Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 3

Mark the correct statement.

Accepted Answer

A) Residential real property is depreciated over 39 years. 
B) Nonresidential real property is depreciated over 27.5 years. 
C) Nonresidential real property is depreciated over 39 years. 
D) Depreciation on real property starts at the beginning of the year in which the property is placed in service. 
A) Residential real property is depreciated over 39 years. 
B) Nonresidential real property is depreciated over 27.5 years. 
C) Nonresidential real property is depreciated over 39 years. 
D) Depreciation on real property starts at the beginning of the year in which the property is placed in service.

Question 4

Steve Corp bought a $925,000 apartment building in 2012.Of the purchase price,$100,000 is allocated to the value of the land.What is the maximum amount of depreciation that the company can claim in 2013 year 2)for the building?

Accepted Answer

A) $29,997 
B) $825,000 under the election to expense business property 
C) $250,000 under the election to expense business property 
D) $82,500 
E) You cannot depreciate property costing over $800,000 
A) $29,997 
B) $825,000 under the election to expense business property 
C) $250,000 under the election to expense business property 
D) $82,500 
E) You cannot depreciate property costing over $800,000

Question 5

Scott purchases a small business from Lew on July 1,2013.He paid the following amounts for the business:
 $\begin{array}{lc}
\text { Land } & \$ 100,000 \
\text { Commercial building } & 200,000 \
\text { Furniture and equipment } & \$ 0,000 \
\text { Going-concern value } & 50,000 \
\text { Workforce in place } & 25,000\\text { Total }&\$455,000
\end{array}$ $\begin{array}{lc}
\text { Land } & \$ 100,000 \
\text { Commercial building } & 200,000 \
\text { Furniture and equipment } & 80,000 \
\text { Going-concern value } & 50,000 \
\text { Workforce in place } & 25,000\\text { Total }&\$455,000
\end{array}$ 
a.How much of the $455,000 purchase price is for Section 197 intangible assets?
b.What amount can Scott deduct on his 2013 tax return as Section 197 intangible amortization?

Accepted Answer

a.$75,000 = $50,000 + $25,000

Question 6

Perry develops a successful advertising business that he subsequently sells to his competitor,Carl,for
$108,000.He retires in the same town where he has always lived and done business.Carl insists that Perry sign a covenant not to compete.The advertising business has no tangible assets;Carl receives only the name of the business,the client lists and whatever going-concern value there is.How should Carl treat the $108,000 cost of the advertising business he purchased?

Accepted Answer

Carl should amortize the $108,

Question 7

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

Accepted Answer

A) 3 years 
B) 5 years 
C) 7 years 
D) 10 years 
E) 15 years 
A) 3 years 
B) 5 years 
C) 7 years 
D) 10 years 
E) 15 years

Question 8

Bev is the sole owner of Bev & Associates,an accrual basis corporation.In 2013,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 2013 corporate tax return? Explain.

Accepted Answer

$0.Because Bev and Bev & Assoc

Question 9

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

Accepted Answer

A) True 
 B)False

Question 10

Jenny constructed a building for use as a residential rental property.The cost of the building was $180,000,and it was placed in service on August 1,1990.The building has a 27.5-year MACRS life.What is the amount of depreciation on the building for 2013 for tax purposes?

Accepted Answer

A) $2,000 
B) $6,000 
C) $3,000 
D) $6,547 
E) None of the above 
A) $2,000 
B) $6,000 
C) $3,000 
D) $6,547 
E) None of the above

Question 11

During 2013,Travis purchases $130,000 of used manufacturing equipment 7-year property)for use in his business.Travis has taxable income from his business of $500,000.What is the maximum amount that Travis may deduct under the election to expense?

Accepted Answer

A) $130,000 
B) $18,571 
C) $250,000 
D) $0 
E) None of the above 
A) $130,000 
B) $18,571 
C) $250,000 
D) $0 
E) None of the above

Question 12

Residential real estate purchased during 2013 is assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

Accepted Answer

A) True 
 B)False

Question 13

From the records of Tom,a cash basis sole proprietor,the following information was available: $\begin{array}{ll}\text { Gross receipts }&\$30,000\
\text { Dividend income (on personal investments) }&\$200\
\text { Cost of sales }&\$15,000\
\text { Other operating expenses }&\$ 3,000\
\text {State business taxes paid }&\$300\
\end{array}$
 What amount should Tom report as net earnings from self-employment?

Accepted Answer

A) $10,900 
B) $11,700 
C) $12,000 
D) $15,000 
E) None of the above 
A) $10,900 
B) $11,700 
C) $12,000 
D) $15,000 
E) None of the above

Question 14

The tax law imposes restrictions on the depreciation of "listed" property such as automobiles and computers.

Accepted Answer

A) True 
 B)False

Question 15

Shellie purchased a passenger automobile on March 2,2013.She paid $14,000 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 Shellie does not make the election to expense or claim bonus depreciation.

Accepted Answer

$2,520 = $14,000 * 20% from Table 2)* 90

Question 16

Which of the following is true about the MACRS depreciation system?

Accepted Answer

A) No salvage value is used before depreciation percentages are applied to depreciable real estate. 
B) Residential rental buildings are depreciated straight-line over 20 years. 
C) Commercial real estate buildings are depreciated over 39 years using accelerated depreciation. 
D) No matter when equipment is purchased during the month,it is considered to have been purchased mid-month for MACRS depreciation purposes. 
A) No salvage value is used before depreciation percentages are applied to depreciable real estate. 
B) Residential rental buildings are depreciated straight-line over 20 years. 
C) Commercial real estate buildings are depreciated over 39 years using accelerated depreciation. 
D) No matter when equipment is purchased during the month,it is considered to have been purchased mid-month for MACRS depreciation purposes.

Question 17

Give the depreciable or amortizable lives for 2013 tax purposes for these assets: Automobiles
Business furniture Computers Residential real estate
Commercial real estate Land
Purchased goodwill

Accepted Answer

Automobiles: 5 years Business furniture:

Question 18

ABC Corp bought a production machine on January 1,2012 for $30,000.The company elected out of Section 179 expensing and elected out of claiming bonus depreciation in 2012,and is depreciating the machine using the MACRS accelerated depreciation tables for 5-year property.What is the 2013 depreciation year 2)deduction for the machine?

Accepted Answer

A) $9,600 
B) $24,000 
C) $6,000 
D) $12,000 
E) None of the above is correct 
A) $9,600 
B) $24,000 
C) $6,000 
D) $12,000 
E) None of the above is correct

Question 19

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)?

Accepted Answer

a.75% = 25% + 30% + 80% * 25%)

Question 20

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

Accepted Answer

A) Income is recognized when it is actually or constructively received and expenses are recognized when they are actually or constructively incurred,regardless of when paid. 
B) Income is recognized when it is earned regardless of when received and expenses are recognized when they are actually or constructively incurred. 
C) Income is generally recognized when it is actually or constructively received and expenses are generally recognized when they are paid. 
D) The cash basis is not allowed for businesses reported on Schedule C. 
A) Income is recognized when it is actually or constructively received and expenses are recognized when they are actually or constructively incurred,regardless of when paid. 
B) Income is recognized when it is earned regardless of when received and expenses are recognized when they are actually or constructively incurred. 
C) Income is generally recognized when it is actually or constructively received and expenses are generally recognized when they are paid. 
D) The cash basis is not allowed for businesses reported on Schedule C.

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.

Mark the correct statement.

Steve Corp bought a $925,000 apartment building in 2012.Of the purchase price,$100,000 is allocated to the value of the land.What is the maximum amount of depreciation that the company can claim in 2013 year 2)for the building?

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

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

Jenny constructed a building for use as a residential rental property.The cost of the building was $180,000,and it was placed in service on August 1,1990.The building has a 27.5-year MACRS life.What is the amount of depreciation on the building for 2013 for tax purposes?

During 2013,Travis purchases $130,000 of used manufacturing equipment 7-year property)for use in his business.Travis has taxable income from his business of $500,000.What is the maximum amount that Travis may deduct under the election to expense?

Residential real estate purchased during 2013 is assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

The tax law imposes restrictions on the depreciation of "listed" property such as automobiles and computers.

Which of the following is true about the MACRS depreciation system?

Give the depreciable or amortizable lives for 2013 tax purposes for these assets: Automobiles Business furniture Computers Residential real estate Commercial real estate Land Purchased goodwill

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

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

Exam 7: Accounting Periods and Methods and Depreciation

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.

Mark the correct statement.

Steve Corp bought a $925,000 apartment building in 2012.Of the purchase price,$100,000 is allocated to the value of the land.What is the maximum amount of depreciation that the company can claim in 2013 year 2)for the building?

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

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

Jenny constructed a building for use as a residential rental property.The cost of the building was $180,000,and it was placed in service on August 1,1990.The building has a 27.5-year MACRS life.What is the amount of depreciation on the building for 2013 for tax purposes?

During 2013,Travis purchases $130,000 of used manufacturing equipment 7-year property)for use in his business.Travis has taxable income from his business of $500,000.What is the maximum amount that Travis may deduct under the election to expense?

Residential real estate purchased during 2013 is assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

The tax law imposes restrictions on the depreciation of "listed" property such as automobiles and computers.

Which of the following is true about the MACRS depreciation system?

Give the depreciable or amortizable lives for 2013 tax purposes for these assets: Automobiles Business furniture Computers Residential real estate Commercial real estate Land Purchased goodwill

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

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