Deck 6: Property Acquisitions and Cost Recovery Deductions

Question 1

_____ 1.The costs of all assets with useful lives extending at least 2 or more years must be capitalized with costs allocated over these useful lives.

Answer 1

False

Question 2

_____ 2.In a basket purchase of a group of assets,the purchaser and the seller can agree to the value of the separate assets.

Answer 2

True

Question 3

The cost of an asset with a useful life exceeding one year can be

A)Expensed immediately
B)Capitalized until disposal
C)Capitalized with part of the costs deducted annually
D)All of the above are possible depending on the asset

Answer 3

D

Question 4

_____ 8.An asset acquired in the last quarter of the year would be depreciated for 1½ months when using the mid-quarter convention.

Question 5

_____ 4.The basis in property acquired by inheritance is normally its fair market value at the date of the decedent's death.

Question 6

_____ 10.The alternative depreciation system uses a straight-line allocation of an asset's cost to determine depreciation expense.

Question 7

_____ 3.A donee's basis in a gift is always equal to the donor's basis.

Question 8

_____ 6.The mid-year and mid-month are acceptable conventions for depreciating personalty.

Question 9

_____ 11.Section 179 expensing does not apply to realty.

Question 10

_____ 5.The after-tax cost of a depreciable asset is dependent on the purchaser's marginal tax rate.

Question 11

_____ 17.The lease inclusion amount in the table increases the deduction a person may take for business use of a leased automobile.

Question 12

The adjusted basis of an asset is:

A)Its acquisition price only
B)Acquisition cost less cost recovery
C)Acquisition cost less selling price
D)Only the cash used to purchase the asset

Question 13

_____ 14.Automobiles are subject to specific limitations on the amount of annual depreciation deductions.

Question 14

_____ 13.Bonus depreciation and Section 179 expensing cannot be taken on the same asset.C

Question 15

_____ 16.Research expenditures must be capitalized and amortized over the period the research is expected to benefit the business.

Question 16

MACRS means

A)Modified asset cost recovery system
B)Mid-year accelerated cost recovery system
C)Modified accelerated cost recovery system
D)Modified accelerated conventional recovery system

Question 17

_____ 9.If more than 40 percent of all personalty purchased during the year is placed in service during the last quarter of the year,the mid-quarter convention must be used.

Question 18

_____ 15.Depletion is the term used for the cost allocation of wasting assets.

Question 19

_____ 12.Section 179 expenses exceeding the annual limit may be carried forward for five years only.

Question 20

_____ 7.The MACRS life for all realty is 27½ years.

Question 21

During the year,Garbin Corporation (a calendar-year corporation that manufactures furniture)purchased the following assets: In computing depreciation of these assets,which of the following averaging conventions will be used?

A)Half-year and mid-month
B)Mid-quarter and mid-month
C)Half-year,mid-quarter,and mid-month
D)Mid-quarter only

Question 22

Joan gives an asset valued at $12,000 with a basis of $10,000 to Mary;Joan dies six-months later leaving an asset valued at $10,000 with a basis of $12,000 to Larry.What are Mary's' and Larry's bases in these assets?

A)Mary = $12,000;Larry = $12,000
B)Mary = $12,000;Larry = $10,000
C)Mary = $10,000;Larry = $12,000
D)Mary = $10,000;Larry = $10,000

Question 23

Jack did not depreciate one of his machines that cost $40,000 because he had net operating losses for the last two years.Which of the following statements is true?

A)Jack's basis in the asset is $40,000 this year.
B)Jack can deduct three year's depreciation in the current year.
C)Jack must file amended returns to claim the depreciation for prior years.
D)If Jack sells the machine for $20,000 this year,he has a $20,000 loss.

Question 24

Zachary purchased a new car on August 1,2013 for $14,500.His records indicate that he uses the car 45 percent for business and 55 percent for personal use.What are his cost recovery deductions for 2013 and 2014?

A)$653;$1,305
B)$1,377;$2,205
C)$1,305;$2,088
D)$798;$1,595

Question 25

Conrad Corporation has a June 30 year end.What is the MACRS depreciation percentage deduction for the first year for a five-year asset acquired October 15 under the mid-quarter convention.

A)35%
B)25%
C)15%
D)5%

Question 26

Useful lives for realty include all of the following except:

A)25 years
B)27.5 years
C)39 years
D)40 years

Question 27

The after-tax cost of an asset

A)Is higher for taxpayers with higher tax rates
B)Is lower for taxpayers with lower discount rates
C)Is higher for taxpayers with lower discount rates
D)Is not affected by the taxpayer's tax rate

Question 28

The first and last years of MACRS depreciation deductions for a 5-year asset costing $10,000 using the half-year convention are:

A)$2,000 and $2,000
B)$2,000 and $1,152
C)$2,000 and $576
D)$2,000 and $1,000

Question 29

The only acceptable convention for MACRS realty is

A)Mid-week
B)Mid-month
C)Mid-quarter
D)Half-year

Question 30

Joe started a new business this year.He had purchased a computer two years ago for $4,000 and decided to use it in his business until he could afford a new system.He could purchase a new computer with the same specifications for $1,800,but his used computer is worth only $1,100.What is his computer's basis for depreciation?

A)$1,100
B)$1,800
C)$4,000
D)The computer cannot be depreciated because it was a personal asset.

Question 31

Barber Corporation purchased all the assets of TECO Corporation for $1,820,000.An appraisal yielded the following: the building had a fair market value of $1,200,000;equipment a value of $1,000,000;and office equipment a value of $400,000.What is the depreciable basis for the office equipment?

A)$400,000
B)$300,000
C)$280,000
D)$250,000

Question 32

In May 2012,Stephen acquired a used automobile for $12,000 and used the automobile 75% for business.No Sec.179 election was made.In 2013,Stephen's business use of the automobile decreases to 45%.As a result of this change in business use:

A)The change does not affect the way Stephen computes his 2013 depreciation
B)Stephen's depreciation in 2013 is $2,250.
C)Stephen must recapture $900 as ordinary income in 2013
D)Stephen must amend the 2013 tax return and recompute depreciation.

Question 33

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's maximum cost recovery deduction for the warehouse in 2013?

A)$55,052
B)$60,295
C)$70,536
D)$77,959

Question 34

MACRS depreciation for 5-year assets is based on:

A)Straight-line depreciation
B)150 percent declining balance only
C)200 percent declining balance with a switch to straight-line
D)200 percent declining balance only

Question 35

On October 2,2013,Andres Corporation (a calendar year corporation)purchases and places into service new 7-year business equipment costing $35,000.No other acquisitions are made during the year.If Section 179 expensing is not elected,the maximum cost recovery for 2013 is:

A)$1,250
B)$5,002
C)$7,000
D)$18,125
E)$35,000

Question 36

The after-tax cost of an asset increases if

A)The cost recovery period is increased
B)The marginal tax rate increases
C)The discount percentage decreases
D)The asset's salvage value increases

Question 37

Gregory Corporation,a calendar-year corporation,purchased an office building in March of year 1.In September of year 17,it sold the building.What factor must be applied to the MACRS percentage to determine the year 17 depreciation?

A)3/12
B)7.5/12
C)8.5/12
D)9/12

Question 38

Momee Corporation,a calendar-year corporation,bought only one asset in 2008,a crane it purchased for $700,000 on November 24.It disposed of the asset in April,2013.What is its depreciation deduction for this asset in 2013 if cost recovery was determined using only regular MACRS?
a.$62,510
b.$61,110
c.$31,255
d.$22,916

Question 39

All of the following are acceptable conventions for MACRS property except:

A)Mid-week
B)Mid-month
C)Mid-quarter
D)Half-year

Question 40

Peter received his uncle's coin collection as a gift when it was valued at $150,000.Over the years,the uncle had purchased the coins for a total of $75,000.The uncle paid a $15,000 gift tax on the gift.What is Peter's basis in the coin collection?

A)$75,000
B)$82,500
C)$90,000
D)$150,000

Question 41

Bangor Company incurred $70,000 of research costs in year 1.In May of year 2,it began to sell the products developed through this research.Which of the following is correct regarding these expenditures?

A)Bangor can deduct $9,333 in year 2.
B)Bangor can deduct $35,000 of the costs in each of years 1 and 2
C)Bangor can deduct all $70,000 in year 2.
D)Bangor cannot deduct the expenditures unless it abandons the project.

Question 42

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's cost recovery deduction for the office equipment for 2014 assuming the necessary elections were made to maximize overall depreciation in 2013?

A)$134,695
B)$78,595
C)$31,680
D)0

Question 43

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's maximum total cost recovery deduction for 2013?
a.$512,550
b.$1,193,830
c.$1,731,707
d.$2,175,000

Question 44

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's maximum for cost recovery deduction for the automobile for 2013?

A)$3,160
B)$3,360
C)$11,160
D)$11,360

Question 45

The lease inclusion amount:

A)Increases the annual lease payments.
B)Applies to all leased autos regardless of value.
C)Is larger in the earlier years of the lease.
D)Is a substitute for the depreciation limits applicable to purchased autos.

Question 46

Research and experimentation expenditures can be:

A)Expensed when incurred.
B)Amortized over 60 or more months.
C)Either (a)or (b).
D)Neither (a)nor (b).

Question 47

Purchased software is eligible for

A)MACRS depreciation only
B)straight-line amortization only
C)Section 179 expensing and bonus depreciation
D)Section 179 expensing but not bonus depreciation

Question 48

Gribble Corporation acquires the Dibble Corporation for $7,200,000.On appraisal,the assets of Dibble Corporation have a fair market value of $6,800,000.The excess of the purchase price over the fair market value of the assets:

A)Can be apportioned to the assets based on their relative fair market value.
B)Is goodwill that is amortized over 15 years.
C)Is goodwill that is amortized over 40 years.
D)Must be capitalized until Dibble is sold.

Question 49

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporations cost recovery deduction for the office equipment for 2015 if it is sold in December of 2015?

A)$81,345
B)$76,519
C)$48,098
D)$0

Question 50

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's cost recovery deduction for the warehouse for 2015 if it is sold in November of 2015?
a.$62,818
b.$54,966
c.$48,170
d.$3,724

Question 51

All of the following are characteristics of percentage depletion except:

A)Depletion is determined using a statutory percentage times gross income.
B)Percentage depletion can exceed the property's cost.
C)Depletion in excess of cost results in a negative basis for property.
D)Is an investment incentive provision.

Question 52

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's maximum deduction for cost recovery for the warehouse for 2014?

A)$62,818
B)$55,052
C)$49,809
D)$44,566

Question 53

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's cost recovery deduction for the computer equipment for 2014 assuming the necessary elections were made to maximize overall depreciation in 2013?

A)$11,000
B)$22,200
C)$35,200
D)$44,000

Question 54

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's maximum deduction for cost recovery for the automobile for 2015?

A)$1,875
B)$2,950
C)$3,050
D)$5,100

Question 55

Table 1: Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2013:
All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation wishes to maximize its overall depreciation deduction for 2013 and is willing to make any necessary elections.
Refer to the information in Table 1.What is Sanjuro Corporation's cost recovery deduction for the automobile for 2016 assuming the necessary elections were made to maximize overall depreciation in 2013?

A)$0
B)$1,775
C)$1,875
D)$1,975