Question 1

The client is a corporation which uses high-tech equipment to manufacture its product.Because of the high level of wear and tear due to long production runs and frequent technology changes,the client usually replaces the equipment every two years.According to IRS guidance,the MACRS life of the equipment is five years.In order to accelerate depreciation deductions,which tax depreciation option should the client elect?

Accepted Answer

The answer of The client is a corporation which uses...

Question 2

Jimmy acquires an oil and gas property interest for $600,000.Jimmy expects to recover 200,000 barrels of oil.Intangible drilling and development costs are $160,000 and are charged to expense.Other expenses are $40,000.During the year,25,000 barrels of oil are sold for $800,000.Jimmy's depletion deduction is

Accepted Answer

The cost depletion method is used here. The cost per barrel is $600,000/200,000 barrels = $3 per barrel. For 25,000 barrels sold, the depletion deduction is 25,000 barrels x $3 = $75,000.

Question 3

Intangible drilling and development costs (IDCs)may be deducted as an expense or may be capitalized.

Accepted Answer

Intangible drilling and development costs (IDCs) may be deducted as an expense in the current year or may be capitalized and amortized over a period of time.

Question 4

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

Accepted Answer

A taxpayer might elect the alternative depreciation system (ADS) if they have significant charitable contribution carryovers, are undertaking a major R&E project, or have significant NOL carryovers, as ADS can help manage taxable income and optimize tax benefits over time.

Question 5

Kenrick is sole proprietor of K Enterprises.He acquired new computer equipment and office furniture and fixtures for use in his business this year.As a sole proprietor,he can detail the depreciation by reporting directly on Schedule C of Form 1040.(Profit or Loss from Business).

Accepted Answer

The answer of Kenrick is sole proprietor of K Enterprises.He...

Question 6

A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller.Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of view?

Accepted Answer

The answer of A purchaser of the assets of a...

Question 7

Maria,a sole proprietor,has several items of office furniture and equipment which are depreciable.All were acquired before this year.She is not required to report her depreciation deduction on Form 4562.

Accepted Answer

Maria is not required to report her depreciation deduction on Form 4562 because she is a sole proprietor and her depreciable property was acquired before this year.

Question 8

In calculating depletion of natural resources each period

Accepted Answer

The greater of cost depletion or percentage depletion must be used in calculating depletion of natural resources each period. This is because cost depletion is based on the actual cost incurred to acquire and develop the natural resource, while percentage depletion is a fixed percentage of the gross income earned from the sale of the natural resource. Therefore, using the greater of the two methods ensures that the depletion expense reflects the true economic cost of depleting the natural resource.

Quiz 26: Depreciation,cost Recovery,amortization,and Depletion