Question 1

To compute depreciation using MACRS on an asset purchased today,you need to know
I.the asset's depreciable basis.
II.the recovery period of the asset.
III.the first and last year convention that applies to the asset's class.
IV.whether you want to minimize or maximize the current year's depreciation.
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Accepted Answer

The answer of To compute depreciation using MACRS on an...

Question 2

Qualified Section 179 property for a retail store includes
I.Store shelving.
II.Company auto used by salesmen.
III.Sidewalks in front of the store.
IV.Delivery van owned by the store.
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Accepted Answer

I. Store shelving is considered qualified Section 179 property for a retail store.
II. Company auto used by salesmen is considered qualified Section 179 property, but it should not be included in a retail store's list of qualified assets.
III. Sidewalks in front of the store are not considered tangible personal property and hence do not qualify as Section 179 property.
IV. Delivery van owned by the store is considered qualified Section 179 property for a retail store.

Question 3

Carolyn purchases a new delivery truck (5-year MACRS property)costing $508,000 for use in her floral business on January 5,2016.If Carolyn's taxable income from the floral business before any special elections is $8,000 for 2016,what is her maximum allowable cost recovery on the delivery truck in 2016?

Accepted Answer

The maximum allowable cost recovery for the delivery truck can be calculated using the MACRS depreciation table. The table indicates that the 5-year property is assigned a depreciation percentage of 20.00% for Year 1. Therefore, Carolyn's maximum allowable cost recovery for the delivery truck in 2016 is $508,000 x 20.00% = $101,600. However, since her taxable income before any special elections is only $8,000, Carolyn can only deduct up to that amount. Therefore, the correct answer is C) $108,000, which is the closest option to $101,600 that does not exceed her taxable income.

Question 4

Sophia purchases a completely furnished condominium in Breckenridge,Colorado.She uses the condo as a rental property.Which of the following assets are subject to periodic cost recovery?
I.Land.
II.Furniture.
III.Building.
IV.Trout fishing equipment.
V.Kitchen appliances.
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Accepted Answer

The answer of Sophia purchases a completely furnished condominium in...

Question 5

In 2016,Henry purchases $210,000 of equipment with a useful life of 7 years.The taxable income of the business is $100,000.What is Henry's maximum depreciation deduction in 2016?

Accepted Answer

The answer of In 2016,Henry purchases $210,000 of equipment with...

Question 6

Cruz Copy Shop purchases a new copy machine in July 2016 for $30,000.No other depreciable assets are placed in service in 2016.Since Cruz Copy Shop expects to be in a much higher tax bracket in future years,it desires to minimize its current cost recovery amount to the fullest extent possible.What is the amount of Cruz Copy Shop's MACRS straight-line depreciation for 2016?

Accepted Answer

The MACRS straight-line depreciation for 2016 is calculated as follows: 
- Determine the MACRS depreciation rate for 5-year property (copy machine) in Table A-1: 20%
- Apply the half-year convention since the asset was placed in service in July.
Depreciation for 2016 = $30,000 x 20% x 50% = $3,000. 
Therefore, choice C is the correct answer.

Question 7

In 2016,Sanford Corporation purchases and places in service $2,410,000 of equipment for its manufacturing business.What portion of the $2,410,000 may Sanford elect to treat as a Section 179 expense?

Accepted Answer

The maximum amount that can be treated as a Section 179 expense for 2016 is $500,000. Since the equipment purchased by Sanford Corporation is less than $500,000, it can treat the entire amount as a Section 179 expense. Therefore, the answer is E, $90,000, which is the full amount of the equipment purchased.

Question 8

Sorensen Corporation purchases equipment in 2016 for $200,000.Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible.How much can Sorensen deduct under Section 179?

Accepted Answer

In 2016, the maximum deduction under Section 179 was $500,000, so Sorensen can deduct the full cost of the equipment, $200,000, as it is below the limit.

Question 9

In 2016,Oscar purchases $2,150,000 of equipment.The taxable income of the business is $20,000.What is Oscar's maximum Section 179 deduction in 2016?

Accepted Answer

The Section 179 deduction is limited to the taxable income of the business, which is $20,000 in this case.

Question 10

During 2016,Linda has a $12,000 net loss from her beauty salon.Her spouse,Bart,earns $23,000 as a tennis professional.During 2016,Bart purchases $215,000 of Section 179 equipment for his business.What is the amount of Linda and Bart's Section 179 deduction for 2016?

Accepted Answer

Linda's net loss from her beauty salon cannot be used to offset Bart's income as a tennis professional. Therefore, Bart's Section 179 deduction would be calculated based solely on his equipment purchases, which is $215,000. However, the maximum Section 179 deduction allowed for 2016 is $500,000. Since their combined income does not exceed the threshold ($505,000), they are eligible for the maximum deduction of $11,000 ($500,000 - $215,000 - $274,000). Therefore, the correct answer is (C) $11,000.

Question 11

Davis,Inc.,a motorcycle wheel manufacturer,purchased a new spoke machine in 2016 for $200,000.What are the tax effects of this purchase?
I.If taxable income is $100,000,then $100,000 can be expensed in 2016.
II.No Section 179 election is allowed if Davis decides to use a $200,000 depreciable basis.
III.If Davis had purchased a total of $3,400,000 of equipment in 2016,the corporation can deduct none of the purchases in 2016 through use of the Section 179 election.
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Accepted Answer

The answer of Davis,Inc.,a motorcycle wheel manufacturer,purchased a new spoke...

Question 12

In May 2016,Preston purchases 5-year MACRS property costing $150,000 and 7-year MACRS property costing $60,000.Preston's income is $100,000.If Preston wishes to maximize his total 2016 cost recovery deduction,what will his total cost recovery deduction be on the properties purchased in 2016?

Accepted Answer

The answer of In May 2016,Preston purchases 5-year MACRS property...

Question 13

In 2016,Steve purchases $975,000 of equipment.The taxable income of the business is $10,000.What is Steve's maximum Section 179 deduction in 2016?

Accepted Answer

The Section 179 deduction is limited to the taxable income of the business, which is $10,000 in this case.

Question 14

Wu Copy Shop purchases a new copy machine in July 2016 for $30,000.No other depreciable assets are placed in service in 2016.Since Wu Copy Shop expects to be in a much higher tax bracket in future years,it desires to minimize its current cost recovery amount to the fullest extent possible.What is the amount of Wu Copy Shop's ADS depreciation for 2016?

Accepted Answer

The ADS (Alternative Depreciation System) for non-residential property like a copy machine is typically 15 years. For 2016, the depreciation would be calculated as $30,000 / 15 = $2,000. However, since the machine was placed in service in July, only half-year depreciation applies, resulting in $1,500 for 2016.

Question 15

Which of the following statements related to the Section 179 election to expense is (are)true?
I.A Section 179 deduction can be claimed on tangible personal property
II.A Section 179 deduction can be claimed on property held for the production of income.
III.A Section 179 deduction can be claimed on real property.
IV.A Section 179 deduction is allowed only for assets used in trade or business.
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Accepted Answer

Statement I is true, as Section 179 allows for the expensing of tangible personal property. Statement II is false, as Section 179 cannot be claimed on property held for the production of income. Statement III is false, as Section 179 cannot be claimed on real property. Statement IV is true, as Section 179 is only allowed for assets used in trade or business.

Question 16

During 2016,Witt Processing Corporation places $210,000 of Section 179 property in service for use in its business.What is the amount of Witt Processing's maximum Section 179 deduction for 2016?

Accepted Answer

In 2016, the maximum Section 179 deduction limit was $500,000. Since Witt Processing Corporation placed $210,000 of qualifying property in service, they can deduct the full amount of $210,000 under Section 179.

Question 17

Watson Company purchases used equipment (5-year MACRS property)for $550,000 on July 8,2016.What is Watson' maximum allowable cost recovery deduction for 2016 on the equipment if this is the only purchase of equipment for 2016?

Accepted Answer

The answer of Watson Company purchases used equipment (5-year MACRS...

Question 18

Which of the following is not part of the modified accelerated cost recovery system (MACRS)?

Accepted Answer

Sum-of-the-years digits depreciation is not allowed under MACRS. The other options listed are all part of MACRS.

Question 19

On June 1,2016,AZ Construction Corporation places a $500,000 crane (7 year life)in service.It placed no other assets in service during the year.What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2016?

Accepted Answer

The answer of On June 1,2016,AZ Construction Corporation places a...

Question 20

The Section 179 election promotes which of the following tax concept(s)or doctrine(s)?
I.Claim of Right Doctrine.
II.Administrative Convenience Concept.
III.Tax benefit rule.
IV.Substance-Over-Form Doctrine.
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Accepted Answer

The Section 179 election allows businesses to deduct the full purchase price of qualifying equipment and/or software within the tax year it is purchased, rather than depreciating it over time. This primarily promotes the Administrative Convenience Concept by simplifying tax reporting and reducing administrative burdens on both businesses and the IRS.

Quiz 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store.

Sophia purchases a completely furnished condominium in Breckenridge,Colorado.She uses the condo as a rental property.Which of the following assets are subject to periodic cost recovery? I.Land. II.Furniture. III.Building. IV.Trout fishing equipment. V.Kitchen appliances.

In 2016,Henry purchases $210,000 of equipment with a useful life of 7 years.The taxable income of the business is $100,000.What is Henry's maximum depreciation deduction in 2016?

In 2016,Sanford Corporation purchases and places in service $2,410,000 of equipment for its manufacturing business.What portion of the $2,410,000 may Sanford elect to treat as a Section 179 expense?

Sorensen Corporation purchases equipment in 2016 for $200,000.Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible.How much can Sorensen deduct under Section 179?

In 2016,Oscar purchases $2,150,000 of equipment.The taxable income of the business is $20,000.What is Oscar's maximum Section 179 deduction in 2016?

During 2016,Linda has a $12,000 net loss from her beauty salon.Her spouse,Bart,earns $23,000 as a tennis professional.During 2016,Bart purchases $215,000 of Section 179 equipment for his business.What is the amount of Linda and Bart's Section 179 deduction for 2016?

In May 2016,Preston purchases 5-year MACRS property costing $150,000 and 7-year MACRS property costing $60,000.Preston's income is $100,000.If Preston wishes to maximize his total 2016 cost recovery deduction,what will his total cost recovery deduction be on the properties purchased in 2016?

In 2016,Steve purchases $975,000 of equipment.The taxable income of the business is $10,000.What is Steve's maximum Section 179 deduction in 2016?

During 2016,Witt Processing Corporation places $210,000 of Section 179 property in service for use in its business.What is the amount of Witt Processing's maximum Section 179 deduction for 2016?

Watson Company purchases used equipment (5-year MACRS property) for $550,000 on July 8,2016.What is Watson' maximum allowable cost recovery deduction for 2016 on the equipment if this is the only purchase of equipment for 2016?

Which of the following is not part of the modified accelerated cost recovery system (MACRS) ?

On June 1,2016,AZ Construction Corporation places a $500,000 crane (7 year life) in service.It placed no other assets in service during the year.What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2016?

The Section 179 election promotes which of the following tax concept(s) or doctrine(s) ? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine.

Quiz 10: Cost Recovery on Property: Depreciation, depletion, and Amortization

Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store. ​

Sophia purchases a completely furnished condominium in Breckenridge,Colorado.She uses the condo as a rental property.Which of the following assets are subject to periodic cost recovery? I.Land. II.Furniture. III.Building. IV.Trout fishing equipment. V.Kitchen appliances. ​

In 2016,Henry purchases $210,000 of equipment with a useful life of 7 years.The taxable income of the business is $100,000.What is Henry's maximum depreciation deduction in 2016?

In 2016,Sanford Corporation purchases and places in service $2,410,000 of equipment for its manufacturing business.What portion of the $2,410,000 may Sanford elect to treat as a Section 179 expense?

Sorensen Corporation purchases equipment in 2016 for $200,000.Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible.How much can Sorensen deduct under Section 179?

In 2016,Oscar purchases $2,150,000 of equipment.The taxable income of the business is $20,000.What is Oscar's maximum Section 179 deduction in 2016?

During 2016,Linda has a $12,000 net loss from her beauty salon.Her spouse,Bart,earns $23,000 as a tennis professional.During 2016,Bart purchases $215,000 of Section 179 equipment for his business.What is the amount of Linda and Bart's Section 179 deduction for 2016?

In May 2016,Preston purchases 5-year MACRS property costing $150,000 and 7-year MACRS property costing $60,000.Preston's income is $100,000.If Preston wishes to maximize his total 2016 cost recovery deduction,what will his total cost recovery deduction be on the properties purchased in 2016?

In 2016,Steve purchases $975,000 of equipment.The taxable income of the business is $10,000.What is Steve's maximum Section 179 deduction in 2016?

During 2016,Witt Processing Corporation places $210,000 of Section 179 property in service for use in its business.What is the amount of Witt Processing's maximum Section 179 deduction for 2016?

Watson Company purchases used equipment (5-year MACRS property) for $550,000 on July 8,2016.What is Watson' maximum allowable cost recovery deduction for 2016 on the equipment if this is the only purchase of equipment for 2016?

Which of the following is not part of the modified accelerated cost recovery system (MACRS) ?

On June 1,2016,AZ Construction Corporation places a $500,000 crane (7 year life) in service.It placed no other assets in service during the year.What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2016?

The Section 179 election promotes which of the following tax concept(s) or doctrine(s) ? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine. ​

Qualified Section 179 property for a retail store includes I.Store shelving. II.Company auto used by salesmen. III.Sidewalks in front of the store. IV.Delivery van owned by the store.

Sophia purchases a completely furnished condominium in Breckenridge,Colorado.She uses the condo as a rental property.Which of the following assets are subject to periodic cost recovery? I.Land. II.Furniture. III.Building. IV.Trout fishing equipment. V.Kitchen appliances.

The Section 179 election promotes which of the following tax concept(s) or doctrine(s) ? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine.