Question 1

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

Accepted Answer

The answer of The alternative depreciation system requires both a...

Question 2

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

Accepted Answer

Depletion refers to the reduction in the amount of natural resources over time due to their extraction and use. Taxpayers can claim depletion as a deduction on their tax returns as a way to recover their capital investment in the natural resources that they have extracted and sold.

Question 3

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.

Accepted Answer

When a business purchases a patent or copyright, the cost of acquisition is capitalized and amortized over its useful life. However, for self-created intangibles, only direct costs associated with the creation can be capitalized and amortized; many initial costs may be expensed as incurred, leading to different accounting treatments.

Question 4

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

Accepted Answer

Taxpayers can only deduct up to $5,000 of start-up costs and $5,000 of organizational expenditures in the year the business begins. Any costs above that limit must be amortized over a period of 180 months.

Question 5

All assets subject to amortization have the same recovery period.

Accepted Answer

Different assets can have different recovery periods based on their useful life, such as machinery (7 years), vehicles (5 years), or patents (20 years).

Question 6

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

Accepted Answer

Listed property refers to assets used for both business and personal purposes, such as vehicles, computers, cameras, and cellphones.

Question 7

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

Accepted Answer

Goodwill and customer lists are both considered intangible assets that are purchased as part of a business acquisition, and they fall under the category of §197 amortizable assets.

Question 8

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.

Accepted Answer

Capitalization is not a method of tax cost recovery. It relates to the treatment of expenses as assets on a company's balance sheet, but it does not help recover the cost of assets for tax purposes. Amortization, depletion, and depreciation are all methods of tax cost recovery.

Question 9

Used property is eligible for bonus depreciation.

Accepted Answer

The Tax Cuts and Jobs Act (TCJA) of 2017 expanded the definition of qualified property to include certain used property that was not previously eligible for bonus depreciation. As a result, used property can now be eligible for bonus depreciation in many cases.

Question 10

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

Accepted Answer

Bonus depreciation is used to encourage businesses to invest in new assets by allowing them to deduct a larger portion of the asset's cost in the first year of use. This provides a short-term stimulus for the economy by increasing business spending and investment.

Question 11

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

Accepted Answer

Major integrated oil and gas producers are generally not eligible for percentage depletion and must use cost depletion. Percentage depletion allows a fixed percentage of the gross income from an oil or gas well to be deducted, whereas cost depletion is based on the actual cost of the resource.

Question 12

Which of the following business assets is not depreciated?
A)Automobile.
B)Building.
C)Patent.
D)Machinery.
E)All of the assets are depreciated.

Accepted Answer

Patents are not depreciated because they are considered intangible assets with a definite useful life, and are amortized over their useful life instead of depreciated.

Question 13

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is a method of calculating the depletion of natural resources based on the cost incurred to acquire them. It is available to all natural resource producers.

Question 14

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.

Accepted Answer

An office desk is considered personal property because it is movable and not permanently attached to the land or buildings. When used in a business context, it also qualifies as business property, reflecting its role in commercial activities.

Question 15

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.

Accepted Answer

Businesses can deduct percentage depletion when they sell the natural resource based on the percentage of the gross income from the sale. On the other hand, businesses can deduct cost depletion in the year they produce or extract the natural resource based on the cost of the resource and its estimated recoverable units.

Question 16

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

Accepted Answer

The answer of To increase their depreciation deduction on automobiles,...

Question 17

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.

Accepted Answer

If the business-use percentage for listed property falls below 50 percent, not only must all future depreciation be calculated under the straight-line method, but the taxpayer may also need to recapture (include in income) any excess depreciation taken in previous years over the amount that would have been allowed using the straight-line method.

Question 18

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

Accepted Answer

The answer of The method for tax amortization is always...

Question 19

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.

Accepted Answer

This statement is true. Under IRS regulations, businesses have the option to immediately expense research and experimentation costs or to capitalize them and amortize them over 60 months or more using the straight-line method.

Question 20

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the amount of depreciation that can be taken on luxury automobiles to prevent excessive tax deductions.

Quiz 10: Property Acquisition and Cost Recovery