. The patent had a remaining legallife of 10 years, but Omega expects to produce and sell the…
A company purchased a machine at the cost of $759,600 on March 1 of year 1. On the same day, the business paid the shipping company $5,600 to deliver the machine and paid $14,500 to another business to install and test the new machine. The annual insurance policy for the new machine is $8,600. The company’s fiscal year end is November 30. The company’s accounting policy is to depreciate all machines using the double diminishing balance method. The machine has an expected useful lifespan of five-years and an estimated residual value of $30,000. However, the company discovered the machine did not meet its business requirements, so it sold the machine on September 1, year 3, for $156,500. Perform all your calculations to the nearest dollar. Show all your work. Instructions: Write you answers by hand, scan your working papers and upload to the link on the main page of the Moodle website as a PDF file. Show any calculations. Printing the problem information is permitted but only for…
On January 1, 2018, Absolutely Bar & Grill purchased a building, paying $57,000 cash and signing a $100,000 note payable. The company paid another $66,000 to remodel the building. Furniture and fixtures cost $56,000, and dishes and supplies—a current asset—were obtained for $8,600. All expenditures were for cash. Assume that all of these expenditures occurred on January 1, 2018. Absolutely is depreciating the building over 25 years using the straight-line method, with estimated residual value of $54,000. The furniture and fixtures will be replaced at the end of five years and are being depreciated using thedouble-declining-balance method, with a residual value of zero. At the end of the first year, the company still had dishes and supplies worth $1,900. Show what the company will report for supplies, plant assets, and cash flows at the end of the first year on its income statement, balance sheet, and statement of cash flows. Begin with the income statement.…
Hilton earned $80,000 each year from the booking activities (main operation) and $30,000 from the laundry section. The total recognized operational expenses for the taxation purposes were $50,000. The company provided you with all the necessary documents to prepare the taxation report for them. After analyzing the documents, you found the following: A. S10,000 of the expenses occurred and were paid last year. B. $5,000 of the earned revenues from the booking activities related to canceled and refunded revenues to the customers. If the taxation law has the following instruction for preparing the taxation reports. I. First S15,000 of the total revenue will be free entitled of 5% discount from the tax. II. The company will receive an allowance because of their environmental activities of $7,000 from the total taxable income. III. The company will receive a 10% allowance from the total revenue after deducting the operational expenses. Instruction: 1. Determine whether the case is tax…
During the current year, Blake Construction disposed of plant assets in the following transactions:Jan. 6 Equipment costing $18,000 was given to a scrap dealer at no charge. At the date ofdisposal, accumulated depreciation on the office equipment amounted to $16,800.Mar. 3 Blake sold land and a building for $800,000, receiving $100,000 cash and a five-year,12 percent note receivable for the remaining balance. Blake’s records showed thefollowing amounts: Land, $50,000; Buildings, $680,000; Accumulated Depreciation:Building (at the date of disposal), $250,000.Jul. 10 Blake traded in an old truck for a new one. The old truck had cost $26,000, and itsaccumulated depreciation amounted to $22,000. The list price of the new truck was$37,000, but Blake received a $12,000 trade-in allowance for the old truck and paidonly $25,000 in cash. Blake includes trucks in its Vehicles account.Sept. 3 Blake traded in its old computer system as part of the purchase of a new system. Theold system had cost…
Johnson Industries purchased a metal-working lathe for $32,000. This item will be used for business 90% of the time. Accountants elected to take a $11,000 section 179 deduction and utilize the special depreciation allowance of 50%. Prepare a depreciation schedule (in $) using MACRS. Round all dollar amounts to the nearest cent. Johnson IndustriesMACRS Depreciation Schedule—Metal-working Lathe End of Year Basis for Depreciation ✕ Recovery Percent = MACRS Depreciation Deduction Accumulated Depreciation Book Value $ 1 $ ✕ 33.33% = $ $ $ 2 $ ✕ 44.45% = $ $ $ 3 $ ✕ 14.81% = $ $ $ 4 $ ✕ 7.41% = $ $ $
During the current year, Black Corporation incurred the following expenditures which should berecorded either as operating expenses or as intangible assets:a. Expenditures were made for the training of new employees. The average employee remainswith the company for five years, but is trained for a new position every two years.b. Black purchased a controlling interest in a vinyl flooring company. The expenditure resultedin the recording of a significant amount of goodwill. Black expects to earn above-averagereturns on this investment indefinitely.c. Black incurred large amounts of research and development costs in developing a dirt-resistantcarpet fiber. The company expects that the fiber will be patented and that sales of the resultingproducts will contribute to revenue for at least 25 years. The legal life of the patent, however,will be only 20 years.d. Black made an expenditure to acquire the patent on a popular carpet cleaner. The patent had aremaining legal life of 14 years, but…
During the current year, Black Corporation incurred the following expenditures which should be recorded either as operating expenses or as intangible assets and name the asset and explain why you categorize particular asset. d. Black made an expenditure to acquire the patent on a popular carpet cleaner. The patent had a remaining legal life of 14 years, but Black expects to produce and sell the product for only six more years. e. Black spent a large amount to sponsor the televising of the Olympic Games. Black’s intent was to make television viewers more aware of the company’s name and its product lines.
Cox Construction, a company in its 10th year of business, purchased a piece of equipment on April 1, year 9, for 20,000. Cox has used it for business purposes since the initial purchase date. The company depreciated the equipment using the MACRS half-year table for 5-year assets. For tax purposes, what is the amount of accumulated depreciation expense for the equipment as of December 31, year 10? a. 6,000 b. 10,400 c. 11,600 d. 12,800
Last year, Mountain Top, Incorporated, purchased a coal mine at a cost of $900,000. The salvage value has been estimated at $100,000. The coal mine has an estimated 200,000 tons of available coal. A total of 70,000 tons were mined and sold during the current year. Complete the necessary adjusting journal entry to record depletion expense for the current year by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. View transaction list Journal entry worksheet 1 Last year, Mountain Top, Inc., purchased a coal mine at a cost of $900,000. The salvage value has been estimated at $100,000. The coal mine has an estimated 200,000 tons of available coal. A total of 70,000 tons were mined and sold during the current year. Note: Enter debits before credits. Date Dec. 31 General Journal Debit Credit >