Exam 7: Accounting Periods and Methods and Depreciation

BOND Corporation is owned 25 percent by Brian, 30 percent by Orville, 20 percent by Nate, and 25 percent by Dart Corporation. Dart Corporation is owned 80 percent by Brian and 20 percent by Nate. Brian and Orville are brothers. Answer each of the following questions about BOND Corporation under the constructive ownership rules of Section 267: a.What is Brian's constructive ownership percentage for Section 267 purposes? b.If Nate sells property to BOND Corporation for a $7,500 loss, what amount of that loss can be recognized for tax purposes (before any annual limitations)?

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

To be depreciated, must an asset actually lose value each year?

Which one of the following entities cannot use the cash method for tax purposes?

Mark the correct answer. Section 197 intangibles:

From the records of Tom, a cash basis sole proprietor, the following information was available: What amount should Tom report as net earnings from self-employment?

On June 1, 2014, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business. The auto, with a cost basis of $22,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken for 2014, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

If a cash basis business owner pays 18 months of rent expense in advance during the last month of the tax year, how is this treated on the tax return? What is the reason tax law requires this treatment?

Mark the correct answer. In calculating depreciation:

Perry develops a successful advertising business that he subsequently sells to his competitor, Carl, for $108,000. He retires in the same town where he has always lived and done business. Carl insists that Perry sign a covenant not to compete.The advertising business has no tangible assets; Carl receives only the name of the business, the client lists and whatever going-concern value there is. How should Carl treat the $108,000 cost of the advertising business he purchased?

In applying the statutory rates from the MACRS tables, the cost of the asset must first be reduced by the prior year's depreciation.

What is the minimum number of years over which computers may be depreciated under MACRS?

Which one of the following is true about Modified Accelerated Cost Recovery System (MACRS)?

​Polly is a cash basis taxpayer with the following transactions during the year: Calculate Polly's income from her business for this calendar year.

Taxpayers must use the straight-line method of depreciation for all productive assets.

Give the depreciable or amortizable lives for 2014 tax purposes for these assets: ​ Automobiles Business furniture Computers Residential real estate Commercial real estate Land Purchased goodwill

Betty purchases a used $12,000 car in 2014, to use exclusively in her business. a. What will the standard MACRS depreciation schedule be for the 6 years the auto is depreciated?Year 1:Year 2:Year 3:Year 4:Year 5:Year 6: b. If Betty holds the car until it is fully depreciated, and uses straight-line depreciation, how many years will this take?

Jenny constructed a building for use as a residential rental property. The cost of the building was $164,975, and it was placed in service on August 1, 1990. The building has a 27.5-year MACRS life. What is the amount of depreciation on the building for 2014 for tax purposes?

Lanyard purchased office equipment (7-year property) for use in his business. He paid $10,000 for the equipment on July 1, 2014. Lanyard did not purchase any other property during the year. For 2014, his business had net income of $350,000, before depreciation and before considering the election to expense. a.What is the maximum amount that Lanyard can deduct in 2014 under the election to expense? b.​​What is the total depreciation (regular depreciation and the amount allowed under the election to expense) on the office equipment for 2014, assuming Lanyard uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense? c.What is Lanyard's total depreciation deduction for 2015 on the 2014 purchase of equipment?

Taxpayers choosing the election to expense: