Question 1

​In 2016, a taxpayer purchases a new automobile (5 year recovery) for $56,000 for 100% use in her business. What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on the auto (half-year convention but no immediate expensing)?

Accepted Answer

A)  ​$11,200 with bonus and $3,160 without bonus
B)  ​$11,160 with bonus and $11,200 without bonus
C)  ​$11,160 with bonus and $3,160 without bonus
D)  ​$8,000 with bonus and $3,160 without bonus C

Question 2

Which of the following is true about the MACRS depreciation system?

Accepted Answer

A)  No salvage value is used before depreciation percentages are applied to depreciable real estate.
B)  Residential rental buildings are depreciated straight-line over 20 years .
C)  Commercial real estate buildings are depreciated over 39 years using accelerated depreciation.
D)  No matter when equipment is purchased during the month, it is considered to have been purchased mid-month for MACRS depreciation purposes. A

Question 3

On June 1, 2016, 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 2016, 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?

Accepted Answer

A)  $2,100
B)  $3,160
C)  $4,400
D)  $4,900
E)  None of the above B

Question 4

Under MACRS, the same method of depreciation (accelerated or straight-line) must be used for all property in a given class placed in service during a tax year.

Accepted Answer

A) True 
 B)False

Question 5

Kate is an accrual basis, calendar-year taxpayer. On November 1, 2016, Kate leased out a building for $4,500 a month. On that day Kate received 7 months rental income on the building, a total of $31,500 ($4,500 × 7 months). How much income must Kate include on her 2016 tax return as a result of this transaction?

Accepted Answer

A)  $4,500
B)  $9,000
C)  $31,500
D)  $54,000
E)  None of the above

Question 6

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

Accepted Answer

A)  3 years
B)  5 years
C)  7 years
D)  10 years
E)  15 years

Question 7

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)?

Accepted Answer

The answer of ABC Corporation is owned 30 percent by...

Question 8

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

Accepted Answer

The answer of ​Polly is a cash basis taxpayer with...

Question 9

All S corporations must use the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 10

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

Accepted Answer

A) True 
 B)False

Question 11

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2016 is:​

Accepted Answer

A)  ​$0
B)  ​$3,160
C)  ​$8,000
D)  ​$11,160

Question 12

Mary sells to her father, Robert, her shares in AA Corp for $55,000. The shares cost Mary $80,000. How much loss may Mary claim from the sale?

Accepted Answer

A)  $0
B)  $25,000
C)  $55,000
D)  $80,000
E)  None of the above is correct

Question 13

Depreciation is the process of allocating the cost of assets to expense over a period of years.

Accepted Answer

A) True 
 B)False

Question 14

Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2016, Vernon entered into a lease to rent a building for use in his business at $3,000 a month. On that day Vernon paid 18 months rent on the building, a total of $54,000 ($3,000 × 18 months). How much may Vernon deduct for rent expense on his 2016 tax return?

Accepted Answer

A)  $0
B)  $12,000
C)  $36,000
D)  $54,000
E)  None of the above

Question 15

If an asset's actual useful life is longer than the assigned recovery period, the MACRS tables cannot be used.

Accepted Answer

A) True 
 B)False

Question 16

​An asset (not an automobile) put in service in June 2016 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 2016 (assume no income limitation)?

Accepted Answer

A)  ​$7,000
B)  ​$17,500
C)  ​$21,000
D)  ​$24,400
E)  ​$35,000

Question 17

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)?

Accepted Answer

The answer of BOND Corporation is owned 25 percent by...

Question 18

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

Accepted Answer

A)  A large almond farm with $40 million in gross receipts.
B)  A continuing education provider with $2 million in gross receipts and 20 employees.
C)  A law firm operating as a personal service corporation with $5.4 million in gross receipts.
D)  A small sole proprietorship with $150,000 in gross receipts.
E)  All of the above may use the cash method.

Question 19

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.

Accepted Answer

The answer of If a corporation has a short tax...

Question 20

​An asset (not an automobile) put in service in June 2016 has a depreciable basis of $2,035,000, 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 2016 (assume no income limitation)?

Accepted Answer

A)  ​$407,000
B)  ​$1,411,000
C)  ​$2,010,000
D)  ​$2,035,000
E)  ​None of the above

Exam 7: Accounting Periods and Methods and Depreciation

In 2016, a taxpayer purchases a new automobile (5 year recovery) for $56,000 for 100% use in her business. What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on the auto (half-year convention but no immediate expensing) ?

Which of the following is true about the MACRS depreciation system?

Under MACRS, the same method of depreciation (accelerated or straight-line) must be used for all property in a given class placed in service during a tax year.

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

All S corporations must use the accrual basis of accounting.

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2016 is:

Mary sells to her father, Robert, her shares in AA Corp for $55,000. The shares cost Mary $80,000. How much loss may Mary claim from the sale?

Depreciation is the process of allocating the cost of assets to expense over a period of years.

If an asset's actual useful life is longer than the assigned recovery period, the MACRS tables cannot be used.

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

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.

Exam 7: Accounting Periods and Methods and Depreciation

​In 2016, a taxpayer purchases a new automobile (5 year recovery) for $56,000 for 100% use in her business. What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on the auto (half-year convention but no immediate expensing) ?

Which of the following is true about the MACRS depreciation system?

Under MACRS, the same method of depreciation (accelerated or straight-line) must be used for all property in a given class placed in service during a tax year.

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

All S corporations must use the accrual basis of accounting.

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2016 is:​

Mary sells to her father, Robert, her shares in AA Corp for $55,000. The shares cost Mary $80,000. How much loss may Mary claim from the sale?

Depreciation is the process of allocating the cost of assets to expense over a period of years.

If an asset's actual useful life is longer than the assigned recovery period, the MACRS tables cannot be used.

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

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.

In 2016, a taxpayer purchases a new automobile (5 year recovery) for $56,000 for 100% use in her business. What is the total cost recovery assuming that the taxpayer does or does not elect bonus depreciation on the auto (half-year convention but no immediate expensing) ?

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

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2016 is: