Question 1

Depreciation is the process of allocating the cost of assets to expense over a period of years.

Accepted Answer

A) True 
 B)False

Question 2

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, 2018 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 2018 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 3

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

Accepted Answer

A) Real property is depreciated using a mid-quarter convention. 
B) Only one-half year of depreciation is allowed in the year of acquisition of real property, regardless of the actual date the property is placed in service. 
C) Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year. 
D) In some cases, where a significant amount of property is acquired during the last quarter of the taxpayer's tax year, the taxpayer may be required to use a mid-quarter convention in calculating depreciation on real property. 
E) None of the above. 
A) Real property is depreciated using a mid-quarter convention. 
B) Only one-half year of depreciation is allowed in the year of acquisition of real property, regardless of the actual date the property is placed in service. 
C) Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year. 
D) In some cases, where a significant amount of property is acquired during the last quarter of the taxpayer's tax year, the taxpayer may be required to use a mid-quarter convention in calculating depreciation on real property. 
E) None of the above.

Question 4

Betty purchases a used $12,000 car in 2018, to use exclusively in her business.
a.What will the standard MACRS depreciation schedule be for the 6 years the auto is depreciated (no Section 179 or bonus depreciation)?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 i

Question 5

John purchases residential rental property on June 30, 2018 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 2018?

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 6

Perry develops a successful advertising business that he subsequently sells to his competitor, Carl, for $108,000.Perry 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

The taxpayer generally has only 1 year to replace involuntarily converted property in order to postpone the recognition of gain.

Accepted Answer

A) True 
 B)False

Question 8

Which one of the following qualifies as a like-kind exchange?

Accepted Answer

A) A chicken held by a farmer exchanged for medical services. 
B) A home owned and lived in by a taxpayer exchanged for a new personal residence. 
C) IBM stock exchanged for Exxon stock. 
D) Land used in business traded in for a different parcel of land also for business use. 
E) None of the above are like-kind property. 
A) A chicken held by a farmer exchanged for medical services. 
B) A home owned and lived in by a taxpayer exchanged for a new personal residence. 
C) IBM stock exchanged for Exxon stock. 
D) Land used in business traded in for a different parcel of land also for business use. 
E) None of the above are like-kind property.

Question 9

An asset (not an automobile)put in service in June 2018 has a depreciable basis of $1,035,000, a recovery period of 5 years, and is the only asset placed in service during the year.Assuming bonus depreciation is used, a half-year convention, and the expensing election is made, what is the maximum amount of cost that can be deducted in 2018 (assume no income limitation)?

Accepted Answer

A) $207,000 
B) $500,000 
C) $1,017,500 
D) $1,000,000 
E) $1,035,000 
A) $207,000 
B) $500,000 
C) $1,017,500 
D) $1,000,000 
E) $1,035,000

Question 10

Routine maintenance costs for capital assets are deducted in the year the amount is paid or incurred, not capitalized as an improvement to the asset.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Perry acquired raw land as an investment 16 years ago.The land cost $60,000.In the current year, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000.If Perry elects to recognize the entire gain in the year of sale, what is his recognized gain in the current year?

Accepted Answer

A) $50,000 
B) $60,000 
C) $100,000 
D) $110,000 
E) None of the above 
A) $50,000 
B) $60,000 
C) $100,000 
D) $110,000 
E) None of the above

Question 13

Rod had the following business casualty in 2018: $$\begin{array} { | l | l | l | l | l } 
& \begin{array} { l } 
\text { Decrease in fair } \
\text { market value due } \
\text { to casualty }
\end{array} & \begin{array} { l } 
\text { Adjusted } \
\text { basis }
\end{array} & \begin{array} { l } 
\text { In surance } \
\text { reimbur sement }
\end{array} & \begin{array} { l } 
\text { Holding } \
\text { period }
\end{array} \
\hline \begin{array} { l } 
\text { Business furniture } \
\text { vandalized. }
\end{array} & \$ 2,500 & \$ 500 & \$ 1,700 & 20 \text { years } \
\hline
\end{array}$$ Calculate the amount and nature of Rod's gain or loss as a result of this casualty.

Accepted Answer

$1,200 long-term Section 1231

Question 14

In the current year, Henry, a sole proprietor, sold for $65,000 a machine that was used in his business.The machine had been purchased a few years ago for $50,000, and when it was sold, it had accumulated depreciation of $20,000 and an adjusted basis of $30,000.For the current year, how should this gain be treated?Section 1231 gain of $20,000 and ordinary income of $15,000

Accepted Answer

A) Ordinary income of $35,000 
B) Section 1231 gain of $35,000 
C) Section 1231 gain of $20,000 and ordinary income of $15,000 
D) Section 1231 gain of $15,000 and ordinary income of $20,000 
E) None of the above 
A) Ordinary income of $35,000 
B) Section 1231 gain of $35,000 
C) Section 1231 gain of $20,000 and ordinary income of $15,000 
D) Section 1231 gain of $15,000 and ordinary income of $20,000 
E) None of the above

Question 15

An asset (not an automobile)put in service in June 2018 has a depreciable basis of $2,055,000, a recovery period of 5 years, and is the only asset placed in service this year.Assuming bonus depreciation is used, a half-year convention, and the expensing election is not made, what is the maximum amount of cost that can be deducted in 2018?

Accepted Answer

A) $411,000 
B) $1,411,000 
C) $1,427,000 
D) $2,055,000 
E) None of the above 
A) $411,000 
B) $1,411,000 
C) $1,427,000 
D) $2,055,000 
E) None of the above

Question 16

Eva purchased office equipment (7-year property)for use in her business.She paid $12,600 for the equipment on July 1, 2018.Eva did not purchase any other property during the year.For 2018, her business had net income of $6,000, before depreciation on the office equipment and before considering the election to expense.Eva elects out of bonus depreciation.
a.What is the maximum amount that Eva can elect to expense in 2018 under Section 179?
b.What is the total depreciation (regular depreciation and the amount allowed as a 2018 deduction under the election to expense) on the office equipment for 2018, 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 2018 and that her business has net income in 2019 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 2019?

Accepted Answer

a.$12,600, the cost of the asset in 2018

Question 17

The office building Donna owned and used for her desk-top publishing business was destroyed by a hurricane.Although the basis of the building was $80,000, Donna carried replacement cost insurance and received $160,000 from the insurance company after it was determined that the building was a complete loss.It cost her $152,000 to rebuild the store in the current year. a. Calculate Donna's recognized gain, assuming an election under the involuntary conversion provision is made.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\quad $ $\quad $ $\quad $ $\quad $$\$$______
b. Cal culate Donna's basis in the replacement building. $\quad $ $\quad $ $\quad $$\$$_______

Accepted Answer

a.A gain of $80,000 was realized, but on

Question 18

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:

Accepted Answer

Land is considered to be an asset that i

Question 19

Bonus depreciation in 2018 generally permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.

Accepted Answer

A) True 
 B)False

Question 20

A taxpayer places a $1,050,000 5-year recovery period asset in service in 2018.This is the only asset placed in service in 2018.Assuming half-year convention, an election to expense under Section 179, and no income limitation, what is the amount of total cost recovery deduction (no bonus depreciation)?$1,010,000

Accepted Answer

A) $200,000 
B) $210,000 
C) $1,000,000 
D) $1,010,000 
E) $1,050,000 
A) $200,000 
B) $210,000 
C) $1,000,000 
D) $1,010,000 
E) $1,050,000

Depreciation is the process of allocating the cost of assets to expense over a period of years.

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

John purchases residential rental property on June 30, 2018 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 2018?

The taxpayer generally has only 1 year to replace involuntarily converted property in order to postpone the recognition of gain.

Which one of the following qualifies as a like-kind exchange?

Routine maintenance costs for capital assets are deducted in the year the amount is paid or incurred, not capitalized as an improvement to the asset.

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.

Rod had the following business casualty in 2018: Decrease in fair market value due to casualty Adjusted basis In surance reimbur sement Holding period Business furniture vandalized. \ 2,500 \ 500 \ 1,700 20 years Calculate the amount and nature of Rod's gain or loss as a result of this casualty.

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:

Bonus depreciation in 2018 generally permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.

The Individual Income Tax Return

Gross Income and Exclusions

Additional Income Part 1

Additional Income Part 2

Deductions and Adjustments to Income

Accounting Methods and Taxes

Tax Credits

Payroll, Estimated Payments, and Retirement Plans

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

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Exam 8: Depreciation and Sale of Business Property

Depreciation is the process of allocating the cost of assets to expense over a period of years.

Which of the following statements with respect to the depreciation of real property under MACRS is correct?

John purchases residential rental property on June 30, 2018 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 2018?

The taxpayer generally has only 1 year to replace involuntarily converted property in order to postpone the recognition of gain.

Which one of the following qualifies as a like-kind exchange?

Routine maintenance costs for capital assets are deducted in the year the amount is paid or incurred, not capitalized as an improvement to the asset.

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.

Rod had the following business casualty in 2018: Decrease in fair market value due to casualty Adjusted basis In surance reimbur sement Holding period Business furniture vandalized. \ 2,500 \ 500 \ 1,700 20 years Calculate the amount and nature of Rod's gain or loss as a result of this casualty.

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:

Bonus depreciation in 2018 generally permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.

The Individual Income Tax Return

Gross Income and Exclusions

Additional Income Part 1

Additional Income Part 2

Deductions and Adjustments to Income

Accounting Methods and Taxes

Tax Credits

Payroll, Estimated Payments, and Retirement Plans

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters