Question 1

Why would a taxpayer elect to capitalize and amortize intangible drilling costs (IDCs) rather than expense such costs?

Accepted Answer

An election to expense IDCs reduces pre-

Question 2

In August 2016, Tianshu acquires and places into service 7-year business equipment (tangible personal property qualifying under Sec. 179) for $70,000. This is the only asset that she purchased during the year; her taxable income from her trade or business is $23,000. She decides to limit her 179 election to the maximum amount currently deductible in her business for the current year. What is her maximum cost recovery (Sec. 179 and depreciation) deduction for 2015?

Accepted Answer

Section 179 immediate expensing (limited

Question 3

When depreciating 5-year property, the final year of depreciation will be year

Accepted Answer

A)  3. 
B)  4. 
C)  5. 
D)  6. 
A)  3. 
B)  4. 
C)  5. 
D)  6.

Question 4

In accounting for research and experimental expenditures, all of the following alternatives are available with the exception of

Accepted Answer

A)  expense R&E costs in the year paid or incurred. 
B)  expense R&E costs in the year in which a product or process becomes marketable. 
C)  defer and amortize R&E costs as a ratable deduction over a period of 60 months or more. 
D)  capitalize and write off R&E costs only when the research project is abandoned or is worthless. 
A)  expense R&E costs in the year paid or incurred. 
B)  expense R&E costs in the year in which a product or process becomes marketable. 
C)  defer and amortize R&E costs as a ratable deduction over a period of 60 months or more. 
D)  capitalize and write off R&E costs only when the research project is abandoned or is worthless.

Question 5

On October 2, 2016, Dave acquired and placed into service 5-year business equipment costing $70,000. No other acquisitions were made during the year. Dave does not use Sec. 179 expensing, and the property does not qualify for bonus depreciation. The depreciation for this year is using the most accelerated method possible is

Accepted Answer

A)  $0. 
B)  $3,500. 
C)  $7,000. 
D)  $14,000. 
A)  $0. 
B)  $3,500. 
C)  $7,000. 
D)  $14,000.

Question 6

Depreciable property includes business, investment, and personal-use assets.

Accepted Answer

A) True 
 B)False

Question 7

Maria, a sole proprietor, has several items of office furniture and equipment which are depreciable. All were acquired before this year. She is not required to report her depreciation deduction on form 4562.

Accepted Answer

A) True 
 B)False

Question 8

In January of 2016, Brett purchased a Porsche for $100,000 to be used in his business. Brett drove the car 83 percent of the time for business. What is the maximum amount that Brett may deduct in 2016?

Accepted Answer

$11,160 ×

Question 9

Richards Corporation reports taxable income exceeding $1 million per year. In 2016 it acquired and placed in service $1,600,000 of new equipment. The equipment, its only property addition this year, is five-year property and was shipped directly from the factory. What is the maximum tax deduction it can take this year with respect to this new equipment?

Accepted Answer

A)  $1,160,000 
B)  $800,000 
C)  $720,000 
D)  $1,050,000 
A)  $1,160,000 
B)  $800,000 
C)  $720,000 
D)  $1,050,000

Question 10

Intangible assets are subject to MACRS depreciation.

Accepted Answer

A) True 
 B)False

Question 11

Tronco Inc. placed in service a truck costing $40,000 on January 15 of this year. On November 1, the company placed in service $200,000 of construction equipment. Tronco is a calendar year taxpayer. When calculating MACRS depreciation, Tronco must apply the mid-quarter convention to the construction equipment, but will use the half-year convention for the truck.

Accepted Answer

A) True 
 B)False

Question 12

If personal-use property is converted to trade or business use, the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.

Accepted Answer

A) True 
 B)False

Question 13

Galaxy Corporation purchases specialty software from a software development firm for use in its business as of January 1 of the current year at a cost of $90,000. No hardware was acquired. How much of the cost can Galaxy deduct this year?

Accepted Answer

A)  $18,000 
B)  $15,000 
C)  $30,000 
D)  $90,000 
A)  $18,000 
B)  $15,000 
C)  $30,000 
D)  $90,000

Question 14

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

Accepted Answer

A)  A taxpayer has significant charitable contribution carryovers that will expire after this year. 
B)  A taxpayer is undertaking a major R&E project which will result in an usually low marginal tax rate for the next few years. 
C)  A taxpayer has significant NOL carryovers. 
D)  All of the above. 
A)  A taxpayer has significant charitable contribution carryovers that will expire after this year. 
B)  A taxpayer is undertaking a major R&E project which will result in an usually low marginal tax rate for the next few years. 
C)  A taxpayer has significant NOL carryovers. 
D)  All of the above.

Question 15

Most taxpayers elect to expense R&E expenditures because of the immediate tax benefit.

Accepted Answer

A) True 
 B)False

Question 16

On April 12, 2015, Suzanne bought a computer for $20,000 for business use. This was the only purchase for that year. Suzanne used the most accelerated depreciation method available but did not elect Sec. 179. Bonus depreciation was not available. Suzanne sells the machine in 2016. The depreciation on the computer for 2016 is

Accepted Answer

A)  $2,000. 
B)  $3,200. 
C)  $4,000. 
D)  $6,400. 
A)  $2,000. 
B)  $3,200. 
C)  $4,000. 
D)  $6,400.

Question 17

If the business usage of listed property is less than or equal to 50% of its total usage, depreciation is calculated using the

Accepted Answer

A)  regular MACRS tables. 
B)  alternative depreciation system. 
C)  it may not be depreciated. 
D)  regular MACRS tables and a mid-month convention. 
A)  regular MACRS tables. 
B)  alternative depreciation system. 
C)  it may not be depreciated. 
D)  regular MACRS tables and a mid-month convention.

Question 18

A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller. Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of view?

Accepted Answer

A)  goodwill 
B)  equipment 
C)  office building 
D)  inventory 
A)  goodwill 
B)  equipment 
C)  office building 
D)  inventory

Question 19

Everest Corp. acquires a machine (seven-year property) on January 10, 2016 at a cost of $2,022,000. Everest makes the election to expense the maximum amount under Sec. 179.
a. Assume that the taxable income from trade or business is $1,500,000.
 (1) What is the amount of the Section 179 expensing deduction for the current year?
(2) What is the amount of the Section 179 carryover to the next taxyear?
(3) What is the amount of depreciation allowed?
 b. Assume instead that the taxable income from trade or business is $400,000.
 (1) What is the amount of the Section 179 expensing deduction for the current year?
(2) What is the amount of the Section 179 carryover to the next taxyear?
(3) What is the amount of depreciation allowed this year?

Accepted Answer

None

Question 20

On November 3, this year, Kerry acquired and placed into service 7-year business equipment costing $80,000. In addition, on May 5th of this year, Kerry had also placed in business use 5-year recovery property costing $15,000. Kerry did not elect Sec. 179 immediate expensing, and the assets are not eligible for bonus depreciation. No other assets were purchased during the year. The depreciation for this year is

Accepted Answer

A)  $3,606. 
B)  $6,606. 
C)  $13,576. 
D)  $14,432. 
A)  $3,606. 
B)  $6,606. 
C)  $13,576. 
D)  $14,432.

Exam 25: Depreciation, Cost Recovery, Amortization, and Depletion

Why would a taxpayer elect to capitalize and amortize intangible drilling costs (IDCs) rather than expense such costs?

When depreciating 5-year property, the final year of depreciation will be year

In accounting for research and experimental expenditures, all of the following alternatives are available with the exception of

Depreciable property includes business, investment, and personal-use assets.

Maria, a sole proprietor, has several items of office furniture and equipment which are depreciable. All were acquired before this year. She is not required to report her depreciation deduction on form 4562.

In January of 2016, Brett purchased a Porsche for $100,000 to be used in his business. Brett drove the car 83 percent of the time for business. What is the maximum amount that Brett may deduct in 2016?

Intangible assets are subject to MACRS depreciation.

If personal-use property is converted to trade or business use, the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.

Galaxy Corporation purchases specialty software from a software development firm for use in its business as of January 1 of the current year at a cost of $90,000. No hardware was acquired. How much of the cost can Galaxy deduct this year?

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

Most taxpayers elect to expense R&E expenditures because of the immediate tax benefit.

If the business usage of listed property is less than or equal to 50% of its total usage, depreciation is calculated using the

A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller. Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of view?

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Section 1231 and Recapture

Special Tax Computation Methods, Tax Credits, and Payment of Tax

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