Question 1

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 tax cost recovery method, it refers to the initial cost of an asset being added to the basis and then being recovered through depreciation, amortization, or depletion. The other choices, Amortization, Depletion, and Depreciation, are all methods of recovering the cost of an asset for tax purposes.

Question 2

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. They are amortized over their legal or useful life instead. Depreciation is the allocation of the cost of a tangible asset over its useful life, while amortization is the allocation of the cost of an intangible asset over its useful life. Automobiles, buildings, and machinery are all examples of tangible assets that are subject to depreciation.

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

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 5

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

Accepted Answer

Taxpayers may not always expense a portion of start-up costs and organizational expenditures. These costs may need to be amortized over a period of time depending on the specific circumstances.

Question 6

Used property is eligible for bonus depreciation.

Accepted Answer

The Tax Cuts and Jobs Act has made used property eligible for bonus depreciation starting in 2018.

Question 7

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 8

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

Accepted Answer

Goodwill and customer lists are both examples of intangible assets that are deemed to have a determinable useful life and thus can be amortized over time under Section 197 of the Internal Revenue Code.

Question 9

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 use percentage depletion when they sell natural resources, whereas cost depletion is used in the year they extract or produce the natural resource.

Question 10

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

Businesses can choose to immediately expense research and experimentation expenditures or amortize them using the straight-line method over a period of not less than 60 months.

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

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

Accepted Answer

Bonus depreciation allows businesses to immediately deduct a larger percentage of the cost of qualifying equipment and property, providing an incentive for businesses to invest in new equipment and boost economic growth. Therefore, it is often used as a tool by tax policy makers to stimulate the economy.

Question 13

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 14

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

Accepted Answer

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

Question 15

All assets subject to amortization have the same recovery period.

Accepted Answer

Different assets can have different recovery periods depending on their useful life and depreciation method.

Question 16

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is a method of accounting used by natural resource producers to allocate the cost of the natural resource over the number of units or quantity extracted. This method is available to all natural resource producers, including those who extract oil, gas, minerals, and timber.

Question 17

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 18

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the depreciation of luxury automobiles, which are defined as cars with a total cost of more than a certain amount. For tax years 2020 and 2021, the cost limit is $ 18,000.

Question 19

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

Accepted Answer

Listed property is defined by the IRS as business assets that are likely to be used for both business and personal purposes, such as vehicles, computers, and cameras.

Question 20

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 capital investment in natural resources, such as oil, gas, minerals, timber, and other similar resources. Therefore, the statement is true.

Quiz 10: Property Acquisition and Cost Recovery

Tax cost recovery methods do not include:

Which of the following business assets is not depreciated?