1.Belsap Inc., a calendar year taxpayer, purchased a total of $590,000 depreciab
ID: 2409577 • Letter: 1
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.
Accounts receivable
$
38,000
Inventory
415,000
Fixtures and equipment
147,000
$
600,000
Explanation / Answer
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
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