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

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the amount of depreciation that can be claimed on luxury automobiles, in order to prevent excessive tax write-offs for high-end vehicles. The specific limits vary based on the year the vehicle was purchased and the method of depreciation used.

Question 3

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 do have the option to immediately expense research and experimentation expenditures or to capitalize and amortize them, as per Section 174 of the IRS code. However, the amortization period must be at least 60 months.

Question 4

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

Accepted Answer

Goodwill and customer lists are both considered intangible assets under §197 of the IRS code and can be amortized over a 15-year period for tax purposes.

Question 5

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 6

If the business-use percentage for listed property falls below 50 percent, the only adjustment isthat 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 7

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is an accounting method that allows natural resource producers to gradually expense the cost of acquiring and developing their resources over time. It is available to all natural resource producers, including oil and gas companies, miners, and timber companies.

Question 8

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 finite useful life and expire after a certain period of time, usually 20 years. Therefore, they are amortized (expensed) over their useful life, rather than depreciated like assets that have a physical lifespan.

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

Taxpayers are generally required to capitalize start-up costs and organizational expenditures and amortize them over a period of time. However, there are some specific expenses that can be deducted in the year they are incurred, such as up to $5,000 of start-up costs and $5,000 of organizational costs. Any remaining costs must be amortized over a 180-month period.

Question 11

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 use both percentage depletion and cost depletion for tax purposes, but they are used in different ways. Percentage depletion is used when a natural resource is sold, while cost depletion is used in the year the resource is produced or extracted.

Question 12

An example of an asset that is both personal-use and personal property is: A)A computer used solely to email company employees regarding company activities. B)A storage building used by the CEO to store personal records. C)A computer used solely to monitor the CEOs investments and to complete her Form 1040. D)

A company airplane used by the CEO for business travel.P1P1_E E)All of the assets are personal-use and personal property.

Accepted Answer

A computer used solely to monitor the CEO's investments and to complete her Form 1040 is considered both personal-use (as it is used for personal financial management and tax preparation) and personal property (as it is a tangible asset owned by an individual).

Question 13

Which of the following is not usually included in an asset's tax basis?
A)Purchase price
B)Sales tax
C)Shipping
D)Installation costs
E)All of the choices are included in an asset's tax basis.

Accepted Answer

All of the choices listed (purchase price, sales tax, shipping, and installation costs) are typically included in an asset's tax basis. The tax basis of an asset is essentially its cost for tax purposes, which includes the purchase price and all expenses incurred to acquire and prepare the asset for use.

Question 14

Used property is eligible for bonus depreciation.

Accepted Answer

Under the Tax Cuts and Jobs Act, used property is now eligible for bonus depreciation.

Question 15

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

Accepted Answer

Depletion is a legitimate tax deduction for the gradual exhaustion of natural resources, such as oil, gas, and minerals, that are used in businesses or income-producing activities. It allows taxpayers to recover their capital investment in these resources over time.

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

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

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

Accepted Answer

Listed property includes items such as cars, computers, and cameras that are often used for both business and personal purposes. As a result, there are specific tax rules and limitations for deducting their expenses.

Question 19

All assets subject to amortization have the same recovery period.

Accepted Answer

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

Question 20

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.

Quiz 10: Property Acquisition and Cost Recovery