Question 1

Which one of the following may not be depreciated using an accelerated method?

Accepted Answer

A) A farming tractor 
B) A computer used strictly for the farming business 
C) A corn-husking machine 
D) A farm truck that is operated for personal use more than 50 percent of the time 
E) All of the above items may be depreciated using an accelerated method 
A) A farming tractor 
B) A computer used strictly for the farming business 
C) A corn-husking machine 
D) A farm truck that is operated for personal use more than 50 percent of the time 
E) All of the above items may be depreciated using an accelerated method

Question 2

Betty purchases a used $12,000 car in 2015, to use exclusively in her business.
a.What will the standard MACRS depreciation schedule be for the 6 years the auto is depreciated?
Year 1:
Year 2:
Year 3:
Year 4:
Year 5:
Year 6:
b.If Betty holds the car until it is fully depreciated, and uses straight-line depreciation, how many years will this take?

Accepted Answer

a. Since the car costs only $12,000, it

Question 3

Generally, cash basis taxpayers must account for payments of prepaid interest using the accrual method.

Accepted Answer

A) True 
 B)False

Question 4

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Accepted Answer

A) True 
 B)False

Question 5

Jasper is a self-employed businessman. On March 5, 2015 he purchases a personal computer for use at his home. He uses the computer for personal purposes 50 percent of the time and for business use the remainder of the time. The computer cost $2,300. Jasper wants to claim the maximum amount of depreciation possible for 2015, including the election to expense, if it is available. What is the amount of depreciation that Jasper should claim on the computer for 2015?

Accepted Answer

A) $2,300 
B) $1,150 
C) $460 
D) $230 
E) Some amount less than the above amounts 
A) $2,300 
B) $1,150 
C) $460 
D) $230 
E) Some amount less than the above amounts

Question 6

Which of the following is true with respect to the related party rules?

Accepted Answer

A) Bill sells stock to his sister for a $3,000 loss.Bill can deduct the loss on his tax return. 
B) A taxpayer's uncle is a related party for purposes of Section 267. 
C) A disallowed loss on a related party transaction can be used to offset any future gain when the property is sold to an unrelated party. 
D) Under the constructive ownership rules of Section 267, a shareholder owns 10 percent of the stock owned by a corporation in which he or she is a shareholder. 
E) None of the above are true. 
A) Bill sells stock to his sister for a $3,000 loss.Bill can deduct the loss on his tax return. 
B) A taxpayer's uncle is a related party for purposes of Section 267. 
C) A disallowed loss on a related party transaction can be used to offset any future gain when the property is sold to an unrelated party. 
D) Under the constructive ownership rules of Section 267, a shareholder owns 10 percent of the stock owned by a corporation in which he or she is a shareholder. 
E) None of the above are true.

Question 7

John purchases residential rental property on June 30, 2015 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2015?

Accepted Answer

A) $2,758 
B) $1,485 
C) $1,061 
D) $370 
E) None of the above 
A) $2,758 
B) $1,485 
C) $1,061 
D) $370 
E) None of the above

Question 8

Jerry and Julie are brother and sister. Jerry sold stock to Julie for $5,000, its fair market value. The stock cost Jerry $10,000 5 years ago. Also, Jerry sold Carol (an unrelated party) stock for $2,000 that cost $10,000 3 years ago. What is Jerry's recognized loss before the $3,000 capital loss limitation?

Accepted Answer

A) $0 
B) $8,000 
C) $5,000 
D) $13,000 
E) $14,000 
A) $0 
B) $8,000 
C) $5,000 
D) $13,000 
E) $14,000

Question 9

All S corporations must use the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 10

Section 197 intangibles:

Accepted Answer

A) Are amortized over a 15-year period. 
B) Include goodwill, going-concern value, and information bases. 
C) Were defined in the Revenue Reconciliation Act of 1993. 
D) Are not amortized over the actual estimated useful life of the intangible asset. 
E) All of the above are true. 
A) Are amortized over a 15-year period. 
B) Include goodwill, going-concern value, and information bases. 
C) Were defined in the Revenue Reconciliation Act of 1993. 
D) Are not amortized over the actual estimated useful life of the intangible asset. 
E) All of the above are true.

Question 11

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Accepted Answer

A) True 
 B)False

Question 12

Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year convention.

Accepted Answer

A) True 
 B)False

Question 13

​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 the expensing election is made, what is the maximum amount of cost that can be deducted in 2015 (assume no income limitation)?

Accepted Answer

A) ​$267,500 
B) ​$321,000 
C) ​$500,000 
D) ​$521,000 
E) ​$535,000 
A) ​$267,500 
B) ​$321,000 
C) ​$500,000 
D) ​$521,000 
E) ​$535,000

Question 14

Mark the correct answer. Section 197 intangibles:

Accepted Answer

A) Are amortized based on current fair market value rather than their actual cost. 
B) Must be amortized over a 15 year life, regardless of their actual life. 
C) Include intangible assets created and not purchased by the taxpayer. 
D) Do not include purchased goodwill or going-concern value. 
A) Are amortized based on current fair market value rather than their actual cost. 
B) Must be amortized over a 15 year life, regardless of their actual life. 
C) Include intangible assets created and not purchased by the taxpayer. 
D) Do not include purchased goodwill or going-concern value.

Question 15

Patrick purchased a used passenger automobile on June 1, 2015. He paid $19,000 for the automobile. During 2015, he uses the automobile 75 percent of the time for business. Patrick wishes to claim the maximum amount of depreciation possible.
a.Calculate Patrick's depreciation expense on the automobile for 2015.
b.​
Calculate Patrick's depreciation expense on the automobile for 2016, assuming the same 75 percent business use.

Accepted Answer

The answer of Patrick purchased a used passenger automobile on...

Question 16

Cork Oak Corporation purchased a heavy-duty truck (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on May 1, 2015 for use in its business. The truck, with a cost basis of $24,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken on the truck for the 2015 calendar tax year using the conventional (for financial accounting purposes) straight-line depreciation method?

Accepted Answer

A) $400 
B) $2,400 
C) $3,200 
D) $4,800 
E) None of the above 
A) $400 
B) $2,400 
C) $3,200 
D) $4,800 
E) None of the above

Question 17

Kate is an accrual basis, calendar-year taxpayer. On November 1, 2015, Kate leased out a building for $4,500 a month. On that day Kate received 7 months rental income on the building, a total of $31,500 ($4,500 × 7 months). How much income must Kate include on her 2015 tax return as a result of this transaction?

Accepted Answer

A) $4,500 
B) $9,000 
C) $31,500 
D) $54,000 
E) None of the above 
A) $4,500 
B) $9,000 
C) $31,500 
D) $54,000 
E) None of the above

Question 18

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

Accepted Answer

The half-year convention assumes for dep

Question 19

Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

Accepted Answer

A) True 
 B)False

Question 20

On August 1, 2015, David purchased manufacturing equipment for use in his business. The equipment cost $14,000 and has an estimated useful life and MACRS class life of 7 years. No election to expense or use bonus depreciation is made.
a.​
Calculate the amount of depreciation on the manufacturing equipment for 2015 using conventional (financial accounting, not MACRS) straight-line depreciation.
b.​
Calculate the amount of depreciation on the manufacturing equipment for 2015 using the straight-line MACRS optional method.
c.​
Calculate the amount of depreciation on the manufacturing equipment for 2015 using the accelerated MACRS method.

Accepted Answer

The answer of On August 1, 2015, David purchased manufacturing...

Which one of the following may not be depreciated using an accelerated method?

Generally, cash basis taxpayers must account for payments of prepaid interest using the accrual method.

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Which of the following is true with respect to the related party rules?

John purchases residential rental property on June 30, 2015 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2015?

All S corporations must use the accrual basis of accounting.

Section 197 intangibles:

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year convention.

Mark the correct answer. Section 197 intangibles:

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part I

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

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Exam 7: Accounting Periods and Methods and Depreciation

Which one of the following may not be depreciated using an accelerated method?

Generally, cash basis taxpayers must account for payments of prepaid interest using the accrual method.

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Which of the following is true with respect to the related party rules?

John purchases residential rental property on June 30, 2015 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2015?

All S corporations must use the accrual basis of accounting.

Section 197 intangibles:

In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year convention.

Mark the correct answer. Section 197 intangibles:

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part I

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters