Exam 7: Accounting Periods and Methods and Depreciation

On June 1,2013,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 2013 calendar tax year Year 1)?

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)?

Eva purchased office equipment 7-year property)for use in her business.She paid $126,000 for the equipment on July 1,2013.Eva did not purchase any other property during the year.For 2013,her business had net income of $26,000,before depreciation and before considering the election to expense. a.What is the maximum amount that Eva can elect to expense in 2013 under Section 179? b.What is the total depreciation regular depreciation and the amount allowed as a 2013 deduction under the election to expense)on the office equipment for 2013,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 2013 and that her business has net income in 2014 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 2014?

Joyce purchased a passenger automobile on March 2,2013.She paid $12,000 for the automobile and can support business use of 90 percent.Calculate the amount of depreciation on the automobile for 2013 using the accelerated MACRS method if available),assuming Joyce does not make the election to expense or claim bonus depreciation.

Patrick purchased a used passenger automobile on June 1,2013.He paid $17,000 for the automobile.During 2013,he uses the automobile 80 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 2013. b.Calculate Patrick's depreciation expense on the automobile for 2014,assuming the same 80 percent business use.

On September 1,2013,David purchased manufacturing equipment for use in his business.The equipment cost $13,000 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 2013 using conventional financial accounting,not MACRS)straight-line depreciation. b.Calculate the amount of depreciation on the manufacturing equipment for 2013 using the straight-line MACRS optional method. c.Calculate the amount of depreciation on the manufacturing equipment for 2013 using the accelerated MACRS method.

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

If listed property is used more than 50 percent in a qualified business use,depreciation must be calculated using the straight-line method.

If a loss from sale or exchange of property between related parties is disallowed and the property is subsequently sold to an unrelated party,

The election to expense is not permitted where listed property does not meet the qualified business use test.

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

Taxpayers may expense the cost of depreciable personal property placed in service during the year and used in a trade or business in an amount up to a maximum of $20,000 annually.

Taxpayers must use the straight-line method of depreciation for all productive assets.

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

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.

All S corporations must use the accrual basis of accounting.

Cork Oak Corporation purchased a heavy-duty truck not considered a passenger automobile for purposes of the listed property and luxury automobile limitations)on June 1,2013 for use in its business.The truck,with a cost basis of $18,000,has a 5-year estimated life.It also is 5-year recovery property.How much depreciation should be taken on the truck for the 2013 calendar tax year using the conventional for financial accounting purposes)straight-line depreciation method?

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

If a taxpayer purchases land worth $200,000 with an office building valued at $100,000 on it,how are the two depreciated for tax purposes? Land: Office building:

On January 1,2013,Sandy,a sole proprietor,purchased for use in her business a used production machine 7-year property)at a cost of $40,000.Sandy does not purchase any other property during 2013 and has net income from her business of $80,000.If the standard recovery period table would allow $5,716 of depreciation expense on the $40,000 of equipment purchased in 2013,what is Sandy's maximum depreciation deduction,including bonus depreciation and the Section 179 election to expense,for 2013?