Question 1

MACRS applies to new and used depreciable personal property used for the production of income.

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) is a method of depreciation used for tax purposes in the United States. It applies to both new and used depreciable personal property that is used for the production of income, such as machinery, equipment, furniture, and vehicles.

Question 2

Which of the following would be allowed a depreciation deduction?
I.Inventory.
II.Land acquired as an investment.
III.Residence used as rental property.
IV.Airplane used by company controller to attend accounting conference.
​
A)Only statement III is correct.
B)Only statement IV is correct
C)Statements III and IV are correct.
D)Statements II,III,and IV are correct.
E)All of the assets are depreciable.

Accepted Answer

Statement III is correct because a rental property is used for business purposes and can be depreciated over time. Statement IV is correct because an airplane used for business purposes can also be depreciated. Statements I and II are not correct because inventory is not a long-term asset and cannot be depreciated, and land is not subject to depreciation since it does not wear out over time.

Question 3

To be considered predominately used in a trade or business under the listed property rules,more than 75% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

Accepted Answer

To be considered predominately used in a trade or business under the listed property rules, more than 50% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

Question 4

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

Accepted Answer

The answer of Felix purchases the franchise rights to a...

Question 5

If more than 40% of the depreciable basis of personal property is placed in service during the last three months of the tax year,the taxpayer must use the mid-quarter convention.

Accepted Answer

According to IRS rules, if more than 40% of the depreciable basis of personal property is placed in service during the last three months of the tax year, the taxpayer must use the mid-quarter convention to calculate depreciation.

Question 6

Sally purchased new equipment for her consulting business.She allocates the Section 179 deduction among the new assets.One piece of equipment cost $500,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $250,000.

Accepted Answer

This statement is true. The Section 179 deduction allows businesses to immediately deduct the cost of qualifying assets, up to a certain limit, instead of depreciating them over time. In this case, Sally allocated half of the allowable Section 179 deduction to the piece of equipment that cost $500,000, which means the depreciable basis for that asset is $250,000.

Question 7

Under the computation of the alternative minimum tax,the Alternative Depreciation System may be used but is not required.

Accepted Answer

Under the computation of the alternative minimum tax (AMT), taxpayers are required to use the Alternative Depreciation System (ADS) for certain types of property, making it not merely an option but a requirement for AMT purposes.

Question 8

In most cases,the taxpayer may continue to use percentage (statutory)depletion after the initial basis has been fully recovered.In other words,the taxpayer's depletion deduction can exceed the cost of the depletable asset.

Accepted Answer

The taxpayer can continue to use percentage depletion even after the initial basis has been fully recovered, allowing the depletion deduction to exceed the cost of the depletable asset.

Question 9

The mid-year convention is used for personal property only.

Accepted Answer

The mid-year convention is a depreciation method used for personal property such as equipment, furniture, and machinery. It assumes that the property is purchased in the middle of the year, and therefore only half a year's worth of depreciation is calculated in the first year of ownership. It is not used for real property such as buildings or land.

Question 10

Periodic capital recovery deductions for tax purposes include
I.Depletion.
II.Amortization.
III.Depreciation.
IV.Proration.
​
A)Statements I and III are correct.
B)Only statement I is correct.
C)Statements I,II and III are correct.
D)Statements I,II,and IV are correct.
E)Statements I,II,III,and IV are correct.

Accepted Answer

Depletion, amortization, and depreciation are all methods of allocating the cost of an asset over its useful life for tax purposes, which allows for capital recovery. Proration is not a method of capital recovery.

Question 11

Which of the following assets would be allowed a depreciation deduction?
I.A truck used to provide transportation to a job site.
II.A car used for personal purposes.
III.An apartment building rented out for the production of rental income.
IV.A personal-use computer of the taxpayer.
​
A)Only statement II is correct.
B)Statements II and IV are correct.
C)Only statement I is correct.
D)Statements I and III are correct.
E)All of the assets are depreciable.

Accepted Answer

Generally, assets used in a trade or business or held for the production of income may be depreciated. Statement I corresponds to a truck used for trade or business and statement III corresponds to an apartment building rented out to produce income, both of which allow depreciation deductions. Statement II refers to a car used for personal purposes, which is not depreciable, and Statement IV refers to a personal-use computer, which may or may not be depreciable depending on its use for trade or business or income-producing purposes.

Question 12

The earlier the depreciation deduction can be taken,the greater the present value of the tax savings will be to the taxpayer.

Accepted Answer

This statement is true. If the depreciation deduction can be taken earlier, the taxpayer will be able to take advantage of the tax savings sooner, which increases the present value of those savings.

Question 13

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.

Accepted Answer

Section 179 allows for a deduction of up to a certain amount for qualifying business property, including equipment and computers used in a business. Pedro can choose to allocate his deduction to either or both assets, making the statement true.

Question 14

Which of the following would not be allowed a depreciation deduction?
I.Inventory.
II.Business equipment.
III.Land acquired as an investment.
IV.Cattle used in a dairy herd.
​
A)Only statement I is correct.
B)Statements I and III are correct.
C)Statements I,III and IV are correct.
D)Only statement IV is correct.
E)All of the assets are depreciable.

Accepted Answer

Inventory cannot be depreciated, as it is not a long-term asset. Land acquired as an investment may not be depreciated either, as it is not used in business operations. Business equipment and cattle used in a dairy herd can both be depreciated.

Question 15

Under current law,taxpayers must use regular MACRS.

Accepted Answer

Taxpayers have the option to use different depreciation methods, including MACRS (Modified Accelerated Cost Recovery System), but they are not strictly required to use regular MACRS for all assets. Other methods, such as straight-line depreciation, may be used depending on the asset and circumstances.

Question 16

Which of the following assets would not be allowed a depreciation deduction?
I.A business computer used to process payroll and maintain a company's general ledger.
II.A personal residence of a taxpayer.
III.A building rented out for the production of rental income.
IV.A yacht rented to a fishing party.
​
A)Only statement II is correct.
B)Statements II and IV are correct.
C)Only statement I is correct.
D)Statements I and III are correct.
E)All of the assets are depreciable.

Accepted Answer

A personal residence of a taxpayer is not allowed a depreciation deduction because depreciation is only applicable to assets used in a business or income-producing activity. Personal use property, like a personal residence, does not qualify for depreciation.

Question 17

MACRS eliminates several sources of potential conflict between the IRS and taxpayers concerning an asset's useful life and the calculation of the depreciation deduction.

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) provides specific depreciation schedules for different classes of assets based on their useful life, which eliminates the need for taxpayers to estimate or negotiate the useful life of an asset with the IRS. It also provides clear rules for calculating the depreciation deduction, which reduces the potential for disagreements between taxpayers and the IRS.

Question 18

While Congress has enacted several different depreciation methods,all currently owned assets are depreciated using the method in effect when the asset was placed in service.

Accepted Answer

This statement is true. Depreciation methods may change over time due to changes in tax laws, but the method used to depreciate an asset is determined by the law and regulations in effect when the asset was placed in service.

Question 19

The Section 179 expense deduction is allowed on all depreciable and tangible property used in a trade or business.

Accepted Answer

The Section 179 expense deduction is not allowed on all depreciable and tangible property; it is specifically excluded for certain properties like inventory, land, investment property, and buildings, among others. It primarily applies to tangible, depreciable personal property used in the active conduct of a trade or business.

Question 20

To compute cost depletion,you must know the basis subject to depletion,the recoverable quantity of the natural resource,and the quantity of the natural resource sold during the year.

Accepted Answer

Cost depletion is calculated using the basis subject to depletion, the recoverable quantity of the natural resource, and the quantity of the natural resource sold during the year.

Quiz 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

MACRS applies to new and used depreciable personal property used for the production of income.

Which of the following would be allowed a depreciation deduction? I.Inventory. II.Land acquired as an investment. III.Residence used as rental property. IV.Airplane used by company controller to attend accounting conference. ​

To be considered predominately used in a trade or business under the listed property rules,more than 75% of an asset's total use for each taxable year must be related to the taxpayer's trade or business.

Felix purchases the franchise rights to a new sports team and will be able to amortize the cost over the 15-year amortization period for intangibles.

If more than 40% of the depreciable basis of personal property is placed in service during the last three months of the tax year,the taxpayer must use the mid-quarter convention.

Sally purchased new equipment for her consulting business.She allocates the Section 179 deduction among the new assets.One piece of equipment cost $500,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $250,000.

Under the computation of the alternative minimum tax,the Alternative Depreciation System may be used but is not required.

In most cases,the taxpayer may continue to use percentage (statutory)depletion after the initial basis has been fully recovered.In other words,the taxpayer's depletion deduction can exceed the cost of the depletable asset.

The mid-year convention is used for personal property only.

Periodic capital recovery deductions for tax purposes include I.Depletion. II.Amortization. III.Depreciation. IV.Proration. ​

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer. ​

The earlier the depreciation deduction can be taken,the greater the present value of the tax savings will be to the taxpayer.

Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.

Which of the following would not be allowed a depreciation deduction? I.Inventory. II.Business equipment. III.Land acquired as an investment. IV.Cattle used in a dairy herd. ​

Under current law,taxpayers must use regular MACRS.

MACRS eliminates several sources of potential conflict between the IRS and taxpayers concerning an asset's useful life and the calculation of the depreciation deduction.

While Congress has enacted several different depreciation methods,all currently owned assets are depreciated using the method in effect when the asset was placed in service.

The Section 179 expense deduction is allowed on all depreciable and tangible property used in a trade or business.

To compute cost depletion,you must know the basis subject to depletion,the recoverable quantity of the natural resource,and the quantity of the natural resource sold during the year.

Which of the following would be allowed a depreciation deduction? I.Inventory. II.Land acquired as an investment. III.Residence used as rental property. IV.Airplane used by company controller to attend accounting conference.

Periodic capital recovery deductions for tax purposes include I.Depletion. II.Amortization. III.Depreciation. IV.Proration.

Which of the following assets would be allowed a depreciation deduction? I.A truck used to provide transportation to a job site. II.A car used for personal purposes. III.An apartment building rented out for the production of rental income. IV.A personal-use computer of the taxpayer.

Which of the following would not be allowed a depreciation deduction? I.Inventory. II.Business equipment. III.Land acquired as an investment. IV.Cattle used in a dairy herd.