Finance-QA177

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Corporate Income Tax – Problems #1 – Disposition of Property
 
Lito sold the following property during the year
 

Asset

       
Amount Realized Cost Accumulated Depreciation
 

 Machinery      
       
       
       
       
$200,000
  $510,000
$318,827
Office furniture 12,000
  10,000
  7,000
Delivery truck 2,000 15,000 10,500
Warehouse 350,000 275,000
15,000
Land 175,000 75,000
  N/A

 

  1. Calculate the amount and character of the gain.
  2. How would your answer change if the machinery had sold for $520,000?
  3. How would your answer change if the machinery had sold for $180,000?

 

Hound Co. started business in 2006 and reported a $7,000 §1231 loss. In 2011, Hound Co. has a net §1231 gain of $25,000. Hound Co. did not recognize any other §1231 gains or losses in 2007-2010. What is the character of the $25,000 gain in 2011?

What if Hound Co. reported a $2,000 §1231 gain in 2009?

 

Checking for MQ convention
 
Hound Co. purchased the following equipment during the year. What is the appropriate convention for each asset?

 

Special Depreciation

Hound Co. is contemplating purchasing a piece of equipment in 2016 for $650,000. Assuming Hound takes the maximum amount of allowable depreciation on this asset – which has a 5-year recovery period – what is the after-tax cost of the asset?

 

NOLs

You are preparing the 2014 tax return for Blake Co. The taxpayer reported the following taxable income (loss) for the years 2011-2014, and expects to report $450,000 of taxable income in 2015 and 2016. Blake has asked your advice on whether to carry the NOL from 2014 back or forward.

 

2011 $250,000

2012 $320,000

2013 $ 90,000

2014 ($565,000)

Analyze the consequences of carrying the NOL back versus carrying it forward. Compute the total tax savings under each alternative and provide a suggestion. Be sure to consider any relevant non-tax factors in your decision.
 

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Related Services

 

DPAD
 

BOS is a U.S. toy manufacturer. Its qualified production activities income is $1,000,000 and U.S. W-2 wages are $600,000. Taxable income before the domestic production deduction is $500,000. What is the amount of the production activities deduction?

 

DRD

Lito Co. reported the following information for 2014:

Gross income from operations $450,000

Dividend from 15%-owned corporation 150,000

Operating expenses 380,000

  1. Compute Lito’s taxable income for 2014 given the facts above.

 

  1. Compute Lito’s taxable income for 2014 assuming that operating expenses are $480,000.

 

  1. Compute Lito’s taxable income for 2014 assuming that operating expenses are $510,000.

 

  1. Compute Lito’s taxable income for 2014 assuming that operating expenses are $620,000.

 

Focus on Temporary Differences
 
Gurely Co. provides you with the following information for the year ended December 31, 2015.
 
Additionally, the beginning balances in the deferred tax accounts were
 

  Balance at 12/31/2014
PP&E (18,000)
Warranty Reserves 40,000
Allowance for Doubtful Accounts 63,200

 

  1. Prepare the journal entry to record tax expense. Assume a statutory tax rate of 40%
  2. Calculate the ending balances in the deferred tax accounts. How would these balances be reflected on the balance sheet?
  3. Assume a law is passed on December 13, 2015 that reduces the statutory rate to 35%. The tax rate will become effective in 2016. Prepare the required journal entry to record the impact of this rate change.

 

Product code: Finance-QA177
 
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