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Principles of Taxation for Business and Investment Planning, 5/e
Sally M Jones, University of Virginia
The Measurement of Taxable Income

Quiz for Part 3



1

Fargo Corporation purchases a business asset for $20,000. Fargo is allowed to deduct the cost of the asset over 5 years on the following declining scale:

YearAllowance
1$10,000
2 $5,000
3$2,500
4$1,250
5$750

If the Fargo Corporation has a marginal tax rate of 30 percent and it uses a 10 percent discount rate for NPV, the after tax cost of the asset is?

A)$14,000
B)$14,581.12
C)$15,073.76
D)$14,801.03
E)Some other answer.
2

Tank Corporation operates in an environment with the following tax rate schedule

Taxable IncomeRate
$0-$10,00015%
$10,001-$50,00025%
$50,001-$100,00030%
$100,001-+35%

If Tank has taxable income of $60,000 what is its marginal tax rate?

A)15%
B)25%
C)30%
D)35%
E)Some other answer.
3

Using the information provided in the question above, determine what Tank's effective tax rate is.
A)30%
B)15%
C)19.2 %
D)24.2%
E)Some other answer.
4

Targa Corporation purchases a $100,000 business personalty asset with a recovery period of 7 years. What is the cost recovery allowed to Targa in year 6 of the asset's life.
A)$5,760
B)$8,920
C)$7,370
D)$6,230
E)Some other answer
5

Topco Corporation purchases $300,000 of residential rental property during the current year and places the property in service in April. What is the cost recovery allowed to Topco this year?
A)$10,908
B)$5,910
C)$5,000
D)$7,728
E)Some other answer.
6

Using the information in question 4 what is the PV of the tax savings associated with the cost recovery received in Year 6 if Targa has a 30 percent tax rate?
A)$1,897.87
B)$1,597.40
C)$1,739.22
D)$2,893.37
E)Some other answer.
7

Fever Corporation has taxable income from operations of $30,000. During the period it also experiences a $25,000 short-term capital loss, a $20,000 short-term capital gain, a $10,000 long-term capital loss, and a $12,000 long-term capital gain. What is Fever's taxable income for the period?
A)$50,000
B)$30,000
C)$27,000
D)$62,000
E)Some other answer.
8

Jipco Corporation purchased business personalty property 2 years ago for $25000. It sells the property for $28,000 this year when its adjusted basis is $15,000. How much should Jipco report as Section 1231 gains?
A)$13,000
B)$10,000
C)$0
D)$3,000
E)Some other answer.
9

Fonder Corporation experienced $20,000 in net 1231 losses in the sale of business assets two years ago. This year it expects to have $30,000 of net 1231 gains. How much ordinary income will Fonder report from the sale of assets this year?
A)$0
B)$30,000
C)$20,000
D)$10,000
E)Some other answer.
10

Jocko Corporation exchanges an investment asset with a basis of $25,000 for an investment asset with a fair market value of $50,000 and cash of $25,000. What is the fair market value of Jocko's original asset and what is Jocko's realized gain?
A)$50,000, $25,000
B)$50,000, $50,000
C)$75,000, $50,000
D)$50,000, $0
E)Some other answer.




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