Question 1

Joe started a new business this year.He had purchased a computer two years ago for $4,000 and decided to use it in his business until he could afford a new system.He could purchase a new computer with the same specifications for $1,800, but his used computer is worth only $1,100.What is his computer's basis for depreciation?
A)$1,100
B)$1,800
C)$4,000
D)The computer cannot be depreciated because it was a personal asset.

Accepted Answer

The computer's basis for depreciation is its cost, which is $4,000.

Question 2

MACRS depreciation for 5-year assets is based on:
A)Straight-line depreciation
B)150 percent declining balance only
C)200 percent declining balance with a switch to straight-line
D)200 percent declining balance only

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) for 5-year assets uses the 200 percent declining balance method but switches to straight-line depreciation when that method yields a larger deduction.

Question 3

Harris Corporation (a calendar-year taxpayer), acquired a 5-year asset costing $10,000 on October 2^nd.What are the first and last years of MACRS depreciation deductions using the mid-quarter convention? A)$3,500 and $138 B)$2,500 and $426 C)$1,500 and $706 D)$500 and $958

Accepted Answer

The answer of Harris Corporation (a calendar-year taxpayer), acquired a...

Question 4

Barber Corporation purchased all the assets of TECO Corporation for $1,820,000.An appraisal yielded the following: the building had a fair market value of $1,200,000; equipment a value of $1,000,000; and office equipment a value of $400,000.What is the depreciable basis for the office equipment?
A)$400,000
B)$300,000
C)$280,000
D)$250,000

Accepted Answer

The total fair market value of the assets is $2,600,000 ($1,200,000 + $1,000,000 + $400,000). Barber Corporation purchased the assets for $1,820,000, which is less than their total fair market value. To find the depreciable basis for each asset, we allocate the purchase price based on the proportion of each asset's fair market value to the total fair market value. For the office equipment, the proportion is $400,000 / $2,600,000 = 15.38%. Applying this percentage to the purchase price: $1,820,000 * 15.38% = $280,000.

Question 5

When fully depreciating 7-year property, the final year of depreciation will be year:
A)5
B)6
C)7
D)8

Accepted Answer

Under the Modified Accelerated Cost Recovery System (MACRS), which is used in the United States to depreciate property for tax purposes, the final year of depreciation for 7-year property actually extends into the 8th year. This is because MACRS uses a half-year convention for most property, meaning only a half-year's worth of depreciation is claimed in both the first and last years of the recovery period.

Question 6

On November 7, 2019, Wilson Corporation acquires 7-year property for $25,000.This is the only property acquired this year and neither Section 179 expensing nor bonus depreciation were claimed.What is Wilson's total depreciation deduction for 2019?
A)$893
B)$1,785
C)$2,678
D)$3,573

Accepted Answer

The correct answer is A.The total depreciation deduction for 2019 is $893. This is calculated by taking the cost of the property ($25,000) and dividing it by the number of years in the property's class life (7). This gives us an annual depreciation deduction of $3,571.43. However, since the property was acquired on November 7, 2019, only a portion of the annual depreciation deduction is deductible in 2019. This is calculated by taking the annual depreciation deduction and multiplying it by the number of days the property was in service during 2019 (55 days). This gives us a total depreciation deduction for 2019 of $892.86.

Question 7

The first and last years of MACRS depreciation deductions for a 5-year asset costing $10,000 using the half-year convention are:
A)$2,000 and $2,000
B)$2,000 and $1,152
C)$2,000 and $576
D)$2,000 and $1,000

Accepted Answer

The MACRS system uses a half-year convention for the first and last years of depreciation. For a 5-year asset, the first year's depreciation is 20% of the cost, which is $2,000. The last year's depreciation is the same as the second to last year due to the half-year convention, which is $576 (11.52% of $10,000 in the fourth year, halved for the fifth year).

Question 8

Lopez Corporation is a calendar-year taxpayer.What is the MACRS depreciation percentage deduction for the last year for a 7-year asset acquired May 12 under the mid-quarter convention.
A)1.09%
B)3.33%
C)5.53%
D)7.64%

Accepted Answer

For a 7-year asset under the mid-quarter convention, the MACRS depreciation schedule dictates that in the final year (the 8th year due to the mid-quarter convention), the depreciation percentage is 3.33%. This is because the mid-quarter convention adjusts the depreciation rates to account for the quarter of the year in which the asset was placed in service, extending the depreciation period and altering the final year's depreciation rate accordingly.

Question 9

The adjusted basis of an asset is:
A)Its acquisition price only
B)Acquisition cost less cost recovery
C)Acquisition cost less selling price
D)Only the cash used to purchase the asset

Accepted Answer

The adjusted basis of an asset is its acquisition cost less any cost recovery (such as depreciation, amortization, or depletion) taken over the period of ownership. This calculation reflects the current book value of the asset after accounting for these adjustments.

Question 10

Gonzalez Corporation is a calendar-year taxpayer.What is the MACRS depreciation percentage deduction for the first year for a 7-year asset acquired February 15 under the mid-quarter convention.
A)25%
B)17.85%
C)10.71%
D)3.57%

Accepted Answer

The answer of Gonzalez Corporation is a calendar-year taxpayer.What is...

Question 11

The after-tax cost of an asset
A)Is higher for taxpayers with higher tax rates
B)Is lower for taxpayers with lower discount rates
C)Is higher for taxpayers with lower discount rates
D)Is not affected by the taxpayer's tax rate

Accepted Answer

The answer of The after-tax cost of an asset
A)Is higher...

Question 12

Moore Corporation (a calendar-year taxpayer), acquired a 5-year asset costing $10,000 on April 2^nd.What are the first and last years of MACRS depreciation deductions using the mid-quarter convention? A)$3,500 and $138 B)$2,500 and $426 C)$1,500 and $706 D)$500 and $958

Accepted Answer

The mid-quarter convention applies when more than 40% of the total depreciable property is placed in service in the last quarter of the year. Under this convention, the asset is treated as placed in service in the midpoint of the quarter of acquisition. For a 5-year asset, the MACRS depreciation rates for the first and last years (considering the mid-quarter convention) would result in lower depreciation in the first year and a higher remaining basis in the last year, leading to the correct answer being $2,500 for the first year and $426 for the last year.

Question 13

The after-tax cost of an asset increases if
A)The cost recovery period is increased
B)The marginal tax rate increases
C)The discount percentage decreases
D)The asset's salvage value increases

Accepted Answer

The answer of The after-tax cost of an asset increases...

Question 14

Gribble Corporation acquires the Dibble Corporation for $7,200,000.On appraisal, the assets of Dibble Corporation have a fair market value of $6,800,000.The excess of the purchase price over the fair market value of the assets:
A)Can be apportioned to the assets based on their relative fair market value.
B)Is goodwill that is amortized over 15 years.
C)Is goodwill that is amortized over 40 years.
D)Must be capitalized until Dibble is sold.

Accepted Answer

The excess of the purchase price over the fair market value of the acquired company's assets is recognized as goodwill. According to U.S. GAAP, goodwill is not amortized but is tested annually for impairment. However, for tax purposes, goodwill is amortized over 15 years.

Question 15

On October 12, 2019, Wilson Corporation (a calendar-year taxpayer) acquires 5-year property for $9,000.This is the only property acquired this year and neither Section 179 expensing nor bonus depreciation were claimed.What is Wilson's total depreciation deduction for 2019?
A)$1,800
B)$1,350
C)$900
D)$450

Accepted Answer

The answer of On October 12, 2019, Wilson Corporation (a...

Question 16

The first and last years of MACRS depreciation deductions for a 7-year asset costing $20,000 using the half-year convention are:
A)$4,000 and $1,152
B)$2,858 and $892
C)$2,000 and $576
D)$1,428 and $1,428

Accepted Answer

Under MACRS with a 7-year property using the half-year convention, the first-year depreciation is 14.29% and the last year is 8.93% of the asset cost. Calculating these percentages for a $20,000 asset gives $2,858 for the first year and $892 for the last year.

Question 17

When fully depreciating 5-year property, the final year of depreciation will be year:
A)6
B)5
C)4
D)3

Accepted Answer

In the Modified Accelerated Cost Recovery System (MACRS) used in the U.S., 5-year property is depreciated over 6 years due to the half-year convention, which allows for half a year of depreciation in the first and last years.

Question 18

Peter received his uncle's coin collection as a gift when it was valued at $150,000.Over the years, the uncle had purchased the coins for a total of $75,000.The uncle paid a $15,000 gift tax on the gift.What is Peter's basis in the coin collection?
A)$75,000
B)$82,500
C)$90,000
D)$150,000

Accepted Answer

The answer of Peter received his uncle's coin collection as...

Question 19

MACRS means
A)Modified asset cost recovery system
B)Mid-year accelerated cost recovery system
C)Modified accelerated cost recovery system
D)Modified accelerated conventional recovery system

Accepted Answer

MACRS stands for Modified Accelerated Cost Recovery System, which is a method of depreciation used for tax purposes in the United States to recover the cost or other basis of certain property over a specified life.

Question 20

Jack did not depreciate one of his machines that cost $40,000 because he had net operating losses for the last two years.Which of the following statements is true?
A)Jack's basis in the asset is $40,000 this year.
B)Jack can deduct three year's depreciation in the current year.
C)Jack must file amended returns to claim the depreciation for prior years.
D)If Jack sells the machine for $20,000 this year, he has a $20,000 loss.

Accepted Answer

The answer of Jack did not depreciate one of his...

Quiz 7: Property Acquisitions and Cost Recovery Deductions

MACRS depreciation for 5-year assets is based on:

Harris Corporation (a calendar-year taxpayer) , acquired a 5-year asset costing $10,000 on October 2^nd.What are the first and last years of MACRS depreciation deductions using the mid-quarter convention?

Barber Corporation purchased all the assets of TECO Corporation for $1,820,000.An appraisal yielded the following: the building had a fair market value of $1,200,000; equipment a value of $1,000,000; and office equipment a value of $400,000.What is the depreciable basis for the office equipment?

When fully depreciating 7-year property, the final year of depreciation will be year:

On November 7, 2019, Wilson Corporation acquires 7-year property for $25,000.This is the only property acquired this year and neither Section 179 expensing nor bonus depreciation were claimed.What is Wilson's total depreciation deduction for 2019?

The first and last years of MACRS depreciation deductions for a 5-year asset costing $10,000 using the half-year convention are:

Lopez Corporation is a calendar-year taxpayer.What is the MACRS depreciation percentage deduction for the last year for a 7-year asset acquired May 12 under the mid-quarter convention.

The adjusted basis of an asset is:

Gonzalez Corporation is a calendar-year taxpayer.What is the MACRS depreciation percentage deduction for the first year for a 7-year asset acquired February 15 under the mid-quarter convention.

The after-tax cost of an asset

Moore Corporation (a calendar-year taxpayer) , acquired a 5-year asset costing $10,000 on April 2^nd.What are the first and last years of MACRS depreciation deductions using the mid-quarter convention?

The after-tax cost of an asset increases if

Gribble Corporation acquires the Dibble Corporation for $7,200,000.On appraisal, the assets of Dibble Corporation have a fair market value of $6,800,000.The excess of the purchase price over the fair market value of the assets:

On October 12, 2019, Wilson Corporation (a calendar-year taxpayer) acquires 5-year property for $9,000.This is the only property acquired this year and neither Section 179 expensing nor bonus depreciation were claimed.What is Wilson's total depreciation deduction for 2019?

The first and last years of MACRS depreciation deductions for a 7-year asset costing $20,000 using the half-year convention are:

When fully depreciating 5-year property, the final year of depreciation will be year:

Peter received his uncle's coin collection as a gift when it was valued at $150,000.Over the years, the uncle had purchased the coins for a total of $75,000.The uncle paid a $15,000 gift tax on the gift.What is Peter's basis in the coin collection?

MACRS means

Jack did not depreciate one of his machines that cost $40,000 because he had net operating losses for the last two years.Which of the following statements is true?