Question 1

A major objective of MACRS is to:

Accepted Answer

A)  Reduce the amount of the cost recovery deduction on businesses tax returns. 
B)  Ensure that the amount of cost recovery for tax purposes will be the same as book depreciation. 
C)  Help companies achieve a faster write-off of their capital assets. 
D)  Require companies to use the actual economic lives of assets in calculating cost recovery for tax purposes. 
E)  All of these are major objectives. 
A)  Reduce the amount of the cost recovery deduction on businesses tax returns. 
B)  Ensure that the amount of cost recovery for tax purposes will be the same as book depreciation. 
C)  Help companies achieve a faster write-off of their capital assets. 
D)  Require companies to use the actual economic lives of assets in calculating cost recovery for tax purposes. 
E)  All of these are major objectives.

Question 2

Which of the following is not a characteristic of MACRS for property other than real estate?

Accepted Answer

A)  MACRS uses shorter asset lives. 
B)  MACRS increases taxable income in the early years of the asset's life. 
C)  MACRS accelerates cost recovery. 
D)  MACRS decreases taxable income in the early years of the asset's life. 
A)  MACRS uses shorter asset lives. 
B)  MACRS increases taxable income in the early years of the asset's life. 
C)  MACRS accelerates cost recovery. 
D)  MACRS decreases taxable income in the early years of the asset's life.

Question 3

The luxury auto cost recovery limits applies to all automobiles.

Accepted Answer

A) True 
 B)False

Question 4

Hans purchased a new passenger automobile on August 17, 2019, for $30,000. During the year, the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2019.

Accepted Answer

A)  $500 
B)  $1,000 
C)  $1,200 
D)  $1,333 
A)  $500 
B)  $1,000 
C)  $1,200 
D)  $1,333

Question 5

Martin is a sole proprietor of a sandwich business. On March 4, 2019, he purchased and placed in service new seven-year class assets costing $580,000. Martin's business reports taxable income of $160,000 for the year before any deductions associated with the purchased assets. Martin also received $30,000 of interest income for the year, which is not related to the business. Martin wants his adjusted gross income for the year to be as low as possible. With this objective in mind, determine how Martin should recover the cost of the acquired assets.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& Not electing § 179 will prod

Question 6

Tan Company acquires a new machine (10-year property) on January 15, 2019, at a cost of $200,000. Tan also acquires another new machine (7-year property) on November 5, 2019, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first- year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2019.

Accepted Answer

A)  $24,000 
B)  $25,716 
C)  $102,000 
D)  $132,858 
E)  None of these. 
A)  $24,000 
B)  $25,716 
C)  $102,000 
D)  $132,858 
E)  None of these.

Question 7

Discuss the reason for the inclusion amount with respect to leased automobiles.

Accepted Answer

The purpose of the inclusion a

Question 8

All listed property is subject to the substantiation requirements of § 274.

Accepted Answer

A) True 
 B)False

Question 9

Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2019 at a cost of $100,000. On November 18, 2019, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000. Indigo does not make a § 179 expense election and chooses not to take additional first-year depreciation. What is Indigo's total MACRS deduction for 2019?

Accepted Answer

A)  $27,145. 
B)  $30,000. 
C)  $36,785. 
D)  $150,000. 
A)  $27,145. 
B)  $30,000. 
C)  $36,785. 
D)  $150,000.

Question 10

Rustin bought 7-year class property on May 15, 2019, for $1,248,000. Rustin elects § 179 and straight-line cost recovery, but not additional first-year depreciation.. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum cost recovery deduction Rustin can claim for 2019.

Accepted Answer

None

Question 11

On March 3, 2019, Sally purchased and placed in service a building costing $12,000,000. The building has 10 floors.
The bottom three floors are rented out to businesses. The top seven floors are residential apartments. The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000. Determine Sally's cost recovery for the building in 2019.

Accepted Answer

The gross rents from the apart

Question 12

Orange Corporation begins business on April 2, 2019. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2019.

Accepted Answer

A)  $0 
B)  $3,200 
C)  $4,267 
D)  $7,950 
A)  $0 
B)  $3,200 
C)  $4,267 
D)  $7,950

Question 13

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows. $\begin{array}{ccc}
&\text { Cost Recovery Allowed }&\text { Cost Recovery Allowable }\ 
\text { Year 1 } & \$ 16,000 & \$ 8,000 \
\text { Year 2 } & 9,600 & 12,800 \
\text { Year 3 } & 5,760 & 7,680
\end{array}$ If Tara sells the machine after three years for $15,000, how much gain should she recognize?

Accepted Answer

A)  $3,480 
B)  $6,360 
C)  $9,240 
D)  $11,480 
A)  $3,480 
B)  $6,360 
C)  $9,240 
D)  $11,480

Question 14

Which of the following depreciation conventions are not used under MACRS?

Accepted Answer

A)  Full-month. 
B)  Mid-month. 
C)  Half-year. 
D)  Mid-quarter. 
E)  All of these are used under MACRS. 
A)  Full-month. 
B)  Mid-month. 
C)  Half-year. 
D)  Mid-quarter. 
E)  All of these are used under MACRS.

Question 15

On January 15, 2019, Dillon purchased the rights to a mineral interest for $3,500,000. At that time, it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Dillon incurred expenses during 2019 of $500,000. The percentage depletion rate is 22%. Determine
Dillon's depletion deduction for 2019.

Accepted Answer

A)  $150,000. 
B)  $175,000. 
C)  $176,000. 
D)  $200,000. 
A)  $150,000. 
B)  $175,000. 
C)  $176,000. 
D)  $200,000.

Question 16

A purchased trademark is a § 197 intangible.

Accepted Answer

A) True 
 B)False

Question 17

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

Accepted Answer

A) True 
 B)False

Question 18

Polly purchased a new hotel on July 20, 2019, for $6,000,000. On January 20, 2026, the building was sold. Determine the cost recovery deduction for the year of the sale.

Accepted Answer

$6,410 ($6

Question 19

Taxpayers may elect to use the straight-line method under MACRS for personalty.

Accepted Answer

A) True 
 B)False

Question 20

On July 17, 2018, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2019, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2019.

Accepted Answer

A)  $0 
B)  $528 
C)  $2,000 
D)  $2,500 
A)  $0 
B)  $528 
C)  $2,000 
D)  $2,500

Exam 8: Depreciation, Cost Recovery, Amortization, and Depletion

A major objective of MACRS is to:

Which of the following is not a characteristic of MACRS for property other than real estate?

The luxury auto cost recovery limits applies to all automobiles.

Hans purchased a new passenger automobile on August 17, 2019, for $30,000. During the year, the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2019.

Discuss the reason for the inclusion amount with respect to leased automobiles.

All listed property is subject to the substantiation requirements of § 274.

Orange Corporation begins business on April 2, 2019. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2019.

Which of the following depreciation conventions are not used under MACRS?

A purchased trademark is a § 197 intangible.

Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

Polly purchased a new hotel on July 20, 2019, for $6,000,000. On January 20, 2026, the building was sold. Determine the cost recovery deduction for the year of the sale.

Taxpayers may elect to use the straight-line method under MACRS for personalty.

On July 17, 2018, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2019, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2019.

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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