CH 2 MCQs

Taylor LLC purchased an automobile for $70,000 on July 5, 2024. What is Taylor's maximum depreciation deduction for 2024 (including bonus depreciation) if its business use percentage is 100 percent? (Use MACRS Table 1 and Exhibit 10-10.) $12,400 $14,000 $20,400 $70,000 None of the choices are correct.

$20,400

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it, reporting gross receipts of $1.8 million, $2.5 million, and $2 million for Years 1 through 3, respectively. During Years 1 through 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000), $400,000, and $100,000, respectively. In Years 1 through 3, Lucky Strike extracted 300,000 ounces of silver as follows: Ounces extracted per yearYear 1Year 2Year 350,000150,000100,000 What is Lucky Strike's depletion deduction for Year 2 if the applicable percentage depletion for silver is 15 percent? $400,000 $375,000 $200,000 None of the choices are correct. $450,000

$450,000

Billie Bob purchased a used camera (five-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation deduction 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.) (Use MACRS Table 1.) Multiple Choice $0 $48 $192 $336 None of the choices are correct.

$48

Suvi, Incorporated purchased two assets during the current year (a full 12-month tax year). On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) Note: Round final answer to the nearest whole number. $3,357 None of the choices are correct. $6,000 $5,429 $857

$5,429 Explanation The half-year convention applies. The calculations are $20,000 × 0.20 = $4,000 and $10,000 × 0.1429 = $1,429. The total is $5,429 ($4,000 + $1,429).

Lax LLC purchased only one asset during the current year (a full 12-month tax year). On August 26 Lax placed in service computer equipment (five-year property) with a basis of $28,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) $3,600 $4,458 $4,600 $5,600 None of the choices are correct.

$5,600 Explanation The asset's recovery period is five years and the half-year convention applies. The calculation is $28,000 × 0.20 = $5,600

Potomac LLC purchased an automobile for $31,100 on August 5, 2024. What is Potomac's depreciation deduction for 2024? (Ignore any possible bonus depreciation.) (Use MACRS Table 1 and Exhibit 10-10.) $12,400 $4,444 $6,220 $31,100 None of the choices are correct.

$6,220 Explanation A luxury auto's maximum depreciation in the first year is the lesser of $12,400 or its MACRS amount of $6,220 ($31,100 × 20 percent) for 2024.

Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10th10th year, calculate Simmons's maximum depreciation in the 10th10th year. (Use MACRS Table 5.) $641 $909 $5,128 $7,346 None of the choices are correct.

$641

Sairra LLC purchased only one asset during the current year (a full 12-month tax year). On April 16 Sairra placed in service furniture (seven-year property) with a basis of $49,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) Note: Round final answer to the nearest whole number. $9,800 $3,501 $7,892 $7,002 None of the choices are correct.

$7,002

Daschle LLC completed some research and development during June of the current year. The related costs were $70,800. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization amount Daschle may deduct during the current year? $0 $7,670 $7,080 $14,160 Incorrect None of the choices are correct.

$7,080 Explanation The amortization when capitalization is elected is $7,080 [($70,800 ÷ 60) × 6 months]. The amortization period on capitalized research and development is not less than 60 months—and 60 months is the most often elected. The mid-year convention applies to research and development costs.

Arlington LLC purchased an automobile for $61,000 on July 5, 2024. What is Arlington's depreciation deduction for 2024 if its business-use percentage is 75 percent? (Ignore any possible bonus depreciation.) (Use MACRS Table 1 and Exhibit 10-10.) $4,700 $12,200 $9,150 $12,400 None of the choices are correct.

$9,150

Which of the following assets is eligible for §179 expensing? Multiple Choice All of the choices are correct. A new delivery truck Used office machinery Qualified improvement property Used office furniture

All of the choices are correct.

Which of the following is not usually included in an asset's tax basis? Multiple Choice Sales tax Purchase price Installation costs Shipping All of the choices are included in an asset's tax basis.

All of the choices are included in an asset's tax basis.

Which of the allowable methods allows the most accelerated depreciation? 150 percent declining balance 200 percent declining balance Straight-line Sum-of-the-years'-digits None of the methods would allow accelerated depreciation.

200 percent declining balance

Which of the following assets are eligible for bonus depreciation? Used office machinery Qualified improvement property A new delivery truck Used office furniture All of the choices are correct.

All of the choices are correct.

Which of the following depreciation conventions is not used under MACRS? Multiple Choice Full-month Half-year Mid-month Mid-quarter All of the choices are used under MACRS.

Full-month

Which depreciation convention is the general rule for tangible personal property? Full-month Half-year Mid-month Mid-quarter None of the choices are conventions for tangible personal property.

Half-year

Which of the following business assets is not depreciated? Machinery All of the assets are depreciated. Patent Automobile Building

Patent

How is the recovery period of an asset determined? Multiple Choice Estimated useful life Treasury regulation Revenue Procedure 87-56 Revenue Ruling 97-56 None of the choices are correct.

Revenue Procedure 87-56

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,530,000 on June 6, 2024. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation). (Use MACRS Table 1.) Note: Round final answer to the nearest whole number. $1,220,000 $504,437 $418,705 $1,138,691 None of the choices are correct.

$1,138,691

Tasha LLC purchased furniture (seven-year property) on April 20 for $20,000 and used the half-year convention to depreciate it. Tasha did not take §179 or bonus depreciation in the year it acquired the furniture. 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. (Use MACRS Table 1) Note: Round final answer to the nearest whole number. $898 $2,095 $1,249 $2,498 None of the choices are correct.

$1,249

Crouch LLC placed in service on May 19, 2024, machinery and equipment (seven-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.) $457,280 None of the choices are correct. $1,374,377 $850,000 $1,220,000

$1,374,377 Explanation The $1,220,000 §179 expense is reduced to $1,070,000 because of the property placed in service limitation ($3,200,000 − $3,050,000 threshold). The half-year convention applies. The expense is $1,431,537, which is depreciation of $2,130,000 × 0.1429 = $304,377 plus $1,070,000 of §179 expense.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $500,250 for extraction rights. A geologist estimates that Santa Fe will recover 7,250 pounds of turquoise. During the current year, Santa Fe extracted 2,175 pounds of turquoise, which it sold for $322,000. What is Santa Fe's cost depletion deduction for the current year? $100,050 $150,075 $182,090 $500,250 None of the choices are correct.

$150,075 Explanation The depletion deduction is $150,075 ($500,250 ÷ 7,250) × 2,175.

Beth's business purchased only one asset during the current year (a full 12-month tax year). On December 1 Beth placed in service machinery (seven-year property) with a basis of $69,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.) Note: Round final answer to the nearest whole number. $3,450 $9,857 None of the choices are correct. $2,463 $13,800

$2,463

Anne LLC purchased computer equipment (five-year property) on August 29 for $43,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense for the current year. (Use MACRS Table 1.) Note: Round final answer to the nearest whole number. $619 $2,477 $2,685 $4,954 None of the choices are correct.

$2,477 Explanation The calculations are $43,000 × 0.1152 = $4,954 × 0.5 = $2,477, since the property is considered to be owned for half the year in the year of disposition.

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year. (Use MACRS Table 5.) Note: Round final answer to the nearest whole number. $2,648 $3,371 $3,751 $4,774 None of the choices are correct.

$2,648

Gessner LLC patented a process it developed in the current year. The patent is expected to create benefits for Gessner over a 10-year period. The patent was issued on April 15thApril 15th and the legal costs associated with the patent were $43,000. In addition, Gessner had unamortized research expenditures of $15,000 related to the process. What is the total amortization amount Gessner may deduct for the patent during the current year? $2,174 $4,350 $2,417 None of the choices are correct. $3,225

$3,225 Explanation The amortization is $3,225 ($43,000 ÷ 120) × 9 months. The amortization period is the shorter of the patent's legal (20 years for utility patents) or useful life (10 years). The related research expenditures continue to be amortized as before.

Assume that Brittany acquires a competitor's assets on September 30thSeptember 30th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement). Given that the noncompete agreement expires on September 30thSeptember 30th of Year 2, what is Brittany's amortization deduction for the second year? Note: Round final answer to the nearest whole number. $3,333 $0 None of the choices are correct. $1,667 $2,917

$3,333

Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business started on November 23rdNovember 23rd of the current year, what is the total amount she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number? Multiple Choice $52,000 None of the choices are correct. $5,522 $2,555 $3,544

$3,544 Explanation The maximum immediate deduction of $5,000 phases out dollar for dollar if more than $50,000 of start-up costs are incurred. Thus, the immediate deduction is $3,000 ($5,000 − ($52,000 − $50,000)). The remaining amount is amortized over 180 months and results in an additional deduction of $544 [($49,000 ÷ 180) × 2 months] for the year.

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15thJuly 15th and the purchase price was $60,000. If the copyright has a remaining life of 75 months, what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.) $0 $4,400 $4,800 $9,600 None of the choices are correct.

$4,800 Explanation The amortization is $4,800 ($60,000 ÷ 75) × 6. The amortization period on a purchased copyright is the asset's remaining useful life.

Littman LLC placed in service on July 29, 2024, machinery and equipment (seven-year property) with a basis of $600,000. Littman's income for the current year before any depreciation deduction was $100,000. Which of the following statements is true to maximize Littman's total depreciation deduction for 2024? (Use MACRS Table 1.) Littman should take §179 expense equal to the maximum $1,220,000. Littman should take no §179 expense. Littman's §179 expense will be greater than $100,000. Littman's §179 expense will be less than $100,000. None of the choices are correct.

Littman's §179 expense will be less than $100,000. Explanation The $1,220,000 maximum §179 expense is limited by the amount of property placed in service and to income after regular MACRS depreciation but before §179 expense. The $100,000 income amount is before any cost recovery. Thus, to maximize its cost recovery, Littman should first elect $16,637 of §179 expense. Littman's regular MACRS amount will be $83,363 for a total of $100,000 of cost recovery.

Tax depreciation is currently calculated under what system? Sum-of-the-years'-digits Accelerated cost recovery system Modified Accelerated Cost Recovery System Straight-line system None of the choices are correct.

Modified Accelerated Cost Recovery System

Which is not an allowable method under MACRS? 150 percent declining balance 200 percent declining balance Straight-line Sum-of-the-years'-digits All of the choices are allowable methods under MACRS.

Sum-of-the-years'-digits

Tax cost recovery methods do not include: capitalization. depletion. all of the choices are tax cost recovery methods. amortization. depreciation.

capitalization.

The MACRS recovery period for automobiles and computers is: three years. five years. seven years. ten years. None of the choices are correct.

five years.