Exam 7: Accounting Periods and Methods and Depreciation

Eva purchased office equipment (7-year property)for use in her business.She paid $12,600 for the equipment on July 1,2017.Eva did not purchase any other property during the year.For 2017,her business had net income of $6,000,before depreciation and before considering the election to expense.Eva elects out of bonus depreciation. a.What is the maximum amount that Eva can elect to expense in 2017 under Section 179? b.​ ​ ​ What is the total depreciation (regular depreciation and the amount allowed as a 2017 deduction under the election to expense)on the office equipment for 2017,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 2017 and that her business has net income in 2018 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 2018?

On July 15,2017,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 2017 for the computer,assuming he does not make the election to expense or take bonus depreciation.

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)?

Jasper is a self-employed businessman.On March 5,2017 he purchases a personal computer for use at his home.He uses the computer for personal purposes 50 percent of the time and for business use the remainder of the time.The computer cost $2,300.Jasper wants to claim the maximum amount of depreciation possible for 2017,including the election to expense,if it is available.What is the amount of depreciation that Jasper should claim on the computer for 2017?

A taxpayer places a $50,000 5-year recovery period asset in service in 2017.This is the only asset placed in service in 2017.Assuming half-year convention,no immediate expensing,what is the amount of bonus depreciation?

A taxpayer places a $550,000 5-year recovery period asset in service in 2017.This is the only asset placed in service in 2017.Assuming half-year convention,an election to expense under Section 179,and no income limitation,what is the amount of total cost recovery deduction (no bonus depreciation)?

Jenny constructed a building for use as a residential rental property.The cost of the building was $82,488,and it was placed in service on August 1,1993.The building has a 27.5-year MACRS life.What is the amount of depreciation on the building for 2017 for tax purposes?

John purchases residential rental property on June 30,2017 for a cost of $290,000.Of this amount,$140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land.What is John's maximum depreciation deduction for 2017?

An asset (not an automobile)put in service in June 2017 has a depreciable basis of $35,000 and a recovery period of 5 years and is the only asset placed in service this year.Assuming bonus depreciation is used,a half-year convention,and the expensing election is made,what is the maximum amount of cost that can be deducted in 2017 (assume no income limitation)?

Bev is the sole owner of Bev & Associates,an accrual basis corporation.In 2017,Bev & Associates has an unprofitable 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 2017 corporate tax return? Explain.

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 ______

Quince Corporation changes its year-end from a fiscal year-end to a calendar year-end.The corporation has taxable income of $39,000 for its 3-month short period beginning October 1,2017 and ending December 31,2017.Calculate the corporation's tax for the short period.

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

Goodwill is considered to be a Section 197 asset amortized over 15 years for tax purposes.

On May 2,2017,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 15,2016 with a cost basis of $400,000. a.​ Calculate Scott's total depreciation deduction for the buildings for 2017,using the Modified Accelerated Cost Recovery System. b.​ Calculate Scott's total depreciation deduction for the buildings for 2018,using the Modified Accelerated Cost Recovery System.

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.

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?

Amy is a calendar year taxpayer reporting on the cash basis.Indicate which of the following income or expense items should not be included in her 2017 tax return.

Choose the correct statement.

Routine maintenance costs for capital assets are deducted in the year the amount is paid or incurred,not capitalized as an improvement to the asset.