Deck 10: Property Acquisition and Cost Recovery

Question 1

Taxpayers use the half-year convention for all assets.

Answer 1

False

Question 2

Taxpayers may use historical data to determine the recovery period for tax depreciation.

Answer 2

False

Question 3

If a machine (seven-year property)being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciation percentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Answer 3

True

Question 4

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Question 5

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Question 6

The mid-month convention applies to real property in the year of acquisition and disposition.

Question 7

If a taxpayer places only one asset (a building)in service during the fourth quarter of the year, the mid-quarter convention must be used.

Question 8

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Question 9

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

Question 10

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

Question 11

Tax cost recovery methods include depreciation, amortization, and depletion.

Question 12

The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Question 13

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Question 14

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Question 15

Like financial accounting, most acquired business property must be capitalized for tax purposes.

Question 16

The 200 percent or double declining balance method is allowable for five- and seven-year property.

Question 17

Real property is depreciated using the straight-line method.

Question 18

All taxpayers may use the §179 immediate expensing election on certain property.

Question 19

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Question 20

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

Question 21

Used property is eligible for bonus depreciation.

Question 22

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

Question 23

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

Question 24

Bonus depreciation is used as a stimulus tool by tax policy makers.

Question 25

Tax cost recovery methods do not include:

A)Amortization.
B)Capitalization.
C)Depletion.
D)Depreciation.
E)All of the choices are tax cost recovery methods.

Question 26

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Question 27

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

Question 28

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

Question 29

An office desk is an example of:

A)Personal property.
B)Personal-use property.
C)Real property.
D)Business property.
E)Personal property and business property.

Question 30

Limits are placed on the depreciation of luxury automobiles.

Question 31

Cost depletion is available to all natural resource producers.

Question 32

If the business-use percentage for listed property falls below 50 percent, the only adjustment is that all future depreciation must be calculated under the straight-line method.

Question 33

The method for tax amortization is always the straight-line method.

Question 34

Which of the following business assets is not depreciated?

A)Automobile.
B)Building.
C)Patent.
D)Machinery.
E)All of the assets are depreciated.

Question 35

All assets subject to amortization have the same recovery period.

Question 36

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Question 37

Depletion is the method taxpayers use to recover their capital investment in natural resources.

Question 38

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Question 39

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

Question 40

Goodwill and customer lists are examples of §197 amortizable assets.

Question 41

Beth's business purchased only one asset during the current year (a full 12-month tax year). On December 1 Beth placed in service machinery (seven-year property)with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

A)$1,785.
B)$2,500.
C)$7,145.
D)$10,000.
E)None of the choices are correct.

Question 42

Which depreciation convention is the general rule for tangible personal property?

A)Full-month.
B)Half-year.
C)Mid-month.
D)Mid-quarter.
E)None of the choices are conventions for tangible personal property.

Question 43

Tax depreciation is currently calculated under what system?

A)Sum-of-the-years'-digits.
B)Accelerated cost recovery system.
C)Modified Accelerated Cost Recovery System.
D)Straight-line system.
E)None of the choices are correct.

Question 44

How is the recovery period of an asset determined?

A)Estimated useful life.
B)Treasury regulation.
C)Revenue Procedure 87-56.
D)Revenue Ruling 97-56.
E)None of the choices are correct.

Question 45

Which of the following is not usually included in an asset's tax basis?

A)Purchase price.
B)Sales tax.
C)Shipping.
D)Installation costs.
E)All of the choices are included in an asset's tax basis.

Question 46

Which of the allowable methods allows the most accelerated depreciation?

A)150 percent declining balance.
B)200 percent declining balance.
C)Straight-line.
D)Sum-of-the-years'-digits.
E)None of the methods would allow accelerated depreciation.

Question 47

Anne LLC purchased computer equipment (five-year property)on August 29 for $30,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.)

A)$432.
B)$1,728.
C)$1,874.
D)$3,456.
E)None of the choices are correct.

Question 48

The MACRS recovery period for automobiles and computers is:

A)Three years.
B)Five years.
C)Seven years.
D)10 years.
E)None of the choices are correct.

Question 49

Which of the following depreciation conventions is not used under MACRS?

A)Full-month.
B)Half-year.
C)Mid-month.
D)Mid-quarter.
E)All of the choices are used under MACRS.

Question 50

Tasha LLC purchased furniture (seven-year property)on April 20 for $20,000 and used the half-year convention to depreciate it. Tasha did not take §179 or bonus depreciation in the year it acquired the furniture. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense. (Use MACRS Table 2 and Exhibit 10-6.)(Round final answer to the nearest whole number.)

A)$898.
B)$2,095.
C)$1,249.
D)$2,498.
E)None of the choices are correct.

Question 51

Wheeler LLC purchased two assets during the current year (a full 12-month tax year). On November 16 Wheeler placed in service computer equipment (five-year property)with a basis of $15,000 and on April 20 placed in service furniture (seven-year property)with a basis of $11,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)(Round final answer to the nearest whole number.)

A)$1,285.
B)$2,714.
C)$4,572.
D)$5,200.
E)None of the choices are correct.

Question 52

Which of the following would be considered an improvement rather than routine maintenance?

A)Oil change.
B)Engine overhaul.
C)Wiper blade replacement.
D)Air filter change.

Question 53

Suvi, Inc. purchased two assets during the current year (a full 12-month tax year). On August 10 Suvi placed in service computer equipment (five-year property)with a basis of $20,000 and on November 18 placed in service machinery (seven-year property)with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

A)$857.
B)$3,357.
C)$5,429.
D)$6,000.
E)None of the choices are correct.

Question 54

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year. (Use MACRS Table 5.)(Round final answer to the nearest whole number.)

A)$2,648.
B)$3,371.
C)$3,751.
D)$4,774.
E)None of the choices are correct.

Question 55

Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year. (Use MACRS Table 3.)

A)$1,605.
B)$2,273.
C)$2,408.
D)$3,410.
E)None of the choices are correct.

Question 56

Deirdre's business purchased two assets during the current year (a full 12-month tax year). On January 20 Deirdre placed in service computer equipment (five-year property)with a basis of $15,000 and on September 1 placed in service machinery (seven-year property)with a basis of $15,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.)(Round final answer to the nearest whole number.)

A)$1,286.
B)$5,144.
C)$5,786.
D)$6,000.
E)None of the choices are correct.

Question 57

Lax LLC purchased only one asset during the current year (a full 12-month tax year). On August 26 Lax placed in service computer equipment (five-year property)with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

A)$2,000.
B)$2,858.
C)$3,000.
D)$4,000.
E)None of the choices are correct.

Question 58

Which is not an allowable method under MACRS?

A)150 percent declining balance.
B)200 percent declining balance.
C)Straight-line.
D)Sum-of-the-years'-digits.
E)All of the choices are allowable methods under MACRS.

Question 59

An example of an asset that is both personal-use and personal property is:

A)A computer used solely to email company employees regarding company activities.
B)A storage building used by the CEO to store personal records.
C)A computer used solely to monitor the CEO's investments and to complete her Form 1040.
D)A company airplane used by the CEO for business travel.
E)All of the assets are personal-use and personal property.

Question 60

Sairra LLC purchased only one asset during the current year (a full 12-month tax year). On April 16 Sairra placed in service furniture (seven-year property)with a basis of $25,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

A)$1,786.
B)$3,573.
C)$4,463.
D)$5,000.
E)None of the choices are correct.

Question 61

Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization amount Daschle may deduct during the current year?

A)$0.
B)$6,500.
C)$7,000.
D)$12,000.
E)None of the choices are correct.

Question 62

Gessner LLC patented a process it developed in the current year. The patent is expected to create benefits for Gessner over a 10-year period. The patent was issued on April 15^th and the legal costs associated with the patent were $43,000. In addition, Gessner had unamortized research expenditures of $15,000 related to the process. What is the total amortization amount Gessner may deduct during the current year?

A)$2,417.
B)$2,174.
C)$4,108.
D)$4,350.
E)None of the choices are correct.

Question 63

Assume that Bethany acquires a competitor's assets on March 31^st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset). What is Bethany's amortization deduction for the current year? (Round final answer to the nearest whole number.)

A)$0.
B)$1,250.
C)$1,319.
D)$1,389.
E)None of the choices are correct.

Question 64

Crouch LLC placed in service on May 19, 2019, machinery and equipment (seven-year property)with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)

A)$457,280.
B)$370,000.
C)$774,407.
D)$1,020,000.
E)None of the choices are correct.

Question 65

Clay LLC placed in service machinery and equipment (seven-year property)with a basis of $3,450,000 on June 6, 2019. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

A)$1,020,000.
B)$493,005.
C)$455,857.
D)$595,857.
E)None of the choices are correct.

Question 66

Billie Bob purchased a used camera (five-year property)for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation deduction during the second year, assuming the sole proprietorship had a loss during the year. (Billie Bob did not place the asset in service in the last quarter.)(Use MACRS Table 1.)

A)$0.
B)$48.
C)$192.
D)$336.
E)None of the choices are correct.

Question 67

Which of the following assets is eligible for §179 expensing?

A)Used office machinery.
B)Qualified improvement property.
C)A new delivery truck.
D)Used office furniture.
E)All of the choices are correct.

Question 68

Littman LLC placed in service on July 29, 2019, machinery and equipment (seven-year property)with a basis of $600,000. Littman's income for the current year before any depreciation deduction was $100,000. Which of the following statements is true to maximize Littman's total depreciation deduction for 2019? (Use MACRS Table 1.)

A)Littman should take §179 expense equal to the maximum $1,000,000.
B)Littman should take no §179 expense.
C)Littman's §179 expense will be greater than $100,000.
D)Littman's §179 expense will be less than $100,000.
E)None of the choices are correct.

Question 69

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion deduction for the current year?

A)$60,000.
B)$90,000.
C)$110,000.
D)$300,000.
E)None of the choices are correct.

Question 70

Taylor LLC purchased an automobile for $55,000 on July 5, 2019. What is Taylor's maximum depreciation deduction for 2019 (including bonus depreciation)if its business use percentage is 100 percent?

A)$10,000.
B)$11,000.
C)$18,000.
D)$55,000.
E)None of the choices are correct.

Question 71

Arlington LLC purchased an automobile for $55,000 on July 5, 2019. What is Arlington's depreciation deduction for 2019 if its business-use percentage is 75 percent? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

A)$4,250.
B)$5,500.
C)$7,500.
D)$8,250.
E)None of the choices are correct.

Question 72

Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10^th year, calculate Simmons's maximum depreciation in the 10^th year. (Use MACRS Table 5 and Exhibit 10-6.)

A)$641.
B)$909.
C)$5,128.
D)$7,346.
E)None of the choices are correct.

Question 73

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months)for the year?

A)$0.
B)$2,500.
C)$5,000.
D)$10,000.
E)None of the choices are correct.

Question 74

Which of the following assets is not eligible for bonus depreciation?

A)Used office machinery
B)Qualified improvement property
C)A new delivery truck
D)Used office furniture
E)All of the choices are correct.

Question 75

Lenter LLC placed in service on April 29, 2019, machinery and equipment (seven-year property)with a basis of $1,600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus expensing). (Use MACRS Table 1.)

A)$228,640.
B)$1,020,000.
C)$1,102,882.
D)$1,228,640.
E)None of the choices are correct.

Question 76

Potomac LLC purchased an automobile for $30,000 on August 5, 2019. What is Potomac's depreciation deduction for 2019? (Ignore any possible bonus depreciation.)(Use MACRS Table 1 and Exhibit 10-10.)

A)$10,000.
B)$4,287.
C)$6,000.
D)$30,000.
E)None of the choices are correct.

Question 77

Assume that Brittany acquires a competitor's assets on September 30^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement). Given that the noncompete agreement expires on September 30^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

A)$0
B)$1,667
C)$2,917
D)$3,333
E)None of the choices are correct.

Question 78

Bonnie Jo purchased a used camera (five-year property)for use in her sole proprietorship. The basis of the camera was $2,400. Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Bonnie did not place the property in service in the last quarter.)(Use MACRS Table 1.)

A)$240.
B)$288.
C)$480.
D)$2,400.
E)None of the choices are correct.

Question 79

Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business started on November 23^rd of the current year, what is the total amount she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?

A)$2,555.
B)$3,544.
C)$5,522.
D)$52,000.
E)None of the choices are correct.

Question 80

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15^th and the purchase price was $75,000. If the copyright has a remaining life of 75 months, what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.)

A)$0.
B)$5,500.
C)$6,000.
D)$12,000.
E)None of the choices are correct.