Exam 7: Accounting Periods and Methods and Depreciation

On June 1, 2015, Sandalwood Corporation purchases a passenger automobile for 100 percent use in its business. The automobile is in the 5 year cost recovery class and has a basis for depreciation of $30,000. Assuming that the corporation elects the accelerated method of cost recovery for the asset and does not elect to expense any of its cost or take bonus depreciation, what is the total tax depreciation deduction for the 2015 calendar tax year (Year 1)?

An asset is placed in service on May 15, 2015 and has a depreciable basis of $40,000. The asset is in the 7-year recovery class. What is the maximum depreciation deduction that may be claimed for 2015, excluding the election to expense and bonus depreciation?

Which one of the following entities cannot use the cash method for tax purposes?

On January 1, 2015, Roxburgia Company places a commercial storage building in service. The costs allocated to construction of the building total $300,000 and land is accounted for separately. Which of the following is a true statement with respect to the depreciation of the building?

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

Mary sells to her father, Robert, her shares in AA Corp for $55,000. The shares cost Mary $80,000. How much loss may Mary claim from the sale?

ABC Corporation is owned 30 percent by Andy, 30 percent by Barry, 20 percent by Charlie, and 20 percent by Uptown Corporation. Uptown Corporation is owned 90 percent by Charlie and 10 percent by an unrelated party. Barry and Charlie are brothers. Answer each of the following questions about ABC under the constructive ownership rules of Section 267: a.What is Andy's constructive ownership percentage under Section 267? b.What is Barry's constructive ownership percentage under Section 267? c.What is Charlie's constructive ownership percentage under Section 267? d.If Andy sells property to ABC for a $6,000 loss, what amount of that loss can be recognized for tax purposes (before any annual limitations)?

Lanyard purchased office equipment (7-year property) for use in his business. He paid $10,000 for the equipment on July 1, 2015. Lanyard did not purchase any other property during the year. For 2015, his business had net income of $350,000, before depreciation and before considering the election to expense. a.What is the maximum amount that Lanyard can deduct in 2015 under the election to expense? b.​ ​ What is the total depreciation (regular depreciation and the amount allowed under the election to expense) on the office equipment for 2015, assuming Lanyard uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense? c.What is Lanyard's total depreciation deduction for 2016 on the 2015 purchase of equipment?

Mark the correct answer. In cash basis accounting, for tax purposes:

On July 15, 2015, H. P. purchases a personal computer for his home. The computer cost $4,000. H. P. uses the computer 60 percent of the time in his business, 15 percent of the time for managing his investments and the remaining 25 percent of the time for various personal uses. Calculate H. P.'s maximum depreciation deduction for 2015 for the computer, assuming he does not make the election to expense or take bonus depreciation.

Under the cash basis of accounting, expenses are generally deducted in the year they are paid.

If an automobile is purchased for 100 percent use in the taxpayer's business, the annual automobile depreciation limitations do not apply.

Countryside Acres Apartment Complex had the following transactions during the year: Using the accrual method, calculate the net income: ​

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2015 is:​

During 2015, Travis purchases $13,000 of used manufacturing equipment (7-year property) for use in his business, his only asset purchase that year. Travis has taxable income from his business of $500,000. What is the maximum amount that Travis may deduct under the election to expense?

Vernon is a cash basis taxpayer with a calendar tax year. On October 1, 2015, Vernon entered into a lease to rent a building for use in his business at $3,000 a month. On that day Vernon paid 18 months rent on the building, a total of $54,000 ($3,000 × 18 months). How much may Vernon deduct for rent expense on his 2015 tax return?

Aaron has a successful business with $50,000 of income in 2015. He purchased a new 7-year MACRS property with a cost of $7,000. For tax purposes, what is the largest write-off Aaron can obtain in 2015 for the new asset?

​An asset (not an automobile) put in service in June 2015 has a depreciable basis of $2,035,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and the expensing election is made for the maximum eligible amount, what is the maximum amount of cost that can be deducted in 2015 assuming the business earned taxable income of $1,000,000 before deducting any cost recovery?

​An asset (not an automobile) put in service in June 2015 has a depreciable basis of $2,035,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2015 (assume no income limitation)?

What is the minimum number of years over which computers may be depreciated under MACRS?