Question 1

If a loss from sale or exchange of property between related parties is disallowed and the property is subsequently sold to an unrelated party,

Accepted Answer

The disallowed loss may be used to offset a gain on the subsequent sale to an unrelated party. This is allowed under the related party rules.

Question 2

During 2011,Don purchases $2,100,000 of construction equipment (7-year property)for use in his business.Don has taxable income from his business of $600,000.What is the maximum amount that Don may deduct under the election to expense?

Accepted Answer

D

Question 3

G&M Enterprises purchased a 6,500 pound SUV (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations)on June 1,2011 for use in its business.The SUV,with a cost basis of $29,000,has a 5-year estimated life.It also is 5-year recovery property.How much depreciation and Section 179 expense should be taken on the SUV for the 2011 calendar tax year,assuming G&M Enterprises wishes to maximize its deduction? Do not consider bonus depreciation.

Accepted Answer

G&M Enterprises can take a Section 179 expense deduction of $25,000 for the SUV. The remaining $4,000 of the cost ($29,000 - $25,000) is depreciated over 5 years using the MACRS method. For the first year, the depreciation is $800 (20% of $4,000), making the total deduction $25,800.

Question 4

In regards to accounting methods:

Accepted Answer

The business must choose its overall method of accounting when filing its first tax return, as this establishes the basis for how it will report income and expenses.

Question 5

Which of the following is not a true statement about "listed" property?

Accepted Answer

An ambulance is not considered "listed" property. "Listed" property typically includes items like cars, computers, and other property used for both personal and business purposes.

Question 6

Section 197 intangibles:

Accepted Answer

Section 197 intangibles are not subject to accelerated depreciation; they are amortized over a 15-year period using the straight-line method.

Question 7

Coral purchased a personal auto for $35,000 during 2011.She uses it for 90 percent business use.How much depreciation may she take for 2011? Assume she elects out of the bonus depreciation provisions.

Accepted Answer

Coral can take a depreciation deduction based on the MACRS depreciation system for vehicles. For 2011, the maximum depreciation for a passenger vehicle is $3,060. Since she uses it 90% for business, she can deduct 90% of $3,060, which is $2,754.

Question 8

Wonton Foods is a partnership owned 40 percent by Sze-Ern,25 percent by Quinquang,and 35 percent by Zhaou.Sze-Ern and Zhaou each have an October 31 tax year-end,while Quinquang has a February 28 tax year-end.Under the general rule,what tax year-end should the partnership adopt?

Accepted Answer

The partnership must adopt the tax year-end of the majority interest partners. Since Sze-Ern and Zhaou together own 75% of the partnership and both have an October 31 year-end, the partnership should adopt October 31 as its tax year-end.

Question 9

The shareholders of the Cat Corporation are:  Ashley and Cassie are sisters.Marie is not related to Ashley and Cassie.The M Corporation is owned 50 percent by Ashley and 50 percent by Tim,an unrelated party.
What is Ashley's deemed ownership percentage in the Cat Corporation?

Accepted Answer

The answer of The shareholders of the Cat Corporation are:...

Question 10

Rickie purchased a house for $300,000.$250,000 of the $300,000 is for the building and $50,000 is for the land.He rents it out on April 1,2011 to the Wilson family.How much depreciation can he take for 2011?

Accepted Answer

The depreciable basis of the building is $250,000. Assuming a useful life of 27.5 years and a salvage value of $0, the annual straight-line depreciation would be $9,090 ($250,000/27.5). 
Since the property was rented out on April 1, 2011, Rickie can only take depreciation for 9 months (April-December). 
Thus, the depreciation for 2011 would be: $9,090/12 months x 9 months = $6,440. 
Therefore, the best choice is C.

Question 11

In 2011,Walter purchased a $75,000 milling machine during the year,planning to write off $40,000 as a Section 179 expense.He had taxable income before depreciation of $40,000,and will depreciate the remaining $35,000 over a 5-year period.

Accepted Answer

The answer of In 2011,Walter purchased a $75,000 milling machine...

Question 12

Which of the following assets is considered "listed" property?

Accepted Answer

Listed property is typically used for both personal and business purposes. Al Spitzer's BMW is used for driving to and from client meetings, which makes it listed property. The other options do not fit the definition of listed property.

Question 13

From the records of Ted,a cash basis sole proprietor,the following information was available:  What amount should Ted report as net earnings from self-employment?

Accepted Answer

The answer of From the records of Ted,a cash basis...

Question 14

Depreciation

Accepted Answer

Depreciation is the accounting process of allocating and deducting the cost of an asset over a period of years. It should be used for assets that have a limited useful life, as their value will decrease over time. Depreciation is calculated on all assets except for land, which is considered to have an indefinite useful life and therefore does not depreciate. Depreciation is not used instead of tracking maintenance expense; these are separate concepts that should both be taken into account when accounting for assets.

Question 15

The Exclusive Uniform partnership has a natural business cycle which corresponds with the school year of July through June.The owners of the shop file their tax return on a calendar year basis.What tax year end can the partnership adopt?

Accepted Answer

The answer of The Exclusive Uniform partnership has a natural...

Question 16

Computers are depreciated over the following number of years under MACRS:

Accepted Answer

According to MACRS rules, computers are classified as 5-year property and depreciated over 5 years.

Question 17

On January 1,2011,Ted purchased a small software company for $155,000.He paid $95,000 for the fixed assets of the company and $60,000 for goodwill.How much amortization may Ted deduct on his 2011 tax return for the purchased goodwill?

Accepted Answer

Goodwill is amortized over 15 years for tax purposes. Therefore, the annual amortization deduction for the $60,000 goodwill is $60,000 / 15 = $4,000.

Question 18

An asset other than an SUV or a passenger automobile is placed in service on June 1,2011,and has a depreciable basis of $506,000.The asset is in the 7-year recovery class and the business has an $800,000 profit for the year.What is the maximum depreciation deduction that may be claimed for 2011,including the election to expense? Do not consider bonus depreciation.

Accepted Answer

The answer of An asset other than an SUV or...

Question 19

On January 1,2011,Rusty,a sole proprietor,purchased for use in his business a new production machine (7-year property)at a cost of $60,000.Rusty did not purchase any other property during 2011 and has net income from his business of $80,000.The standard double-declining balance recovery period table would allow $8,574 of depreciation expense on the $60,000 of equipment purchased in 2011.What is Rusty's maximum depreciation deduction for 2011 if he elects to use a double-declining balance recovery period table,including the amount that could be deducted under the election to expense (Section 179)?

Accepted Answer

The answer of On January 1,2011,Rusty,a sole proprietor,purchased for use...

Question 20

Gonzo Inc.is an S corporation that has chosen a fiscal year ending November 30.For the fiscal year ended November 30,2011 Gonzo Inc.had taxable income of $192,000 and the prior year made a required payment of $3,000.What is the amount of the required tax payment that should be made in 2012?

Accepted Answer

The required tax payment for 2012 is based on the taxable income for 2011. Since Gonzo Inc. is an S corporation, the taxable income is passed through to the shareholders who report it on their individual tax returns. To calculate the required tax payment for 2012, we need to use the following formula:

Prior year's taxable income x applicable tax rate - prior year's tax payment = required tax payment for current year

Using the information provided, we can calculate the required tax payment for 2012 as follows:

$192,000 x 0.29 (the maximum corporate tax rate for 2011) - $3,000 = $52,080 - $3,000 = $49,080

However, since an S corporation doesn't pay federal income tax, this tax liability will pass through to the shareholders. The shareholders will then report their share of the corporation's taxable income on their individual tax returns and pay the appropriate amount of tax. Therefore, the answer is C) $2,760, which is the amount of the required tax payment for the corporation if the corporation were not an S corporation.

Quiz 7: Accounting Periods and Methods and Depreciation