Question 1

Automobiles placed in service in 2014 generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

Accepted Answer

A) Real property is depreciated using a mid-quarter convention. 
B) Only one-half year of depreciation is allowed in the year of acquisition of real property, regardless of the actual date the property is placed in service. 
C) Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year. 
D) In some cases, where a significant amount of property is acquired during the last quarter of the taxpayer's tax year, the taxpayer may be required to use a mid-quarter convention in calculating depreciation on real property. 
E) None of the above. 
A) Real property is depreciated using a mid-quarter convention. 
B) Only one-half year of depreciation is allowed in the year of acquisition of real property, regardless of the actual date the property is placed in service. 
C) Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year. 
D) In some cases, where a significant amount of property is acquired during the last quarter of the taxpayer's tax year, the taxpayer may be required to use a mid-quarter convention in calculating depreciation on real property. 
E) None of the above. C

Question 3

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Accepted Answer

A) True 
 B)False  True

Question 4

For each of the following independent situations, indicate with a "Yes" if the asset is listed property. Indicate with a "No" if the asset is not listed property.
a. Airplane used 25 percent for business ______
b. Fleet of cabs ______
c. A moving van ______
d. DVD player used 10 percent for business ______
e. A digital camera used 30 percent of the time to list eBay items ______

Accepted Answer

a. Yes
b.

Question 5

Most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end so that they may defer 3 months of income.

Accepted Answer

A) True 
 B)False

Question 6

The election to expense is not permitted where listed property does not meet the qualified business use test.

Accepted Answer

A) True 
 B)False

Question 7

Kate is an accrual basis, calendar-year taxpayer. On November 1, 2014, Kate leased out a building for $4,500 a month. On that day Kate received 7 months rental income on the building, a total of $31,500 ($4,500 × 7 months). How much income must Kate include on her 2014 tax return as a result of this transaction?

Accepted Answer

A) $4,500 
B) $9,000 
C) $31,500 
D) $54,000 
E) None of the above 
A) $4,500 
B) $9,000 
C) $31,500 
D) $54,000 
E) None of the above

Question 8

Section 197 intangibles:

Accepted Answer

A) Are amortized over a 15-year period. 
B) Include goodwill, going-concern value, and information bases. 
C) Were defined in the Revenue Reconciliation Act of 1993. 
D) Are not amortized over the actual estimated useful life of the intangible asset. 
E) All of the above are true. 
A) Are amortized over a 15-year period. 
B) Include goodwill, going-concern value, and information bases. 
C) Were defined in the Revenue Reconciliation Act of 1993. 
D) Are not amortized over the actual estimated useful life of the intangible asset. 
E) All of the above are true.

Question 9

Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2014, Vernon entered into a lease to rent a building for use in his business at $3,000 a month. On that day Vernon paid 18 months rent on the building, a total of $54,000 ($3,000 × 18 months). How much may Vernon deduct for rent expense on his 2014 tax return?

Accepted Answer

A) $0 
B) $12,000 
C) $36,000 
D) $54,000 
E) None of the above 
A) $0 
B) $12,000 
C) $36,000 
D) $54,000 
E) None of the above

Question 10

Scott purchases a small business from Lew on July 1, 2014. He paid the following amounts for the business:
​
   
a.How much of the $458,000 purchase price is for Section 197 intangible assets?
b.What amount can Scott deduct on his 2014 tax return as Section 197 intangible amortization?

Accepted Answer

The answer of Scott purchases a small business from Lew...

Question 11

ABC Corporation is owned 30 percent by Andy, 30 percent by Barry, 20 percent by Charlie, and 20 percent by Uptown Corporation. Uptown Corporation is owned 90 percent by Charlie and 10 percent by an unrelated party. Barry and Charlie are brothers. Answer each of the following questions about ABC under the constructive ownership rules of Section 267:
a.What is Andy's constructive ownership percentage under Section 267?
b.What is Barry's constructive ownership percentage under Section 267?
c.What is Charlie's constructive ownership percentage under Section 267?
d.If Andy sells property to ABC for a $6,000 loss, what amount of that loss can be recognized for tax purposes (before any annual limitations)?

Accepted Answer

The answer of ABC Corporation is owned 30 percent by...

Question 12

All S corporations must use the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 13

Choose the incorrect statement.

Accepted Answer

A) Books and records may be kept on a different year-end basis than the year-end used for tax purposes. 
B) The choice to file on a fiscal year-end basis must be made with an initial tax return. 
C) Almost all individuals file tax returns using a calendar year accounting period. 
D) An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met. 
A) Books and records may be kept on a different year-end basis than the year-end used for tax purposes. 
B) The choice to file on a fiscal year-end basis must be made with an initial tax return. 
C) Almost all individuals file tax returns using a calendar year accounting period. 
D) An individual may request IRS approval to change to a fiscal year-end basis if certain conditions are met.

Question 14

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Accepted Answer

A) True 
 B)False

Question 15

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

Accepted Answer

The half-year convention assumes for dep

Question 16

An asset other than a passenger automobile is placed in service on May 15, 2014 and has a depreciable basis of $36,000. The asset is in the 7-year recovery class. What is the maximum depreciation deduction that may be claimed for 2014, excluding the election to expense and bonus depreciation?

Accepted Answer

A) $2,572 
B) $5,144 
C) $25,000 
D) $36,000 
E) None of the above 
A) $2,572 
B) $5,144 
C) $25,000 
D) $36,000 
E) None of the above

Question 17

Eva purchased office equipment (7-year property) for use in her business. She paid $12,600 for the equipment on July 1, 2014. Eva did not purchase any other property during the year. For 2014, her business had net income of $6,000, before depreciation and before considering the election to expense.
a.What is the maximum amount that Eva can elect to expense in 2014 under Section 179?
b.​​​What is the total depreciation (regular depreciation and the amount allowed as a 2014 deduction under the election to expense) on the office equipment for 2014, assuming Eva uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense?
c.​​​Assuming that Eva elected to expense the equipment in 2014 and that her business has net income in 2015 of $200,000, before depreciation and before considering the election to expense, what is Eva's total depreciation deduction (regular depreciation and the amount allowed under the election to expense) for the equipment for 2015?

Accepted Answer

The answer of Eva purchased office equipment (7-year property) for...

Question 18

Which of the following is not an acceptable method of accounting under the tax law?

Accepted Answer

A) The accrual method 
B) The cash method 
C) The hybrid method 
D) All of the above are acceptable 
E) None of the above 
A) The accrual method 
B) The cash method 
C) The hybrid method 
D) All of the above are acceptable 
E) None of the above

Question 19

Under the cash basis of accounting, expenses are generally deducted in the year they are paid.

Accepted Answer

A) True 
 B)False

Question 20

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: What is the amount of Becky's taxable income from her business for this tax year?

Accepted Answer

A) $7,000 loss 
B) $11,000 
C) $27,500 
D) $29,000 
E) None of the above 
A) $7,000 loss 
B) $11,000 
C) $27,500 
D) $29,000 
E) None of the above

Automobiles placed in service in 2014 generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end so that they may defer 3 months of income.

The election to expense is not permitted where listed property does not meet the qualified business use test.

Section 197 intangibles:

Scott purchases a small business from Lew on July 1, 2014. He paid the following amounts for the business: a.How much of the $458,000 purchase price is for Section 197 intangible assets? b.What amount can Scott deduct on his 2014 tax return as Section 197 intangible amortization?

All S corporations must use the accrual basis of accounting.

Choose the incorrect statement.

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

An asset other than a passenger automobile is placed in service on May 15, 2014 and has a depreciable basis of $36,000. The asset is in the 7-year recovery class. What is the maximum depreciation deduction that may be claimed for 2014, excluding the election to expense and bonus depreciation?

Which of the following is not an acceptable method of accounting under the tax law?

Under the cash basis of accounting, expenses are generally deducted in the year they are paid.

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: What is the amount of Becky's taxable income from her business for this tax year?

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part I

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 7: Accounting Periods and Methods and Depreciation

Automobiles placed in service in 2014 generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

Most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end so that they may defer 3 months of income.

The election to expense is not permitted where listed property does not meet the qualified business use test.

Section 197 intangibles:

Scott purchases a small business from Lew on July 1, 2014. He paid the following amounts for the business: ​ a.How much of the $458,000 purchase price is for Section 197 intangible assets? b.What amount can Scott deduct on his 2014 tax return as Section 197 intangible amortization?

All S corporations must use the accrual basis of accounting.

Choose the incorrect statement.

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

An asset other than a passenger automobile is placed in service on May 15, 2014 and has a depreciable basis of $36,000. The asset is in the 7-year recovery class. What is the maximum depreciation deduction that may be claimed for 2014, excluding the election to expense and bonus depreciation?

Which of the following is not an acceptable method of accounting under the tax law?

Under the cash basis of accounting, expenses are generally deducted in the year they are paid.

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: What is the amount of Becky's taxable income from her business for this tax year?

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part I

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Scott purchases a small business from Lew on July 1, 2014. He paid the following amounts for the business: a.How much of the $458,000 purchase price is for Section 197 intangible assets? b.What amount can Scott deduct on his 2014 tax return as Section 197 intangible amortization?