Question 1

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

Accepted Answer

Bonus depreciation allows businesses to deduct a larger portion of the cost of new equipment or property in the year it is purchased. This incentivizes businesses to make new investments, which can stimulate economic growth. Tax policy makers may use bonus depreciation as a tool to encourage business investment and boost the economy.

Question 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

Goodwill and customer lists are both examples of intangible assets that can be amortized over a period of time under §197 of the Internal Revenue Code.

Question 5

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

Accepted Answer

Depletion is a tax deduction that allows taxpayers to recover their investment in natural resources. It is calculated based on the amount of resources extracted or sold during a given tax year.

Question 6

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the amount of depreciation that can be claimed for luxury automobiles used for business purposes. This is to prevent taxpayers from taking excessive deductions for vehicles that are primarily used for personal purposes.

Question 7

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 8

Used property is eligible for bonus depreciation.

Accepted Answer

Used property is eligible for bonus depreciation as long as it meets the other eligibility requirements including being acquired and placed in service after September 27, 2017.

Question 9

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 10

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 refers to the process of recording an expenditure as an asset on the balance sheet rather than as an expense on the income statement. It is not a tax cost recovery method. The other options, amortization, depletion, and depreciation, are all tax cost recovery methods used to recover the cost of assets over time for tax purposes. Therefore, the correct answer is B.

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 allowed to take percentage depletion for tax purposes; they must use cost depletion. Percentage depletion is available only to independent producers and royalty owners under U.S. tax law.

Question 12

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

Accepted Answer

Listed property includes assets like vehicles, computers, and cameras that may be used for both business and personal purposes.

Question 13

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 is capitalized and amortized over its useful life. However, if the business self-creates the intangible, only the costs that can be directly attributed to the creation process (like legal fees for patent registration) are capitalized and amortized; many initial research and development costs are expensed as incurred.

Question 14

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. As per the latest tax laws, businesses have the option to immediately expense research and experimentation expenditures or capitalize and amortize them using the straight-line method over a period of not less than 60 months.

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 and they deduct cost depletion in the year they produce or extract the natural resource.

Question 16

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is a method of calculating depletion for tax purposes and is available to all natural resource producers including timber, minerals, and oil and gas.

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 any excess depreciation taken in previous years over the amount that would have been allowed using the straight-line method.

Question 18

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 19

All assets subject to amortization have the same recovery period.

Accepted Answer

The recovery period for assets subject to amortization can vary depending on the type of asset and its estimated useful life.

Question 20

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 have a limited lifespan and are amortized instead. Depreciation is the allocation of the cost of a long-term business asset over its useful life. Automobiles, buildings, and machinery are all examples of assets that are typically depreciated.

Quiz 2: Property Acquisition and Cost Recovery