Cullumber Chrome Bumpers bought two acres of land with an old office building on it that was deemed unusable. The cost was $614,400 of which Cullumber Chrome paid $102,400 in cash as a down payment and signed a 7% mortgage for the remainder. Cullumber Chrome immediately had the old building razed at a total cost of $11,040 and sold the salvaged materials for $2,720. Attorneys were paid $1,360 in connection with the purchase. The architect's fee for drawing building plans for the new building cost $8,800. Cullumber Chrome paid $3,920 in connection with permits and zoning variances necessary prior to construction of the new building. Cullumber Chrome paid the contractor $1,817,600 for construction of the new building, along with $53,760 for a parking lc and necessary walkways and driveways. Answer the following question. (a) At what amount should the land be recorded? Land be recorded 24

Cullumber Chrome Bumpers bought two acres of land with an old office building on it that was deemed unusable. The cost was $614,400 of which Cullumber Chrome paid $102,400 in cash as a down payment and signed a 7% mortgage for the remainder. Cullumber Chrome immediately had the old building razed at a total cost of $11,040 and sold the salvaged materials for $2,720. Attorneys were paid $1,360 in connection with the purchase. The architect's fee for drawing building plans for the new building cost $8,800. Cullumber Chrome paid $3,920 in connection with permits and zoning variances necessary prior to construction of the new building. Cullumber Chrome paid the contractor $1,817,600 for construction of the new building, along with $53,760 for a parking lc and necessary walkways and driveways. Answer the following question. (a) At what amount should the land be recorded? Land be recorded 24

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter10: Cost Recovery On Property: Depreciation, Depletion, And Amortization

Section: Chapter Questions

Problem 55P

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Tree Lovers Inc. purchased 2,500 acres of woodland in which it intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $5,000,000 for the land. Tree Lovers will sell the lumber as it is harvested and it expects to deplete it over ten years (150 acres in year one, 300 acres in year two, 250 acres in year three, 150 acres in year four, and 100 acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.
Tree Lovers Inc. purchased 100 acres of woodland in which the company intends to harvest the complete forest, leaving the land barren and worthless. Tree Lovers paid $2,100,000 for the land. Tree Lovers will sell the lumber as it is harvested and expects to deplete it over five years (twenty acres in year one, thirty acres in year two, twenty-five acres in year three, fifteen acres in year four, and ten acres in year five). Calculate the depletion expense for the next five years and create the journal entry for year one.
Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president of Tuttle Construction, is considering the purchase of various items of equipment on July 1, 2014, for 400,000. The equipment would have a useful life of five years and no residual value. In the past, all equipment has been leased. For tax purposes, Tim is considering depreciating the equipment by the straight-line method. He discussed the matter with his CPA and learned that, although the straight-line method could be elected, it was to his advantage to use the Modified Accelerated Cost Recovery System (MACRS) for tax purposes. He asked for your advice as to which method to use for tax purposes. 1. Compute depreciation for each of the years (2014, 2015, 2016, 2017, 2018, and 2019) of useful life by (a) the straight-line method and (b) MACRS. In using the straight-line method, one-half years depreciation should be computed for 2014 and 2019. Use the MACRS rates presented in Exhibit 9. 2. Assuming that income before depreciation and income tax is estimated to be 750,000 uniformly per year and that the income tax rate is 40%, compute the net income for each of the years 2014, 2015, 2016, 2017, 2018, and 2019 if (a) the straight-line method is used and (b) MACRS is used. 3. What factors would you present for Tims consideration in the selection of a depreciation method?
On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for 30,000. The automobile had a fair market value of 20,000 before the accident and 8,000 immediately after the accident. Sam has taken 20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Sams history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Sam believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Sams current marginal tax rate is 35%. Write a letter to Sam that contains your advice with respect to the tax and cash flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car. Also prepare a memo for the tax files. Sams address is 450 Colonels Way, Warrensburg, MO 64093.