Question 1

Roth LLC purchased only one asset during the current year. On August 1st Roth placed in service office equipment (seven-year property) with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

Accepted Answer

$6,073.
The asset's recovery period is seven years and the half-year convention applies. The calculation is $42,500 × 0.1429 = $6,073.

Question 2

Taylor LLC purchased an automobile for $55,000 on July 5, 2019. What is Taylor's maximum depreciation deduction for 2019 (including bonus depreciation) if its business use percentage is 100 percent?

Accepted Answer

A)   $10,000.
B)   $11,000.
C)   $18,000.
D)   $55,000.
E)   None of the choices are correct. C

Question 3

Northern LLC only purchased one asset this year. In 2019, Northern LLC placed in service on September 6^th machinery and equipment (seven-year property) with a basis of $3,150,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Accepted Answer

$810,117.
The $1,020,000 §179 expense is reduced to $420,000 because of the property placed in service limitation ($1,020,000 − ($3,150,000 − $2,550,000)). The half-year convention applies. The expense is $810,117, which is depreciation of $2,730,000 × 0.1429 = $390,117 plus $420,000 of §179 expense.

Question 4

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Accepted Answer

A) True 
 B)False

Question 5

Suvi, Inc. purchased two assets during the current year (a full 12-month tax year). On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Accepted Answer

A)   $857.
B)   $3,357.
C)   $5,429.
D)   $6,000.
E)   None of the choices are correct.

Question 6

Taxpayers use the half-year convention for all assets.

Accepted Answer

A) True 
 B)False

Question 7

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2019, machinery and equipment (seven-year property) with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Olney LLC only purchased one asset this...

Question 8

Which is not an allowable method under MACRS?

Accepted Answer

A)   150 percent declining balance.
B)   200 percent declining balance.
C)   Straight-line.
D)   Sum-of-the-years'-digits.
E)   All of the choices are allowable methods under MACRS.

Question 9

Reid acquired two assets in 2019: on August 6th he acquired computer equipment (five-year property) with a basis of $1,020,000 and on November 9th he acquired machinery (seven-year property) with a basis of $1,020,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but not bonus depreciation). (Use MACRS Table 1.)

Accepted Answer

The answer of Reid acquired two assets in 2019: on...

Question 10

Flax LLC purchased only one asset this year. On January 16 Flax placed in service a computer (five-year property) with a basis of $14,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Accepted Answer

The answer of Flax LLC purchased only one asset this...

Question 11

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Accepted Answer

A) True 
 B)False

Question 12

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months) for the year?

Accepted Answer

A)   $0.
B)   $2,500.
C)   $5,000.
D)   $10,000.
E)   None of the choices are correct.

Question 13

Tax cost recovery methods include depreciation, amortization, and depletion.

Accepted Answer

A) True 
 B)False

Question 14

Assume that Yuri acquires a competitor's assets on May 1^st. The purchase price was $500,000. Of that amount, $325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization deduction for the current year? (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Assume that Yuri acquires a competitor's assets...

Question 15

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

Accepted Answer

A) True 
 B)False

Question 16

Amit purchased two assets during the current year. On April 16th Amit placed in service computer equipment (five-year property) with a basis of $5,000 and on September 9th placed in service furniture (seven-year property) with a basis of $20,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Accepted Answer

The answer of Amit purchased two assets during the current...

Question 17

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

Accepted Answer

A) True 
 B)False

Question 18

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation deduction during the current year. (Use MACRS Table 3.)

Accepted Answer

The answer of During August of the prior year, Julio...

Question 19

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion deduction for the current year?

Accepted Answer

A)   $60,000.
B)   $90,000.
C)   $110,000.
D)   $300,000.
E)   None of the choices are correct.

Question 20

Yasmin purchased two assets during the current year. On May 26th Yasmin placed in service computer equipment (five-year property) with a basis of $10,000 and on December 9th placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

Accepted Answer

The answer of Yasmin purchased two assets during the current...

Exam 2: Property Acquisition and Cost Recovery

Taylor LLC purchased an automobile for $55,000 on July 5, 2019. What is Taylor's maximum depreciation deduction for 2019 (including bonus depreciation) if its business use percentage is 100 percent?

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Taxpayers use the half-year convention for all assets.

Which is not an allowable method under MACRS?

Flax LLC purchased only one asset this year. On January 16 Flax placed in service a computer (five-year property) with a basis of $14,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months) for the year?

Tax cost recovery methods include depreciation, amortization, and depletion.

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation deduction during the current year. (Use MACRS Table 3.)