Question 1

Occasionally bonus depreciation is used as a stimulus tool by tax policy makers.

Accepted Answer

A) True 
 B)False

Question 2

Alexandra purchased a $35,000 automobile during 2014. The business use was 70 percent. What is the allowable depreciation for the current year (ignore any possible bonus depreciation)?

Accepted Answer

The answer of Alexandra purchased a $35,000 automobile during 2014....

Question 3

How is the recovery period of an asset determined?

Accepted Answer

A)  Estimated useful life 
B)  Treasury regulation 
C)  Revenue Procedure 87-56 
D)  Revenue Ruling 87-56 
E)  None of these

Question 4

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?

Accepted Answer

A)  $0 
B)  $5,500 
C)  $6,000 
D)  $12,000 
E)  None of these

Question 5

Olney LLC placed in service on July 19, 2014 machinery and equipment (7-year property) with a basis of $850,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing, rounded to the nearest whole number (but ignoring bonus expensing). Assume the 2013 §179 limits are extended to 2014.

Accepted Answer

The answer of Olney LLC placed in service on July...

Question 6

PC Mine purchased a platinum deposit for $3,500,000. It estimated it would extract 17,000 ounces of platinum from the deposit. PC mined the platinum and sold it reporting gross receipts of $500,000 and $8 million for years 1 and 2, respectively. During years 1 and 2, PC reported net income (loss) from the platinum deposit activity in the amount of ($100,000) and $3,800,000, respectively. In years 1 and 2, PC actually extracted 2,000 and 8,000 ounces of platinum. What is PC's depletion expense for years 1 and 2 if the applicable percentage depletion for platinum is 22 percent, rounded to the nearest whole number?

Accepted Answer

The answer of PC Mine purchased a platinum deposit for...

Question 7

Anne LLC purchased computer equipment (5-year property) on August 29 with a basis of $30,000 and used the half-year convention. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense:

Accepted Answer

A)  $432 
B)  $1,728 
C)  $1,874 
D)  $3,456 
E)  None of these

Question 8

All assets subject to amortization have the same recovery period.

Accepted Answer

A) True 
 B)False

Question 9

Tax depreciation is currently calculated under what system?

Accepted Answer

A)  Sum of the years digits 
B)  Accelerated cost recovery system 
C)  Modified accelerated cost recovery system 
D)  Straight line system 
E)  None of these

Question 10

Which of the following assets is eligible for bonus depreciation?

Accepted Answer

A)  Used office machinery 
B)  Qualified leasehold improvements 
C)  A new delivery truck 
D)  Used office furniture 
E)  All of these

Question 11

In 2014, Northern LLC placed in service on September 6th machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing), rounded to the nearest whole number. Assume the 2013 §179 limits are extended to 2014.

Accepted Answer

The answer of In 2014, Northern LLC placed in service...

Question 12

Paulsen incurred $55,000 of research and experimental expenses and began amortizing them over 60 months during June of year 1. During May of year 3, Paulsen received a patent based upon the research being amortized. $36,000 of legal expenses for the patent was incurred.
1) What is the basis of the patent, rounding amortization for each year to the nearest whole number?
2) What is the amortization expense with respect to the patent during the year it was issued, rounded to the nearest whole number?

Accepted Answer

The answer of Paulsen incurred $55,000 of research and experimental...

Question 13

Cost depletion is available to all natural resource producers.

Accepted Answer

A) True 
 B)False

Question 14

Assume that Brittany acquires a competitor's assets on September 30th of year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a 1-year non-compete agreement). Given, that the non-compete agreement expires on September 30th of year 2, what is Brittany's amortization expense for the second year, rounded to the nearest whole number?

Accepted Answer

A)  $0 
B)  $1,667 
C)  $2,917 
D)  $3,333 
E)  None of these

Question 15

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Accepted Answer

A) True 
 B)False

Question 16

Columbia LLC placed in service on October 9, 2014 machinery and equipment (7-year property) with a basis of $2,150,000. Assume that Columbia has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) for the year, rounded to the nearest whole number. Assume the 2013 §179 limits are extended to 2014.

Accepted Answer

The answer of Columbia LLC placed in service on October...

Question 17

Wheeler LLC purchased two assets during the current year. Wheeler placed in service computer equipment (5-year property) on November 16 with a basis of $15,000 and furniture (7-year property) on April 20 with a basis of $11,000. Calculate the maximum depreciation expense, rounding to a whole number (ignoring §179 and bonus depreciation):

Accepted Answer

A)  $1,285 
B)  $2,714 
C)  $4,572 
D)  $5,200 
E)  None of these

Question 18

Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior year. The basis of the computer was $2,400. Billie Bob used the computer in his business 60 percent of the time during the first year. During the second year, Billie Bob used the computer 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter):

Accepted Answer

A)  $0 
B)  $48 
C)  $192 
D)  $336 
E)  None of these

Question 19

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 9: Property Acquisition and Cost Recovery

Occasionally bonus depreciation is used as a stimulus tool by tax policy makers.

Alexandra purchased a $35,000 automobile during 2014. The business use was 70 percent. What is the allowable depreciation for the current year (ignore any possible bonus depreciation)?

How is the recovery period of an asset determined?

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?

Anne LLC purchased computer equipment (5-year property) on August 29 with a basis of $30,000 and used the half-year convention. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense:

All assets subject to amortization have the same recovery period.

Tax depreciation is currently calculated under what system?

Which of the following assets is eligible for bonus depreciation?

Cost depletion is available to all natural resource producers.

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

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