Question 1

Lax, LLC purchased only one asset during the current year. Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation):

Accepted Answer

A)  $2,000 
B)  $2,858 
C)  $3,000 
D)  $4,000 
E)  None of these

Question 2

Crouch LLC placed in service on May 19, 2014 machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing). Assume that the 2013 §179 limits are extended to 2014:

Accepted Answer

A)  $314,380. 
B)  $440,000. 
C)  $571,510. 
D)  $742,930. 
E)  None of these.

Question 3

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Accepted Answer

A) True 
 B)False

Question 4

Significant limits are placed on the depreciation of luxury automobiles.

Accepted Answer

A) True 
 B)False

Question 5

Bonnie Jo used two assets during the current year. The first was computer equipment with an original basis of $15,000, currently in the second year of depreciation, and under the half-year convention. This asset was disposed of on October 1st of the current year. The second was furniture with an original basis of $24,000 placed in service during the first quarter, currently in the fourth year of depreciation, and under the mid-quarter convention. What is Bonnie Jo's depreciation expense for the current year, rounded to the nearest whole number?

Accepted Answer

The answer of Bonnie Jo used two assets during the...

Question 6

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Accepted Answer

A) True 
 B)False

Question 7

Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the mid-quarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a whole number:

Accepted Answer

A)  $898 
B)  $2,095 
C)  $2,461 
D)  $2,394 
E)  None of these

Question 8

The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method.

Accepted Answer

A) True 
 B)False

Question 9

An example of an asset that is both personal-use and personal property is:

Accepted Answer

A)  A computer used solely to email company employees regarding company activities 
B)  A storage building used by the CEO to store personal records 
C)  A computer used solely to monitor the CEO's investments and to complete her Form 1040 
D)  A company airplane used by the CEO for business travel 
E)  All of these are personal-use and personal property

Question 10

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

Accepted Answer

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

Question 11

Littman LLC placed in service on July 29, 2014 machinery and equipment (7-year property) with a basis of $600,000. Littman's income for the current year before any depreciation expense was $100,000. Which of the following statements is true to maximize Littman's total depreciation expense for 2014? (Assume that the 2013 §179 limits are extended to 2014.)

Accepted Answer

A)  Littman should take §179 expense equal to the maximum $500,000. 
B)  Littman should take no §179 expense. 
C)  Littman's §179 expense will be greater than $100,000. 
D)  Littman's §179 expense will be less than $100,000. 
E)  None of these.

Question 12

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

Accepted Answer

A) True 
 B)False

Question 13

All assets subject to amortization have the same recovery period.

Accepted Answer

A) True 
 B)False

Question 14

An asset's capitalized cost basis includes only the actual purchase price; whereas the other expenses associated with the asset are immediately expensed.

Accepted Answer

A) True 
 B)False

Question 15

Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year:

Accepted Answer

A)  $1,605 
B)  $2,273 
C)  $2,408 
D)  $3,410 
E)  None of these

Question 16

Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior year. The basis of the computer was $2,400. Billie Bob used the computer in his business 60 percent of the time during the first year. During the second year, Billie Bob used the computer 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter):

Accepted Answer

A)  $0 
B)  $48 
C)  $192 
D)  $336 
E)  None of these

Question 17

Tax cost recovery methods include depreciation, amortization, and depletion.

Accepted Answer

A) True 
 B)False

Question 18

Which of the allowable methods allows the most accelerated depreciation?

Accepted Answer

A)  150 percent declining balance 
B)  200 percent declining balance 
C)  Straight line 
D)  Sum of the years digits 
E)  None of these allow accelerated depreciation

Question 19

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Accepted Answer

A) True 
 B)False

Question 20

Tax depreciation is currently calculated under what system?

Accepted Answer

A)  Sum of the years digits 
B)  Accelerated cost recovery system 
C)  Modified accelerated cost recovery system 
D)  Straight line system 
E)  None of these

Exam 9: Property Acquisition and Cost Recovery

Lax, LLC purchased only one asset during the current year. Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) :

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

Significant limits are placed on the depreciation of luxury automobiles.

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method.

An example of an asset that is both personal-use and personal property is:

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

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

All assets subject to amortization have the same recovery period.

An asset's capitalized cost basis includes only the actual purchase price; whereas the other expenses associated with the asset are immediately expensed.

Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year:

Tax cost recovery methods include depreciation, amortization, and depletion.

Which of the allowable methods allows the most accelerated depreciation?

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

Tax depreciation is currently calculated under what system?