Exam 7: Accounting Periods and Methods and Depreciation

A taxpayer places a $50,000 5-year recovery period asset in service in 2015. This is the only asset placed in service in 2015. Assuming half-year convention, immediate expensing (with 2014 amounts extended into 2015), and no income limitation, what is the amount of total cost recovery deduction (no bonus depreciation)?​

Bev is the sole owner of Bev & Associates, an accrual basis corporation. In 2015, Bev & Associates has a bad year and Bev lends the corporation $50,000 to meet expenses. The corporation accrues interest expense of $5,000 on the loan from Bev, but does not pay the interest to her in cash. ​ How much of the $5,000 in accrued interest expense can Bev & Associates deduct on its 2015 corporate tax return? Explain.

If a cash basis business owner pays 18 months of rent expense in advance during the last month of the tax year, how is this treated on the tax return? What is the reason tax law requires this treatment?

Most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end so that they may defer 3 months of income.

Give the depreciable or amortizable lives for 2015 tax purposes for these assets: ​ Automobiles Business furniture Computers Residential real estate Commercial real estate Land Purchased goodwill

If land declines in value, it may be depreciated for tax purposes.

Eva purchased office equipment (7-year property) for use in her business. She paid $12,600 for the equipment on July 1, 2015. Eva did not purchase any other property during the year. For 2015, her business had net income of $6,000, before depreciation and before considering the election to expense. a.What is the maximum amount that Eva can elect to expense in 2015 under Section 179? b.​ ​ ​ What is the total depreciation (regular depreciation and the amount allowed as a 2015 deduction under the election to expense) on the office equipment for 2015, assuming Eva uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense? c.​ ​ ​ Assuming that Eva elected to expense the equipment in 2015 and that her business has net income in 2016 of $200,000, before depreciation and before considering the election to expense, what is Eva's total depreciation deduction (regular depreciation and the amount allowed under the election to expense) for the equipment for 2016?

​An asset (not an automobile) put in service in June 2015 has a depreciable basis of $535,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and no expensing election, what is the maximum amount of cost that can be deducted in 2015?

Joyce purchased a passenger automobile on March 2, 2015. She paid $12,000 for the automobile and can support business use of 85 percent. Calculate the amount of depreciation on the automobile for 2015 using the accelerated MACRS method (if available), assuming Joyce does not make the election to expense or claim bonus depreciation.

On January 1, 2015, Sandy, a sole proprietor, purchased for use in her business a used production machine (7-year property) at a cost of $4,000. Sandy does not purchase any other property during 2015 and has net income from her business of $80,000. If the standard recovery period table would allow $572 of depreciation expense on the $4,000 of equipment purchased in 2015, what is Sandy's maximum depreciation deduction including the Section 179 election to expense (but not bonus depreciation) for 2015?

Steve Corp bought a $600,000 apartment building in June of 2014. Of the purchase price, $104,950 is allocated to the value of the land. What is the maximum amount of depreciation that the company can claim in 2015 (year 2) for the building?

An asset (not an automobile) placed in service in June 2015 has a depreciable basis of $35,000 and a recovery period of 5 years. Assuming bonus depreciation is extended into 2015, a half-year convention, and no expensing election, what is the maximum amount of cost that can be deducted in 2015?​

Section 179 immediate expensing can be taken on used property​ .

If extended by Congress, bonus depreciation in 2015 permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: What is the amount of Becky's taxable income from her business for this tax year?

In applying the statutory rates from the MACRS tables, the cost of the asset must first be reduced by the prior year's depreciation.

BOND Corporation is owned 25 percent by Brian, 30 percent by Orville, 20 percent by Nate, and 25 percent by Dart Corporation. Dart Corporation is owned 80 percent by Brian and 20 percent by Nate. Brian and Orville are brothers. Answer each of the following questions about BOND Corporation under the constructive ownership rules of Section 267: a.What is Brian's constructive ownership percentage for Section 267 purposes? b.If Nate sells property to BOND Corporation for a $7,500 loss, what amount of that loss can be recognized for tax purposes (before any annual limitations)?

Amy is a calendar year taxpayer reporting on the cash basis. Indicate which of the following income or expense items should not be included in her 2015 tax return.

Under MACRS, the same method of depreciation (accelerated or straight-line) must be used for all property in a given class placed in service during that year.

"Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.