Exam 7: Accounting Periods and Methods and Depreciation

"Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

On July 15, 2014, H. P. purchases a personal computer for his home. The computer cost $4,000. H. P. uses the computer 60 percent of the time in his business, 15 percent of the time for managing his investments and the remaining 25 percent of the time for various personal uses. Calculate H. P.'s maximum depreciation deduction for 2014 for the computer, assuming he does not make the election to expense or take bonus depreciation.

On January 1, 2014, Ted purchased a small software company for $200,000. He paid $110,000 for the fixed assets of the company and $90,000 for goodwill. How much amortization may Ted deduct on his 2014 tax return for the purchased goodwill?

Which of the following is true about the MACRS depreciation system?

Depreciation refers to the physical deterioration or loss of value of an asset.

On June 1, 2014, Sandalwood Corporation purchases a passenger automobile for 100 percent use in its business. The automobile is in the 5 year cost recovery class and has a basis for depreciation of $30,000. Assuming that the corporation elects the accelerated method of cost recovery for the asset and does not elect to expense any of its cost or take bonus depreciation, what is the total tax depreciation deduction for the 2014 calendar tax year (Year 1)?

On January 1, 2014, Sandy, a sole proprietor, purchased for use in her business a used production machine (7-year property) at a cost of $4,000. Sandy does not purchase any other property during 2014 and has net income from her business of $80,000. If the standard recovery period table would allow $572 of depreciation expense on the $4,000 of equipment purchased in 2014, what is Sandy's maximum depreciation deduction including the Section 179 election to expense (but not bonus depreciation) for 2014?

Mary sells to her father, Robert, her shares in AA Corp for $55,000. The shares cost Mary $80,000. How much loss may Mary claim from the sale?

What is the maximum depreciation expense deduction for Year 2 (2015) for a passenger automobile, used 100 percent for qualified business use, placed in service on June 15, 2014 and costing $14,000 (the election to expense is not made and no bonus depreciation was taken)?

If listed property is used more than 50 percent in a qualified business use, depreciation must be calculated using the straight-line method.

On August 1, 2014, David purchased manufacturing equipment for use in his business. The equipment cost $14,000 and has an estimated useful life and MACRS class life of 7 years. No election to expense or use bonus depreciation is made. a.​Calculate the amount of depreciation on the manufacturing equipment for 2014 using conventional (financial accounting, not MACRS) straight-line depreciation. b.​Calculate the amount of depreciation on the manufacturing equipment for 2014 using the straight-line MACRS optional method. c.​Calculate the amount of depreciation on the manufacturing equipment for 2014 using the accelerated MACRS method.

Joyce purchased a passenger automobile on March 2, 2014. She paid $12,000 for the automobile and can support business use of 85 percent. Calculate the amount of depreciation on the automobile for 2014 using the accelerated MACRS method (if available), assuming Joyce does not make the election to expense or claim bonus depreciation.

Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

Which one of the following may not be depreciated using an accelerated method?

Bev is the sole owner of Bev & Associates, an accrual basis corporation. In 2014, Bev & Associates has a bad year and Bev lends the corporation $50,000 to meet expenses. The corporation accrues interest expense of $5,000 on the loan from Bev, but does not pay the interest to her in cash. ​ How much of the $5,000 in accrued interest expense can Bev & Associates deduct on its 2014 corporate tax return? Explain.

If a corporation has a short tax year, other than their first or last year of operation, explain how the corporation calculates the tax for the short period.

If a taxpayer purchases land worth $200,000 with an office building valued at $100,000 on it, how are the two depreciated for tax purposes? Land: Office building:

On June 2, 2014, Scott purchased a commercial building. The cost basis assigned to the building is $600,000. Scott also owns a residential apartment building he purchased on June 15, 2013 with a cost basis of $400,000. a.​Calculate Scott's total depreciation deduction for the buildings for 2014, using the Modified Accelerated Cost Recovery System. b.​Calculate Scott's total depreciation deduction for the buildings for 2015, using the Modified Accelerated Cost Recovery System.

Cork Oak Corporation purchased a heavy-duty truck (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on May 1, 2014 for use in its business. The truck, with a cost basis of $24,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken on the truck for the 2014 calendar tax year using the conventional (for financial accounting purposes) straight-line depreciation method?