Question 1

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 that year.

Accepted Answer

Under MACRS, property within the same class must use the same depreciation method, whether it is accelerated or straight-line, and placed in service during the same year.

Question 2

If a cash basis business owner pays 18 months of rent expense in advance during the last month of the tax year, how is this treated on the tax return? What is the reason tax law requires this treatment?

Accepted Answer

The answer of If a cash basis business owner pays...

Question 3

Taxpayers must use the straight-line method of depreciation for all productive assets.

Accepted Answer

Taxpayers have the option to use different methods of depreciation, including accelerated methods such as double-declining balance or sum-of-the-years'-digits. However, the straight-line method is often the simplest and most commonly used method for tax purposes.

Question 4

Cork Oak Corporation purchased a heavy-duty truck (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on May 1, 2015 for use in its business. The truck, with a cost basis of $24,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken on the truck for the 2015 calendar tax year using the conventional (for financial accounting purposes) straight-line depreciation method?

Accepted Answer

The answer of Cork Oak Corporation purchased a heavy-duty truck...

Question 5

Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year convention.

Accepted Answer

The statement is true. MACRS (Modified Accelerated Cost Recovery System) allows for depreciation to be claimed over a specified number of years, and the five-year class uses a half-year convention, meaning that depreciation is claimed for half of the first and last year. Therefore, the total period for claiming depreciation for five-year class property is six years.

Question 6

Countryside Acres Apartment Complex had the following transactions during the year:
Using the accrual method, calculate the net income:  ​

Accepted Answer

The answer of Countryside Acres Apartment Complex had the following...

Question 7

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.

Accepted Answer

Routine maintenance costs are considered as expenses and are deducted in the year they are paid or incurred, while improvements or upgrades to the asset are capitalized and added to the asset's cost.

Question 8

If a taxpayer purchases land worth $200,000 with an office building valued at $100,000 on it, how are the two depreciated for tax purposes?
Land:
Office building:

Accepted Answer

The answer of If a taxpayer purchases land worth $200,000...

Question 9

Depreciation refers to the physical deterioration or loss of value of an asset.

Accepted Answer

Depreciation refers to the allocation of the cost of an asset over its useful life for accounting and tax purposes, not necessarily its physical deterioration.

Question 10

Automobiles generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Accepted Answer

Automobiles have a 5-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Question 11

Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

Accepted Answer

Expenditures incurred to maintain an asset in good operating condition are considered repairs and maintenance expenses, which are expensed in the period they are incurred, not depreciated over time.

Question 12

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

Accepted Answer

The MACRS tables allow for a maximum recovery period, but if an asset's actual useful life is longer, the tables can still be used. However, the taxpayer may need to adjust the depreciation deduction in future tax years to account for the extended recovery period.

Question 13

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

Accepted Answer

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

Question 14

​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 15

In applying the statutory rates from the MACRS tables, the cost of the asset must first be reduced by the prior year's depreciation.

Accepted Answer

The Modified Accelerated Cost Recovery System (MACRS) does not require reducing the asset's cost by prior year's depreciation when applying statutory rates. Depreciation is calculated on the original cost basis.

Question 16

Residential real estate is currently assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

Accepted Answer

According to the IRS, residential real estate (defined as any building that contains more than 80% residential rental units) is assigned a 27.5-year recovery period under the Modified Accelerated Cost Recovery System (MACRS).

Question 17

To be depreciated, must an asset actually lose value each year?

Accepted Answer

The answer of To be depreciated, must an asset actually...

Question 18

ABC Corp bought a production machine on January 1, 2013 for $31,250. The company elected out of Section 179 expensing and elected out of claiming bonus depreciation in 2013, and is depreciating the machine using the MACRS accelerated depreciation tables for 5-year property. What is the 2015 depreciation (year 3) deduction for the machine?

Accepted Answer

The correct answer is A. The 2015 depreciation (year 3) deduction for the machine is $6,000. This is because the machine is 5-year property and is being depreciated using the MACRS accelerated depreciation tables. The depreciation rate for year 3 is 20%.

Question 19

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, 1991. The building has a 27.5-year MACRS life. What is the amount of depreciation on the building for 2015 for tax purposes?

Accepted Answer

The building is depreciated using the MACRS method over 27.5 years. By 2015, the building has been in service for 24 years. The annual depreciation is calculated as $82,488 / 27.5 = $3,000.

Question 20

If land declines in value, it may be depreciated for tax purposes.

Accepted Answer

Land is considered a non-depreciable asset for tax purposes, meaning its value cannot be depreciated over time.

Quiz 7: Accounting Periods and Methods and Depreciation