Principles of Taxation for Business and Investment Planning 2020 Edition
23rd Edition
ISBN: 9781260433210
Author: Jones, Sally
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 7, Problem 7IRP
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Identify the tax issues and state the issues in the form of a question.
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In 2025, Sandhill Company discovered an error while preparing its 2025 financial statements. A building constructed at the beginning
of 2024 costing $1299900 has not been depreciated. The estimated useful life of the building is 30 years with no salvage value.
Straight-line depreciation is used. Sandhill properly included depreciation on its tax return also using straight-line depreciation.
Income tax payable was also reported correctly at a tax rate of 20%. Income before depreciation expense in 2025 was $400000.
What was the impact on the following accounts at the start of 2025?
Accumulated Depreciation was understated by $86660 and Retained Earnings was overstated by $34664.
O Accumulated Depreciation was understated by $43330 and Retained Earnings was overstated by $34664.
O Accumulated Depreciation was overstated by $43330 and net income was understated by $43330.
O Accumulated Depreciation was understated by $43330 and net income was overstated by $43330.
The Jordan Corp (C Corporation), a calendar year taxpayer, sold a piece of equipment, a piece of machinery, and a warehouse on March 30, 2021. Data on these disposals are as follows:
The equipment was purchased on February 20, 2016 for $50,000. It was sold for $60,000 cash. After calculating 2021 depreciation, accumulated depreciation totaled $45,538.
The machinery was purchased on February 7, 2017 for $130,000. It was sold for $30,000 cash. After calculating 2021 depreciation, accumulated depreciation totaled $112,596.
The building was purchased on March 1, 1991 for $2,000,000. It was sold for $1,325,000 cash. After calculating 2021 depreciation, accumulated depreciation totaled $1,589,743. The building had a mortgage with a balance of $200,000 that the buyer assumed from the Jordan Corp.
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For each asset,
Calculate the amount of the realized gain/loss
Calculate the amount of the recognized gain/loss
Calculate the amount and type of depreciation recapture, if any
Calculate the…
In 2025, Ivanhoe Company discovered an error while preparing its financial statements. A building constructed at the beginning of
2024 costing $1350000 has not been depreciated. The estimated useful life of the building is 30 years with no salvage value. Straight-
line depreciation is used. Ivanhoe also used straight-line depreciation for tax purposes and properly included depreciation on its tax
return. Income tax payable was also reported correctly at a tax rate of 20%. Income before tax and depreciation expenses in 2025 was
$450000
What would be the 2025 net income if depreciation had been recorded properly?
$324000
O $414000
â’¸$405000
$450000
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Chapter 7 Solutions
Principles of Taxation for Business and Investment Planning 2020 Edition
Ch. 7 - Prob. 1QPDCh. 7 - Assume that Congress enacted legislation requiring...Ch. 7 - Prob. 3QPDCh. 7 - To what extent do cost recovery deductions based...Ch. 7 - Can a firm have a negative tax basis in an asset?Ch. 7 - Prob. 6QPDCh. 7 - Corporation J manufactures electrical appliances....Ch. 7 - Identify the tax and nontax issues that firms must...Ch. 7 - Identify four possible differences in the...Ch. 7 - Prob. 10QPD
Ch. 7 - Prob. 11QPDCh. 7 - Prob. 12QPDCh. 7 - Prob. 13QPDCh. 7 - Prob. 14QPDCh. 7 - Prob. 15QPDCh. 7 - Prob. 16QPDCh. 7 - Prob. 17QPDCh. 7 - Prob. 18QPDCh. 7 - Prob. 1APCh. 7 - Assuming a 21 percent tax rate, compute the...Ch. 7 - Determine the tax basis of the business asset...Ch. 7 - ABC Company purchased business property several...Ch. 7 - Early this year, ZeZe Inc. paid a 52,000 legal fee...Ch. 7 - In year 1, Firm A paid 50,000 cash to purchase a...Ch. 7 - Prob. 7APCh. 7 - Hansen Company, a cash basis taxpayer, paid 50,000...Ch. 7 - In year 0, Jarmex paid 55,000 for an overhaul of a...Ch. 7 - Prob. 10APCh. 7 - Refer to the facts in problem 10. In its second...Ch. 7 - In its first year of operations, Lima Company...Ch. 7 - Prob. 13APCh. 7 - Herelt Inc., a calendar year taxpayer, purchased...Ch. 7 - Knute Company purchased only one asset during its...Ch. 7 - Prob. 16APCh. 7 - Suber Inc., a calendar year taxpayer, purchased...Ch. 7 - Prob. 18APCh. 7 - Prob. 19APCh. 7 - On May 12, 2018, Nelson Inc. purchased eight...Ch. 7 - In March 2018, Jones Company purchased a Mercedes...Ch. 7 - Margo, a calendar year taxpayer, paid 580,000 for...Ch. 7 - In 2019, Firm L purchased machinery costing 21,300...Ch. 7 - In 2018, Company W elected under Section 179 to...Ch. 7 - Prob. 25APCh. 7 - At the beginning of its 2019 tax year, Hiram owned...Ch. 7 - In April 2019, Lenape Corporation completed...Ch. 7 - Ajax Inc. was formed on April 25 and elected a...Ch. 7 - Prob. 29APCh. 7 - Mr. Z, a calendar year taxpayer, opened a new car...Ch. 7 - Prob. 31APCh. 7 - Prob. 32APCh. 7 - Prob. 33APCh. 7 - Prob. 34APCh. 7 - Prob. 35APCh. 7 - Prob. 36APCh. 7 - Prob. 37APCh. 7 - Prob. 1IRPCh. 7 - Prob. 2IRPCh. 7 - Prob. 3IRPCh. 7 - Prob. 4IRPCh. 7 - Prob. 5IRPCh. 7 - Prob. 6IRPCh. 7 - Prob. 7IRPCh. 7 - Prob. 8IRPCh. 7 - Prob. 9IRPCh. 7 - Prob. 10IRPCh. 7 - Prob. 1RPCh. 7 - Prob. 2RPCh. 7 - Prob. 3RPCh. 7 - Prob. 4RPCh. 7 - Prob. 1TPCCh. 7 - Prob. 2TPCCh. 7 - Prob. 3TPCCh. 7 - Prob. 4TPC
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