Marcs Depreciation Flashcards
Marcs depreciation
There is a half year conversion, mid quarter, mid month.
Half year and mid quarter apply to personal property
Mid month apply to real property
Half year most the time unless mid quarter applies 40% of personal property being placed into service in the final quarter.
There is 5 year, 7 year for personal 27.5% for residential rental, 39 for commercial
By fax, Bell ordered 10,000 yards of fabric, first quality, 50% wool and 50% cotton. The shipping terms were FOB Major’s factory in Akron, Ohio. Major e-mailed an acceptance and packed the fabric for shipment. In the process it discovered that one half of the fabric was 30% wool and 70% cotton. Since Major did not have any additional 50% wool fabric, it decided to send the shipment to Bell as an accommodation. The goods were shipped and later that day Major e-mailed Bell its apology and indicated that the 5,000 yards of 30% wool would be priced at $2 a yard less. The truck delivering the fabric was destroyed on the way to Akron. Under the circumstances, who bears the risk of loss?
Major since it shipped goods which failed to conform to the contract.
When nonconforming goods are shipped, the risk of loss is always on the seller, regardless of the shipping terms. The shipment was nonconforming because half of the goods were only 30% wool, thus risk of loss is on Major.
Major has risk of loss because the delivery was nonconforming. Whether or not the order was in a signed writing has no effect on risk of loss. Moreover, the fax and e-mail here would probably be sufficient writings under the statute of frauds in any event.
Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 6,000 at a rate of 65.5 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amount should be reported in Mel’s gross income for the year?
$4,800
Under a nonaccountable plan, $4,800 ($400 per month x 12 months) must be reported as part of Mel’s gross income for the year (in fact, the $4,800 will be included as part of Mel’s taxable wages on Mel’s W-2).
Under a nonaccountable plan (i.e., expenses are not reported to the employer), any amounts received by an employee from the employer must be reported by the employer as part of wages on the employee’s W-2 for the year (and subject to income tax withholding requirements). The gross amount received is reported as income.
For which of the following entities is the owner’s basis increased by the owner’s share of profits and decreased by the owner’s share of losses but is not affected by the entity’s bank loan increases or decreases?
S corporation.
The owner’s basis in an S Corporation is increased by the owner’s share of profits and decreased by the owner’s share of losses. It is not affected by any bank loans increased or decreased by the corporation. The S corporation shareholder only has debt basis in direct loans made to the corporation by the owner.
Nan, a cash basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan’s business enabled Nan to prepay the first three years of interest attributable to the note on December 31 of the current year. How should Nan treat the prepayment of interest for tax purposes?
Deduct the current year’s interest and amortize the balance over the next two years.
Interest paid in advance by a cash basis taxpayer on business loans cannot be deducted until the tax period to which the interest relates. In other words, the interest must be both paid and incurred in order to be deducted.
Dove Corp. began operating a hardware store in the current year after constructing a building at a total cost of $100,000 on land previously acquired for $50,000. In the current year, the land had a fair market value of $60,000. Dove paid real estate taxes of $5,000 in the current year. What is the total depreciable basis of Dove’s business property?
$100,000
The only amount that may be depreciated is the $100,000 that Dove spent to construct the building. The $50,000 cost of the land is not depreciable as land is not a depreciable asset. The fair market value of the land ($60,000) is irrelevant for depreciation purposes. The real estate taxes ($5,000) are a deductible expense to the business that would not be capitalized.
The cost of the land is not a depreciable expense.
Food Corp. owned a restaurant called The Ambers. The corporation president, T.J. Jones, hired a contractor to make repairs at the restaurant, signing the contract, “T.J. Jones for The Ambers.” Two invoices for restaurant repairs were paid by Food Corp. with corporate checks. Upon presenting the final invoice, the contractor was told that it would not be paid. The contractor sued Food Corp. Which of the following statements is correct regarding the liability of Food Corp.?
It is liable because Jones had authority to make the contract.
Where an agent enters into a contract on behalf of a principal and discloses the existence and identity of the principal and acts with authority, the principal is liable and the agent is not liable. Here, Jones signed the contract with an indication that he was signing for the corporation. The president of a corporation is an agent of the corporation and has apparent authority to enter contracts that appear to be within the ordinary scope of the corporation’s business. The restaurant repairs here appear to be with the scope of Food Corp.’s business. Therefore, Food Corp. will be bound because Jones had at least apparent authority.
Joint ventures are most similar to which of the following types of business organizations?
General partnerships.
A joint venture is a partnership for a single or limited purpose. The legal requirements, consequences, advantages, and disadvantages of forming a joint venture generally are identical to those of a general partnership.
Joint ventures are not similar to limited partnerships, a business trust or a subchapter S corporation. Joint ventures are similar to a general partnership.
Which of the following pairs of elements must a client prove to hold an accountant liable for common law negligence?
Breach of the accountant’s duty of care and loss.
A plaintiff must show four elements to make a case for negligence against a CPA. The plaintiff must show that the defendant owed a duty of care to the plaintiff, the defendant breached that duty by failing to act with due care, the breach caused the plaintiff’s injury, and damages.
Mosh, a sole proprietor, uses the cash basis of accounting. At the beginning of the current year, accounts receivable were $25,000. During the year, Mosh collected $100,000 from customers. At the end of the year, accounts receivable were $15,000. What was Mosh’s gross taxable income for the current year?
$100,000
The facts state that cash collections from customers were $100,000 and as a cash basis taxpayer this is the amount of Mosh’s gross taxable income for the year.
Locke and Vorst were general partners in a kitchen equipment business. On behalf of the partnership, Locke contracted to purchase 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Vorst refused to allow the partnership to accept delivery of the stoves and Gage sought to enforce the contract. Gage will:
Apparent authority: power of an agent to act on behalf of a princial, even though not expressly or impliedly granted.
Win, because Locke had apparent authority to bind the partnership.
Every partner is an agent of the partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership. It would be usual for a partner in a kitchen equipment business to have authority to purchase stoves. Thus, Gage will win because of Locke’s apparent authority.
Locke did not have express authority to purchase the stoves. The facts state that Locke was not authorized to purchase the stoves and thus lacked express authority
Every partner is an agent for his partnership and has apparent authority to bind the partnership to contracts that appear to carry on in the usual way the business of the partnership.
Every partner is an agent of the partnership.
