CH 10 Acc 330

In order to compute MACRS depreciation, which of the following pieces of information is NOT required?

depreciation convention used in the year of purchase

The halfBlank 1Blank 1 half , Correct Unavailable-yearBlank 2Blank 2 year , Correct Unavailable convention allows 50% of a full year's depreciation in the year the asset is placed in service, regardless of when it was actually placed in service.

half year

Which of the following assets has a 5-year recovery period for MACRS depreciation?

light general use

The halfBlank 1Blank 1 half , Incorrect Unavailable-yearBlank 2Blank 2 year , Incorrect Unavailable convention is used for all assets purchased during the year when more than 40Blank 3Blank 3 40 , Correct Unavailable% of the tangible personal property purchased is placed in service during the fourth quarter of the year.

mid quarter 40%

When depreciating real property under MACRS, which of the following conventions is used?

mid-month

Land and buildings are classified as realBlank 1Blank 1 real , Correct Unavailable property, while items such as machinery, equipment, and furnishings are classified as tangible, personal property.

real

When depreciating real property under MACRS, the recovery rates are based on the straightBlank 1Blank 1 straight , Correct Unavailable-lineBlank 2Blank 2 line , Correct Unavailable method.

straight line

True or false: Personal property can be business property or personal-use property.

true

Barbara's Bakery purchased three new 7-year assets last year. She chose NOT to use Section 179 immediate expensing or take bonus depreciation. The furnishings were purchased for $15,000 in April, the equipment for $6,000 in July, and the appliances for $40,000 in November. What amount of depreciation expense is allowable in the current (second) year of ownership?

$16,072 Reason: Each asset must be depreciated for recovery period 2 using the mid-quarter table ($15,000 x.2347; $6,000 x.2551; $40,000 x.2755).

Harry received 100 shares of stock from his aunt as a gift. Harry's aunt purchased the stock 10 years ago for $20 per share. The stock was worth $50 per share on the date Harry received the gift. Harry sold the stock for $60 per share. What is the amount of Harry's basis in the stock?

$2000

Ethan's Eggroll House, a calendar year corporation, purchased a new computer and printer in January for $1,500. In February, the business purchased a new oven for $1,200. No other assets were purchased during the year. How much depreciation will be taken on these items in the second year of service if the taxpayer does NOT elect to use Section 179 and does NOT use bonus depreciation?

$480 computer; $294 oven

Profitable businesses will likely use Blank______ depreciation while companies with lower marginal rates that are expected to rise over time will likely use Blank______ depreciation.

200% declining balance; straight-line

Tom purchased a 7-year asset for his business in February, three years ago, at a cost of $4,500. It is being depreciated using the half-year convention for MACRS. He did not deduct any bonus depreciation and or take a Sec. 179 expense in the year of purchase. The asset was sold in April of year 4. How much depreciation will Tom deduct for the asset in year 4?

281 Reason: .1249 x $4,500 x .5

Pixie's Pizza House, a calendar year corporation, purchased a delivery truck in February for $15,000 (no other assets were purchased that year). How much depreciation will be taken on the truck in the current year if the taxpayer does NOT elect to use Section 179 and does NOT use bonus depreciation?

3000The truck is depreciated under the half-year convention with a 5- year recovery period.

Paula's Pastries expanded its facilities by building an addition to make room for a larger kitchen. The original building was constructed 12 years earlier and is being depreciated using a 39-year recovery period. The cost of the new addition will be depreciated over 39Blank 1Blank 1 39 , Correct Unavailable years.

39

The mid-quarter convention is used for all assets purchased during the year when more than % of the tangible property purchased is placed in service during the fourth quarter of the year.

40% personal

Barbara's Bakery purchased three new 7-year assets during the current year. She chose NOT to use Section 179 immediate expensing or take bonus depreciation. The furnishings were purchased for $15,000 in April, the equipment for $6,000 in July, and the appliances for $40,000 in November. What amount of depreciation expense is allowable in the current year?

4748 Reason: The mid-quarter convention applies since more than 40 percent of the personal property was purchased in the fourth quarter.

The MACRS recovery period for computers and peripheral equipment, cars, and light general-purpose trucks is 10Blank 1Blank 1 10 , Incorrect Unavailable years. The recovery period for office furniture, fixtures, machinery, and equipment is 7Blank 2Blank 2 7 , Correct Unavailable years.

5 7

Mark's Markers purchased a building and land for $750,000. An appraisal determined that two-thirds of the cost should be attributed to the building and one-third should be attributed to the land. Consequently, Mark's Markers will use a cost basis of $500,000Blank 1Blank 1 500,000 , Correct Unavailable for the building and $250,000Blank 2Blank 2 250,000 , Correct Unavailable for the land.

500,000 250,000

Harry inherited 100 shares of stock from his aunt upon her death. Harry's aunt purchased the stock 10 years ago for $20 per share. The stock was worth $50 per share on the date she died. What is the amount of Harry's basis in the stock?

5000

Barbara's Bakery purchased appliances (7 year property) in quarter 4 of Year 1. The original cost of the appliances was $40,000 and she did NOT use bonus depreciation or Section 179 expensing in the year of purchase. The mid-quarter convention has been used for the calculation of depreciation. If Barbara sells the appliances in March of Year 4, she will be able to deduct $1004Blank 1Blank 1 1004 , Incorrect Unavailable of depreciation in the year of sale.

703

Angie's Cupcake Shop bought 7-year property furniture in February of Year 1 and sold it in May of Year 3. The original cost of the furniture was $8,200. Assuming Angie is using the MACRS half-year convention for the furniture, her depreciation deduction in the year of sale will be $

717

Angie's Cupcake Shop bought 7-year property furniture in February of Year 1 and sold it in May of Year 3. The original cost of the furniture was $8,200. Assuming Angie is using the MACRS half-year convention for the furniture, her depreciation deduction in the year of sale will be $1435Blank 1Blank 1 1435 , Incorrect Unavailable .

717

Which of the following choices reduces the basis of an asset? (Check all that apply.)

Depreciation allowed, but not deducted, on the asset Depreciation actually deducted on the asset

Which depreciation method is most likely to be used by profitable businesses with high marginal tax rates?

MACRS 200%

Which of the following costs should be included in the asset's original cost basis? (Check all that apply.)

Purchase price Sales tax Repairs prior to putting the asset in service Shipping charges Installation charges

During the second quarter of Year 1, Barbara's Bakery purchased furnishings (7 year property) at an original cost of $15,000. She did NOT take bonus depreciation or Section 179 expense in the year of purchase. Due to other asset purchases in Year 1, the mid-quarter convention is being used for calculating the depreciation on the furnishings. If Barbara sells the furnishings in October of Year 4 how much can she deduct for depreciation in the year of sale?

Reason: ($15,000 x.1197) x.875 = $1,571

Andrew's Art Studio, a calender year company, purchased three assets during the year. A computer costing $1,500 was purchased in April; office furniture costing $1,800 was purchased in July; and a delivery truck costing $17,000 was purchased in October. Which of the following statements is correct regarding the depreciation of the assets (assuming no bonus deprecation is taken)?

The art studio can use the half-year convention for the computer and the office furniture if the delivery truck is expensed under Section 179.

A calendar year-end business purchased a new delivery truck at the end of March during the current year. The truck was the only asset purchased during the year. Which of the following statements is correct regarding the depreciation that can be taken on the truck?

The business will deduct one-half of a full year's depreciation on the truck in the current year.

Andrews Art Studio purchased its shop fifteen years ago. During the current year, the business installed a new roof and central air-conditioning system. Which of the following choices is correct regarding the substantial improvements made during the current year?

The cost of the assets will be classified as nonresidential property and recovered over 39 years.

The cost of the assets will be classified as nonresidential property and recovered over 39 years.

The cost of the assets will be classified as nonresidential property and recovered over 39 years.

Lucky started a new business last year. Since it was the first year of operation, the business purchased $10,000 in machinery and used the straight-line method for depreciation. Business is booming, so Lucky purchased $15,000 in equipment during the current year to help meet production demands. Which of the following statements is true regarding the depreciation choices available to Lucky?

The new machinery can be depreciated using the same method or a different method than the previously purchased machinery.

How does depreciation affect the tax basis of an asset?

The tax basis is reduced by the depreciation allowed or allowable on the asset each year.

Which of the following items are needed to calculate MACRS depreciation for an asset? (Check all that apply.)

Applicable depreciation convention Applicable depreciation method Date placed in service Applicable recovery period Asset's depreciable basis

PersonalBlank 1Blank 1 Personal , Correct Unavailable-useBlank 2Blank 2 use , Correct Unavailable property is any property such as clothing, a home, or a car, that is for purposes OTHER THAN use in a trade, business, or income-producing venture. Machinery, furniture, and any other tangible property other than buildings and land is designated as PersonalBlank 3Blank 3 Personal , Correct Unavailable property. The term that includes buildings and land is realBlank 4Blank 4 real , Correct Unavailable property.

Blank 1: Personal Blank 2: Use Blank 3: Personal Blank 4: Real

Real property is classified in one of three ways: realBlank 1Blank 1 real , Incorrect Unavailable, which is NOT depreciable; residentialBlank 2Blank 2 residential , Correct Unavailable rental property, which is used as dwelling units by lessees; or personalBlank 3Blank 3 personal , Incorrect Unavailable property.

Blank 1: land Blank 2: residential Blank 3: nonresidential, non residential, or non-residential

True or false: In order to calculate MACRS depreciation, the business only needs to know the asset's depreciable basis, the recovery period, and which depreciation method (i.e. 200% declining balance) is used.

False The business also needs to know the applicable depreciation convention (e.g. half-year or mid-quarter) to be used as well as the date placed in service.

n which accounting area(s) is an asset's estimated useful life determined by the taxpayer's assessment, rather than being predetermined based on asset type?

Financial accounting only

Which of the following statements is correct regarding the depreciable lives of business assets?

For financial accounting, management can choose the estimated life. For tax purposes, Congress has set recovery periods for various types of assets.

Match the type of real property with the MACRS recovery period for that type of property.

Nondepreciable matches Choice Land 39 yrs. matches Choice Nonresidential property placed in service after May 13, 1993 27.5 yrs. matches Choice Residential rental property 31.5 yrs. matches Choice Nonresidential property placed in service after Dec. 31, 1986 and before May 13, 1993

Antoine owns a car. He uses the car for personal transportation. Which of the following classifications apply to the car? (Check all that apply.)

Personal property Personal-use property

Similar assets purchased in the same year must be depreciated using the DIFFERENTBlank 1Blank 1 DIFFERENT , Incorrect Unavailable (same/different) depreciation method, but similar assets purchased in different years can be depreciated using SAMEBlank 2Blank 2 SAME , Incorrect Unavailable (same/different) depreciation methods.

SAME DIFFERENT

In order to compute MACRS depreciation, which of the following pieces of information is NOT required?

Salvage or residual value

The mid-quarter test is applied beforeBlank 1Blank 1 before , Incorrect Unavailable (before/after) the Section 179 expense is deducted from an asset's basis, and afterBlank 2Blank 2 after , Incorrect Unavailable (before/after) bonus depreciation is taken

after before