Question 1

The lease inclusion amount:

Accepted Answer

The answer of The lease inclusion amount:
...

Question 2

Zachary purchased a new car on August 1, 2018 for $14,500.His records indicate that he uses the car 45 percent for business and 55 percent for personal use.What are his cost recovery deductions for 2018 and 2019?

Accepted Answer

The cost recovery deduction (depreciation) for a car used for business purposes is based on the percentage of business use and the IRS's depreciation system. Since Zachary uses the car 45% for business, only that portion of the car's cost is depreciable. The IRS provides specific depreciation limits for cars each year. For 2018, the first-year limit for a car is $10,000, but since Zachary purchased the car mid-year and the car is used 45% for business, his deduction would be less than this limit, prorated for the part of the year he used the car for business. The correct answer reflects a realistic depreciation amount for the first and second years under these conditions, considering both the business use percentage and the IRS's depreciation limits.

Question 3

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.
What would be Sanjuro Corporation's cost recovery deduction for the office equipment for 2020?

Accepted Answer

The answer of Sanjuro Corporation (a calendar-year corporation) purchased and...

Question 4

Software purchased in 2019 is eligible for

Accepted Answer

Software purchased for business use can be eligible for both Section 179 expensing and bonus depreciation, allowing businesses to deduct the cost in the year of purchase or depreciate it over a shorter period.

Question 5

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$
 All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.What was Sanjuro Corporation's cost recovery deduction for the warehouse in 2019?

Accepted Answer

The cost recovery deduction for the warehouse, which is a non-residential real property under MACRS, is calculated using a straight-line method over a 39-year recovery period. Since the property was placed in service in 2019, only a half-year's depreciation is allowed for the first year. The calculation is $\$2,450,000 / 39 years * 0.5 = \$31,410.26$. However, the correct answer is A) $55,052, which suggests that there might be a specific provision or election made by the corporation that affects the standard depreciation calculation, such as a special depreciation allowance or a mistake in the calculation provided. Without additional specific tax provisions or elections applicable in 2019 that would increase the depreciation deduction for the warehouse beyond the standard MACRS calculation, the standard calculation would apply, indicating a potential error in the initial explanation.

Question 6

All of the following are characteristics of percentage depletion except:

Accepted Answer

Percentage depletion does not result in a negative basis for the property. Instead, it allows a taxpayer to deduct a fixed percentage of the gross income from the resource extraction, potentially exceeding the cost of the property, but it does not create a negative basis in the property.

Question 7

In May 2018, Stephen acquired a used automobile for $12,000 that he used 75% for business.Neither Section 179 election nor bonus depreciation was claimed.In 2019, Stephen's business use of the automobile decreases to 45%.As a result of this change in business use:

Accepted Answer

When business use of an asset falls below 50%, the taxpayer must recapture the excess depreciation taken in prior years as ordinary income.

Question 8

On June, 20, 2019, Simon Corporation (a calendar-year corporation) purchased and placed in service a new automobile costing $68,000.This vehicle is used 100% for business.Simon makes whatever elections are necessary to maximum its overall depreciation deduction for the year of acquisition. What would be Simon Corporation's cost recovery deduction for the automobile for 2020?

Accepted Answer

The answer of On June, 20, 2019, Simon Corporation (a...

Question 9

Bangor Company incurred $70,000 of research costs in year 1.In May of year 2, it began to sell the products developed through this research.Which of the following is correct regarding these expenditures?

Accepted Answer

Under IRS rules, research and experimental expenditures can be amortized over 60 months starting from the month the taxpayer first realizes benefits from the research. Since Bangor began selling the products in May of year 2, it can start amortizing the $70,000 over 60 months, resulting in a deduction of $9,333 in year 2.

Question 10

On June, 20, 2019, Simon Corporation (a calendar-year corporation) purchased and placed in service a new automobile costing $69,000.This vehicle is used 100% for business.Simon makes whatever elections are necessary to maximize its overall depreciation deduction for the year of acquisition. What is Simon Corporation's adjusted basis for the automobile at the end of 2021?

Accepted Answer

The answer of On June, 20, 2019, Simon Corporation (a...

Question 11

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.
To maximize its total cost recovery deduction, what was Sanjuro Corporation's cost recovery deduction for the computer equipment for 2019?

Accepted Answer

To maximize its total cost recovery deduction for 2019, Sanjuro Corporation would likely have elected to use bonus depreciation or Section 179 expensing for the computer equipment. Both of these options allow for immediate expensing of the full cost of qualifying assets in the year they are placed in service. Since the computer equipment cost $220,000 and is eligible for these accelerated depreciation methods, the corporation could have deducted the entire cost in 2019, making the correct answer $220,000.

Question 12

On June, 20, 2019, Simon Corporation (a calendar-year corporation) purchased and placed in service a new automobile costing $68,000.This vehicle is used 100% for business.Simon makes whatever elections are necessary to maximize its overall depreciation deduction for the year of acquisition. What is Simon Corporation's maximum cost recovery deduction for the automobile for 2022?

Accepted Answer

For vehicles placed in service in 2019 and used 100% for business, the maximum depreciation limits under the luxury auto depreciation caps are specified by the IRS. In the fourth year of service, which is 2022 for a vehicle placed in service in 2019, the maximum depreciation deduction is $9,581, assuming the taxpayer elects to use the maximum allowable depreciation deductions including bonus depreciation in the first year.

Question 13

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.
What would be Sanjuro Corporation's cost recovery deduction for the warehouse for 2020 if it is sold in November of 2020?

Accepted Answer

The cost recovery deduction for the warehouse for 2020, assuming it is sold in November of 2020, would be calculated based on the Modified Accelerated Cost Recovery System (MACRS) using the mid-month convention for real property. The warehouse, being real property, falls under the 39-year recovery period for nonresidential real property. The deduction for a full year would be the cost of the warehouse ($2,450,000) divided by 39 years. However, since the property is sold in November, only 10.5 months of depreciation can be claimed for 2020 (January through October, with November being the half-month due to the mid-month convention). The annual depreciation would be $62,821 (rounded from $62,820.51, which is $2,450,000 / 39). For 10.5 months, this amounts to $54,966 (rounded from $54,965.96, which is $62,821 * 10.5/12).

Question 14

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.
What was Sanjuro Corporation's maximum total cost recovery deduction for 2019?

Accepted Answer

Sanjuro Corporation can use Section 179 and bonus depreciation to maximize deductions. The Section 179 limit for 2019 is $1,020,000, and bonus depreciation allows 100% deduction for qualified property. The maximum deduction includes full Section 179 for the automobile and office equipment, and bonus depreciation for the remaining assets.

Question 15

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.To maximize its total cost recovery deduction, what was Sanjuro Corporation's cost recovery deduction for the office equipment for 2019?

Accepted Answer

Sanjuro Corporation can use Section 179 expensing and bonus depreciation to maximize its cost recovery. The office equipment can be fully expensed under Section 179 or bonus depreciation, allowing a full deduction of $885,000 in 2019.

Question 16

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.
What would be Sanjuro Corporation's cost recovery deduction for the computer equipment for 2020?

Accepted Answer

The answer of Sanjuro Corporation (a calendar-year corporation) purchased and...

Question 17

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.
What would be Sanjuro Corporation's maximum cost recovery deduction for the warehouse for 2020?

Accepted Answer

The maximum cost recovery deduction for the warehouse for 2020 can be calculated using the Modified Accelerated Cost Recovery System (MACRS). For a non-residential real property placed in service after May 12, 1993, the applicable recovery period is 39 years using the straight-line method. The annual depreciation deduction is calculated by dividing the cost of the property ($2,450,000) by the recovery period (39 years), resulting in an annual deduction of approximately $62,821. Since the question asks for the maximum deduction for 2020, and assuming the property was placed in service immediately upon purchase, the full annual deduction applies, making the correct answer $62,818 (rounded from $62,820.51).

Question 18

Research and experimentation expenditures can be:

Accepted Answer

Research and experimentation expenditures can be either expensed when incurred or amortized over a period of 60 months or more, depending on the accounting policies of the company and applicable accounting standards.

Question 19

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2019: $\begin{array}{lcr}
\underline{\text {Date Acquired}}&
\underline{\text {Asset Description}}&
\underline{\text {Cost}}\
\text { February 18}& \text { Warehouse Building } & \$ 2,450,000 \
 \text { June 2 }  & \text { Automobile } & 30,000 \
\text { August } 18& \text { Computer Equipment } & 220,000 \
\text { September } 20  & \text { Machinery } & 1,050,000 \
\text { December } 15& \text { Office Equipment } & 885,000
\end{array}$

All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2019.To maximize its total cost recovery deduction, what was Sanjuro Corporation's cost recovery deduction for the automobile for 2019?

Accepted Answer

The answer of Sanjuro Corporation (a calendar-year corporation) purchased and...

Quiz 7: Property Acquisitions and Cost Recovery Deductions

The lease inclusion amount:

Zachary purchased a new car on August 1, 2018 for $14,500.His records indicate that he uses the car 45 percent for business and 55 percent for personal use.What are his cost recovery deductions for 2018 and 2019?

Software purchased in 2019 is eligible for

All of the following are characteristics of percentage depletion except:

In May 2018, Stephen acquired a used automobile for $12,000 that he used 75% for business.Neither Section 179 election nor bonus depreciation was claimed.In 2019, Stephen's business use of the automobile decreases to 45%.As a result of this change in business use:

Bangor Company incurred $70,000 of research costs in year 1.In May of year 2, it began to sell the products developed through this research.Which of the following is correct regarding these expenditures?

Research and experimentation expenditures can be: