Question

1.Belsap Inc., a calendar year taxpayer, purchased a total of $590,000 depreciable personalty during May 2016. Which of the following statements is true?

a.Belsap can elect to expense 100% of the cost.

b.The amount of cost that Belsap can elect to expense depends on Belsap's 2016 taxable income.

c.Belsap can elect to expense $500,000 of the cost. The $90,000 remaining cost is capitalized and subject to MACRS depreciation.

d.Belsap can elect to expense $500,000 of the cost. The $90,000 remaining cost is capitalized and is not depreciable.

2.Mr. and Mrs. Schulte paid a $750,000 lump-sum price to purchase a business. At date of purchase, the appraised FMVs of the balance sheet assets were:

Accounts receivable	$	38,000
Inventory		415,000
Fixtures and equipment		147,000
	$	600,000

Which of the following statements is true?

a.The Schultes must allocated the $750,000 cost to the balance sheet assets based on the assets' relative FMV.

b.The Schultes must capitalize $150,000 of the cost to nonamortizable goodwill.

c.The Schultes may deduct $150,000 of the cost as business goodwill.

d.None of the choices are true.

3.Szabi Inc., a calendar year taxpayer, purchased two assets during 2016: a machine costing $380,000 and computer equipment costing $403,500. The machine is 7-year recovery property and the computer equipment is 5-year recovery property. Which of the following statements is true?

a.Szabi should elect to expense the $380,000 cost of the machine and $120,000 of the cost of the computer equipment.

b.Szabi should elect to expense the $403,500 cost of the computer equipment machine and $96,500 of the cost of the machine.

c.Szabi must elect to expense $250,000 of the cost of the machine and $250,000 of the cost of the computer equipment.

d.Szabi is indifferent as to which costs to expense.

Answer 1

Answers

Q.1 - b. The amount of cost that Belsap can elect to expense depends on Belsap's 2016 taxable income.

Q.2 - b.The Schultes must capitalize $150,000 of the cost to nonamortizable goodwill.

Because we bought the business for excess price and the excess amount is known to be goodwill .

Q.3 - b.Szabi should elect to expense the $403,500 cost of the computer equipment machine and $96,500 of the cost of the machine.

We should expense the amount for which depreciation is more .and capitalies for the other