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Exam 5: Business Deductions

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Question 21

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Heron Corporation,a calendar year C corporation,had an excess charitable contribution for 2012 of $5,000.In 2013,Heron made a further charitable contribution of $20,000.Heron's 2013 deduction is limited to $15,000 (10% of taxable income).The current year's contribution must be applied first against the $15,000 limitation.

A) True
B) False

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Question 22

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On June 1 of the current year,Tab converted a machine from personal use to rental property.At the time of the conversion,the machine was worth $90,000.Five years ago Tab purchased the machine for $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

A) $70,000.
B) $90,000.
C) $120,000.
D) $140,000.
E) None of the above.

F) A) and C)
G) C) and D)

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Question 23

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The inclusion amount for a leased automobile is adjusted by a business usage percentage.

Linda is planning to buy Vicki's home.They want to keep the transaction simple,so the sales agreement will not apportion the property taxes that Vicki has already paid on the home.Comment on the tax implications for Linda and Vicki.

Which of the following must be capitalized by a business?

On July 17,2013,Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2014,he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2014.

Under the alternative depreciation system (ADS),the half-year convention must be used for personalty.

For tax years beginning in 2013,the domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying 9% times adjusted gross income.

Tom operates an illegal drug-running operation and incurred the following expenses: Which of the above amounts reduces his taxable income?

In applying the $1 million limit on deducting executive compensation,what corporations are subject to the deduction limit? What executives are covered?

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes,but is not allowed for a cash method taxpayer.

Janet is the CEO for Silver,Inc.,a closely held corporation.Her total compensation for 2013 is $5 million.Of this amount,$2 million is a salary and $3 million is a bonus.The bonus was calculated as 5% of Silver's net income before the bonus and before taxes ($60 million X 5% = $3 million).The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance.It is approved annually by the entire board of directors (1 of the 5 directors is an outside director)of Silver.How much of Janet's compensation can Silver deduct for 2013?

Iris,a calendar year cash basis taxpayer,owns and operates several TV rental outlets in Florida,and wants to expand to other states.During 2013,she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia.She acquires the South Carolina operations,but not the outlets in Georgia.As to these expenses,Iris should:

Petal,Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2013,the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2013 is:

The limit for the domestic production activities deduction (DPAD)uses all W-2 wages paid to employees by the taxpayer during the tax year.

Payments by a cash basis taxpayer of capital expenditures:

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Calculate Sandra's net profit using the cash method for 2013.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

Bhaskar purchased a new factory building on September 10,2013,for $3,700,000.Five hundred thousand of the purchase price was allocated to the land.He elected the alternative depreciation system (ADS) .Determine the cost recovery deduction for 2014.

On June 1,2013,Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table is $241,determine Norm's inclusion amount.