Question 1

Costs that qualify as research and experimental expenditures include all of the following except

Accepted Answer

A) depreciation of laboratory equipment. 
B) management studies. 
C) costs incurred in developing product improvements. 
D) costs of obtaining a patent such as attorney fees. 
A) depreciation of laboratory equipment. 
B) management studies. 
C) costs incurred in developing product improvements. 
D) costs of obtaining a patent such as attorney fees.

Question 2

On January l,2019,Grace leases and places into service an automobile with a FMV of $61,000.The business use of the automobile is 60%.The "inclusion amount" for the initial year of the lease from the IRS tables is $46.The annual lease payments are $11,000.What are the tax consequences of this lease?

Accepted Answer

A) deduction for lease payments of $6,572 
B) deduction for lease payments of $6,554 
C) deduction for lease payments of $6,600 
D) deduction for lease payment of $6,646 
A) deduction for lease payments of $6,572 
B) deduction for lease payments of $6,554 
C) deduction for lease payments of $6,600 
D) deduction for lease payment of $6,646

Question 3

Because Jim and his family enjoy camping,he bought a pickup truck last year for personal use.The truck cost $40,000.Jim is starting a landscaping business this year and will now be using the truck in the business full-time.Based on online searches,similar trucks are selling for $32,000.When determining his business income,Jim will be able to calculate depreciation on the truck,using the $40,000 cost as basis.

Accepted Answer

A) True 
 B)False

Question 4

Kenrick is sole proprietor of K Enterprises.He acquired new computer equipment and office furniture and fixtures for use in his business this year.As a sole proprietor,he can detail the depreciation by reporting directly on Schedule C of Form 1040.(Profit or Loss from Business).

Accepted Answer

A) True 
 B)False

Question 5

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Accepted Answer

A) True 
 B)False

Question 6

Caitlyn purchases and places in service property costing $1,050,000 in 2019.She wants to elect the maximum Sec.179 deduction allowed and does not plan to apply bonus depreciation.Her business income is $900,000.What is the amount of her allowable Sec.179 deduction and carryover,if any?

Accepted Answer

A)  $$\begin{array} {| l | l| } 
\hline 179 \text { deduction } & \text { Carryover } \
\hline \$ 1,020,000 & 0\\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l |} 
\hline 179 \text { deduction } & \text { Carryover } \
\hline\$ 900,000 & 0\\hline
\end{array}$$ 
C)  $$\begin{array} {| l | l | } 
\hline 179 \text { deduction } & \text { Carryover } \
\hline \$ 900,000 & \$ 120,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline 179 \text { deduction } & \text { Carryover } \
\hline \$ 900,000 & \$ 150,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} {| l | l| } 
\hline 179 \text { deduction } & \text { Carryover } \
\hline \$ 1,020,000 & 0\\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l |} 
\hline 179 \text { deduction } & \text { Carryover } \
\hline\$ 900,000 & 0\\hline
\end{array}$$ 
C)  $$\begin{array} {| l | l | } 
\hline 179 \text { deduction } & \text { Carryover } \
\hline \$ 900,000 & \$ 120,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline 179 \text { deduction } & \text { Carryover } \
\hline \$ 900,000 & \$ 150,000 \
\hline
\end{array}$$

Question 7

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.

Accepted Answer

A) True 
 B)False

Question 8

This year Bauer Corporation incurs the following costs in development of new products: $$\begin{array} { | l | r | } 
\hline \text { Laboratory supplies } & \$ 55,000 \
\hline \text { Laboratory equipment purchased } & 50,000 \
\text { (5-year recovery property) } & \
\hline \text { Salaries (lab personnel) } & 90,000 \
\hline \text { Utilities } & 20,000 \
\hline \text { Total } & \$ 215,000 \
\hline
\end{array}$$ No benefits are realized from the research expenditures until next year.The corporation does not claim Sec.179 or bonus depreciation on any of its assets.If Bauer Corporation elects to expense the research expenditures,the deduction is

Accepted Answer

A) $10,000 this year and $175,000 next year. 
B) $175,000 next year. 
C) $175,000 this year. 
D) $215,000 this year. 
A) $10,000 this year and $175,000 next year. 
B) $175,000 next year. 
C) $175,000 this year. 
D) $215,000 this year.

Question 9

In calculating depletion of natural resources each period

Accepted Answer

A) cost depletion must be used. 
B) percentage depletion must be used. 
C) the greater of cost depletion or percentage depletion must be used. 
D) the smaller of cost depletion or percentage depletion must be used. 
A) cost depletion must be used. 
B) percentage depletion must be used. 
C) the greater of cost depletion or percentage depletion must be used. 
D) the smaller of cost depletion or percentage depletion must be used.

Question 10

Under the MACRS system,automobiles and computers are classified as seven-year property.

Accepted Answer

A) True 
 B)False

Question 11

In February 2019,Dante acquired a new car costing $82,000.He used the car 80% in his sole proprietorship.Assuming Dante does not claim Sec.179 or bonus depreciation,Dante's maximum depreciation deduction allowable for the car will be

Accepted Answer

A) $13,120. 
B) $8,080. 
C) $10,100. 
D) $14,480. 
A) $13,120. 
B) $8,080. 
C) $10,100. 
D) $14,480.

Question 12

Harrison acquires $65,000 of 5-year property in June 2017 that is required to be depreciated using the mid-quarter convention (because of other purchases that year).He did not elect Sec.179 immediate expensing.Bonus depreciation was not available.If Harrison sells the property on August 23,2019,what is the amount of depreciation claimed in 2019?

Accepted Answer

A) $6,500.00 
B) $7,312.50 
C) $11,700.00 
D) $9,289.00 
A) $6,500.00 
B) $7,312.50 
C) $11,700.00 
D) $9,289.00

Question 13

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

Accepted Answer

A) A taxpayer has significant charitable contribution carryovers that will expire after this year. 
B) A taxpayer is undertaking a major R&E project which will result in an usually low marginal tax rate for the next few years. 
C) A taxpayer has significant NOL carryovers. 
D) All of the above 
A) A taxpayer has significant charitable contribution carryovers that will expire after this year. 
B) A taxpayer is undertaking a major R&E project which will result in an usually low marginal tax rate for the next few years. 
C) A taxpayer has significant NOL carryovers. 
D) All of the above

Question 14

Amounts paid in connection with the acquisition of a business which represent a covenant not to compete are amortizable over the covenant's remaining life.

Accepted Answer

A) True 
 B)False

Question 15

Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures,these costs must be capitalized.

Accepted Answer

A) True 
 B)False

Question 16

On January 1,2019,Charlie Corporation acquires all of the net assets of Rocky Corporation for $2,000,000.The following intangible assets are included in the purchase agreement: $$\begin{array} { | l | r | } 
\hline \text { Assets } & \text { Acquisition Cost } \
\hline \text { Goodwill and going concern value } & \$ 105,00 \
\hline \text { Licenses } & \$ 45,000 \
\hline \text { Patents } & \$ 60,000 \
\hline \text { Covenant not to compete for five years } & \$ 120,000 \
\hline
\end{array}$$ What is the total amount of amortization allowed in 2019?

Accepted Answer

A) $15,000 
B) $22,000 
C) $31,000 
D) $38,000 
A) $15,000 
B) $22,000 
C) $31,000 
D) $38,000

Question 17

Sophie owns an unincorporated manufacturing business.In 2019,she purchases and places in service $2,557,000 of qualifying five-year equipment for use in her business.Her taxable income from the business before any Sec.179 deduction is $940,000.Sophie elects to expense the maximum under Sec.179 and does not apply bonus depreciation.What is Sophie's maximum total cost recovery deduction for 2019?

Accepted Answer

A) $940,000 
B) $1,013,000 
C) $1,250,800 
D) $1,323,800 
A) $940,000 
B) $1,013,000 
C) $1,250,800 
D) $1,323,800

Question 18

If the business use of listed property is 50% or less of the total usage,the alternative depreciation system must be used.

Accepted Answer

A) True 
 B)False

Question 19

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year,the mid-quarter convention is required.

Accepted Answer

A) True 
 B)False

Question 20

A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.

Accepted Answer

A) True 
 B)False

Exam 26: Depreciation,cost Recovery,amortization,and Depletion

Costs that qualify as research and experimental expenditures include all of the following except

On January l,2019,Grace leases and places into service an automobile with a FMV of $61,000.The business use of the automobile is 60%.The "inclusion amount" for the initial year of the lease from the IRS tables is $46.The annual lease payments are $11,000.What are the tax consequences of this lease?

Kenrick is sole proprietor of K Enterprises.He acquired new computer equipment and office furniture and fixtures for use in his business this year.As a sole proprietor,he can detail the depreciation by reporting directly on Schedule C of Form 1040.(Profit or Loss from Business).

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Caitlyn purchases and places in service property costing $1,050,000 in 2019.She wants to elect the maximum Sec.179 deduction allowed and does not plan to apply bonus depreciation.Her business income is $900,000.What is the amount of her allowable Sec.179 deduction and carryover,if any?

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.

In calculating depletion of natural resources each period

Under the MACRS system,automobiles and computers are classified as seven-year property.

In February 2019,Dante acquired a new car costing $82,000.He used the car 80% in his sole proprietorship.Assuming Dante does not claim Sec.179 or bonus depreciation,Dante's maximum depreciation deduction allowable for the car will be

Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year?

Amounts paid in connection with the acquisition of a business which represent a covenant not to compete are amortizable over the covenant's remaining life.

Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures,these costs must be capitalized.

If the business use of listed property is 50% or less of the total usage,the alternative depreciation system must be used.

If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year,the mid-quarter convention is required.

A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.

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