ACC 331 Chapter 10 Part 2

Which of the following choices are categories of intangible assets? (Check all that apply.) Patents and copyrights Prepaid expenses Natural resources Property, Plant and Equipment Research and experimentation costs Start-up expenditures and organizational costs

Patents and copyrights Research and experimentation costs Start-up expenditures and organizational costs

Bill purchased a used automobile in the current year for $78,000 that will be used 100% for business. Assuming that the mid-quarter convention did NOT apply, what is the amount of depreciation he is allowed to take in the second year of the asset's life, assuming he elected NOT to take bonus depreciation in the first year?

$16,000 Reason: The car has a 5-year recovery period. The purchase price subjects the car to the luxury vehicle limits. The maximum deduction for year 2 is $16,000.

Randy owns and rents a residential duplex that he purchased 17 years ago in the month of May. The purchase price was $250,000. During August of the current year, Randy sold the duplex. What is the amount of depreciation that can be deducted in the current year (rounded to the nearest dollar)? $5,681 $6,439 $4,006 $9,090 $6,410

$5,681 Reason: Use the Residential Real Property table and multiply the full year's depreciation by 7.5/12 to account for the portion of the year the property was owned.

For the current year, taxpayers can elect to immediately expense __% of qualified property as bonus depreciation. The bonus depreciation is calculated (before/after) the Section 179 expense and (before/after) regular MACRS depreciation.

-100 -after -before

For 2019, the maximum depreciation on luxury automobiles for the first year including MACRS depreciation and Sec. 179 is $___The maximum Section 179 deduction for SUVs and trucks weighing over 6,000 pounds is $___

-10000 -25500

During the 2019 tax year, businesses may elect to immediately expense up to $ ___of tangible____ property placed in service that year under Section 179. For any assets that are completely or partially expensed, the company must reduce the ___ of the asset before computing MACRS depreciation expense.

-1020000 -personal -basis

Under Code Section __, businesses may elect to immediately expense up to $__ of tangible personal property placed in service during 2019.

-179 -1020000

Randy rents commercial warehouses to various businesses. He purchased a warehouse in May of the current year. The cost of the warehouse was $250,000. The depreciation for the current year will be $__ . If Randy continues to rent the warehouse for the next 40 years, the depreciation in the 40th year he owns the warehouse will be $___. (Round your answers to the nearest whole dollar.)

-4013 2408

A business may immediately expense up to $__ (subject to phase-out rules) of both organizational expenditures and start-up costs with any remaining cost being amortized over__ years.

-5000 -15

The luxury automobile limitations do NOT apply to vehicles weighing more than ___pounds. These vehicles are allowed to compute regular___ depreciation expenses for these vehicles.

-6000 -MACRS

In 2019, Bill purchased a new automobile for $78,000 that will be used 100% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct $__ in regular MACRS depreciation and bonus depreciation the first year. However, he will only be able to deduct $___ due to the luxury limitations.

-78000 -10000

In 2019, Bill purchased a new automobile for $78,000 that will be used 100% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct $_____ in regulrar MACRS depreciation and bonus depreciation the first year. However, he will only be able to deduct $___ due to the luxury limitations.

-78000 -18000

In April of 2019, Bill purchased a new automobile for $90,000 that will be used 100% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct $ __in regular MACRS depreciation and bonus depreciation the first year. However, he will only be able to deduct $__ due to the luxury limitations (considering allowable bonus depreciation).

-90000 -18000 (10000+8000) (8000 bc bonus depreciation is claimed)

If a business wants to maximize the depreciation deduction,it should choose to take Section 179 expense on assets with the (lowest/highest) first-year recovery percentage, (including/excluding) bonus depreciation.

-lowest -including

The recovery period for Section 197 intangibles is __years.

15

What is the recovery period for Section 197 intangibles? The lesser of 180 months or their actual life 180 months, regardless of their actual life The greater of 180 months or their actual life Their actual life

180 months, regardless of their actual life

Rachelle purchased a warehouse 19 years ago in the month of September. The purchase price was $400,000. In May of the current year (year 20), Rachelle sold the warehouse. She will be able to deduct $__ for depreciation on the warehouse in the year of sale. (Round your answer to the nearest whole dollar.)

3846 400000(0.02564)=10256 10256(4.5/12)

Section 179 expensing, bonus depreciation, and MACRS depreciation rates are available for listed property if its business-use percentage exceeds ___%.

50

Bill purchased an automobile for $65,000 that will be used 80% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct $ in depreciation the first year. However, he will only be able to deduct $ due to the luxury limitations.

52000 14400

In 2019, Bill purchased a new automobile for $88,000 that will be used 80% for business. If Bill did NOT have to consider the limitations for depreciation on automobiles, he would be able to deduct $__ in regular MACRS depreciation and bonus depreciation the first year. However, he will only be able to deduct $___ due to the luxury limitations.

70,400 -14400

Sally's Seashells purchased three assets during the current year: Asset A costing $20,000 with a 5-year recovery period; Asset B costing $20,000 with a 7-year recovery period; Asset C costing $120,000 with a 27.5 year recovery period. Sally wants to maximize her depreciation deduction for the year. If she takes Section 179 expense on only one asset, she should chose __. Asset A Asset B Asset C

Asset B Reason: It's best to choose the asset with the longest recovery period because the depreciation deduction under MACRS is less than those with shorter recovery periods. If Asset C is 27.5-year property, this means it must be a residential real property. Section 179 can NOT be used on residential real property.

Your friend, Andy, is considering purchasing a vehicle for use in his business. He is asking about the depreciation rules and Section 179 expensing. What advice below is accurate and correct? (Check all that apply.) Bonus depreciation is NOT allowed for vehicles using the Section 179 deduction. Bonus depreciation of up to $8,000 is allowed in addition to Sec. 179 and MACRS regular deduction. The Section 179 expense for SUVs and trucks weighing over 6,000 pounds is $25,500. MACRS depreciation for SUVs and trucks weighing over 6,000 pounds is also $10,000. The Section 179 deduction plus the regular MACRS depreciation is limited to $10,000 in the first year.

Bonus depreciation of up to $8,000 is allowed in addition to Sec. 179 and MACRS regular deduction. The Section 179 expense for SUVs and trucks weighing over 6,000 pounds is $25,500. The Section 179 deduction plus the regular MACRS depreciation is limited to $10,000 in the first year.

Which of the following methods are acceptable for the tax treatment of research and experimentation expenditures? (Check all that apply.) Capitalize the costs and amortize them over the determinable useful life. Capitalize the costs and depreciate them using MACRS with a 7-year recovery period. Expense the costs immediately. Capitalize the costs and amortize them over not less than 60 months beginning in the month benefits are first derived from the research.

Capitalize the costs and amortize them over the determinable useful life. Expense the costs immediately. Capitalize the costs and amortize them over not less than 60 months beginning in the month benefits are first derived from the research.

Which of the following methods is NOT acceptable for the tax treatment of research and experimentation expenditures? Capitalize the costs and amortize them over not less than 60 months beginning the first month benefits are derived. Expense the costs immediately. Capitalize the costs and amortize them over the determinable useful life. Capitalize the costs and depreciate them using MACRS with a 3-year recovery period.

Capitalize the costs and depreciate them using MACRS with a 3-year recovery period.

Rick rents commercial warehouses to various businesses. He purchased a warehouse in May of the current year at a cost of $250,000. When calculating the warehouse depreciation in the fourth year of ownership, which column of Table 5 should Rick use? Column 5 because the original purchase was made in May, the fifth month of the year. Column 4 because this is the end of the 4th year that Rick has owned the building. Column 12 because Rick has held the asset for the full 12 months in recovery year 4.

Column 5 because the original purchase was made in May, the fifth month of the year.

Which of the following assets are generally referred to as listed property? (Check all that apply.) Office desk Manufacturing equipment Office furniture Digital cameras Automobiles

Digital cameras Automobiles

Which convention applies to the amortization of purchased intangibles? Full-month Mid-quarter Mid-month Half-year

FULL-MONTH

True or false: All patents or copyrights where §197 does not apply should be amortized over their legal lives. True False

False Reason: A patent or copyright that is purchased should be amortized over the remaining useful life of the intangible, while a self-created patent or copyright should be amortized over its legal life.

True or false: A taxpayer will use the luxury automobile limitations for depreciation in the year the car is purchased, then the regular MACRS depreciation percentages will be applied for the remaining recovery periods. True False

False Reason: If the automobile depreciation limits apply in the first year, the taxpayer must use the IRS maximum limits for all subsequent years.

True or false: Bonus depreciation is only available on new tangible personal property with a recovery period of 20 years or less. It can NOT be taken on used property. True False

False Reason: The requirement for business depreciation is only that the property is "new" to the taxpayer, so that the taxpayer cannot have previously used the specific piece of property. Thus, the property can be used property purchased from another person or business.

True or false: The cost of marketing or selling stock qualifies as an organizational expenditure and is amortized over 180 months. True False

False Reason: These costs do NOT qualify as organizational expenditures and cannot be amortized.

Rex's Wrecks purchased $150,000 in new equipment during the current year. Rex's gross business income for the year is $1,200,000 and his business expenses (including regular and bonus depreciation) before Section 179 deduction total $1,150,000. Assuming Rex wants to take the maximum Section 179 deduction allowable, which of the following statements is correct? He can expense all $150,000 in the current year and have nothing to carry forward until next year. He can expense $50,000 in the current year and carry forward $100,000 until next year. He can expense the maximum $1,020,000 in the current year and have nothing to carry forward until next year. He can NOT use the Sec. 179 expense this year because the total amount of the purchases is less than $1,020,000.

He can expense $50,000 in the current year and carry forward $100,000 until next year.

Which of the following is NOT considered a start-up cost of a business? Costs of purchasing a business Legal fees to draft original organizational documents Training costs for employees before opening business Costs of investigating the purchase of a business

Legal fees to draft original organizational documents

Which of the following assets purchased in the current year are eligible to be expensed under Section 179 assuming the cost does NOT exceed the limitations? (Check all that apply.) New delivery truck Used equipment Storage warehouse New office furniture Land for future building site Apartment complex

New delivery truck Used equipment New office furniture

Which of the following depreciation provisions are available to listed property that is used more than 50% for business purposes? (Check all that apply.) Section 179 expensing on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost MACRS depreciation on the business-use percentage of the cost MACRS depreciation on one-half of the total cost Section 179 expensing on the total cost

Section 179 expensing on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost MACRS depreciation on the business-use percentage of the cost

Which of the following depreciation provisions are available to listed property that is used more than 50% for business purposes? (Check all that apply.) Section 179 expensing on the business-use percentage of the cost MACRS depreciation on one-half of the total cost MACRS depreciation on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost Section 179 expensing on the total cost

Section 179 expensing on the business-use percentage of the cost MACRS depreciation on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost

Rambo Manufacturing Co. purchased $2,825,000 in new production equipment during the current year. All of the equipment was purchased in June. What is the maximum depreciation deduction Rambo can take this year (assuming Rambo elected out of taking bonus depreciation)? Section 179-$2,550,000; MACRS-$39,298 Section 179-$275,000; MACRS-$364,395 Section 179-$1,020,000; MACRS-$257,935 Section 179-$745,000; MACRS-$297,232

Section 179-$1,020,000; MACRS-$257,935 Reason: The ceiling is reduced by $275,000 (2,825,000-2,550,000) for a total of $745,000. Then apply MACRS at .1429 to the residual $2,080,000.

During the prior three years, listed property was being used 75% for business and 25% for personal use. For the current and future years, business use has dropped to 40%. Which of the following statements is correct? The depreciation for the current and future years must be computed using the MACRS straight-line method over the MACRS ADS recovery period, but no recapture is required. Since the business use has dropped to 50% or below, the total amount of depreciation for all prior years must be recaptured. Since the business use has dropped to 50% or below, the excess of accelerated depreciation over straight-line for all prior years must be recaptured. Since the business use has dropped to 50% or below, just Section 179 expense and bonus depreciation taken on the asset must be recaptured.

Since the business use has dropped to 50% or below, the excess of accelerated depreciation over straight-line for all prior years must be recaptured.

Which of the following depreciation provisions are available to listed property that is used less than 50% for business purposes? Double declining balance depreciation on the business-use percentage of the cost Bonus depreciation on the business-use percentage of the cost Straight-line depreciation on the business-use percentage of the cost Section 179 expensing on the business-use percentage of the cost

Straight-line depreciation on the business-use percentage of the cost

If a business purchases $3,180,000 in equipment during a given year, what is the impact on the Section 179 election? The Section 179 deduction is eliminated when purchases exceed $2,550,000 in 2019. The business will only be able to take the Section 179 deduction on $1,020,000 of the assets purchased. The ceiling amount will be reduced by $390,000 to a maximum eligible deduction of $2,790,000. The ceiling amount will be reduced by $630,000 to a maximum eligible deduction of $390,000 for the current year.

The ceiling amount will be reduced by $630,000 to a maximum eligible deduction of $390,000 for the current year

What is the recovery period for patents that have been purchased by a business (not as part of an acquisition of another entire business)? The legal life of the patent Five years The remaining life of the patent at the time of the purchase.

The remaining life of the patent at the time of the purchase.

Which of the following statements is correct regarding the depreciation of automobiles weighing over 6,000 pounds? These vehicles must be depreciated using straight-line rates. Bonus depreciation is NOT allowed for vehicles weighing over 6,000 pounds. The depreciation may be limited by the automobile depreciation limits set by Congress. These vehicles can be depreciated using regular MACRS percentages.

These vehicles can be depreciated using regular MACRS percentages.

Which of the following items are classified as Section 197 intangibles? (Check all that apply.) Trademarks Covenants not to compete Goodwill Start-up costs

Trademarks Covenants not to compete Goodwill

Which of the following items could be classified as Section 197 intangibles? (Check all that apply.) Trademarks Organizational costs Patents Goodwill Customer lists Research and experimentation expenditures

Trademarks Patents Goodwill Customer lists

Which of the following choices describes how a business should account for organizational expenditures and start-up costs? (Check all that apply.) Up to $5,000 of each (total of $10,000) can be expensed immediately. Any costs that are NOT immediately expensed must be amortized over 180 months. Qualifying costs must be amortized over 180 months. A total of up to $5,000 can be expensed immediately. All qualifying costs of each can be expensed immediately.

Up to $5,000 of each (total of $10,000) can be expensed immediately. Any costs that are NOT immediately expensed must be amortized over 180 months.

Business assets that are often used for both____ and _purposes are referred to as listed property.

business personal

Which one of the following assets is generally NOT referred to as listed property? Digital cameras Automobiles Filing cabinet Airplane

filing cabinet

Straight-line depreciation is mandatory and Section 179 expensing is NOT eligible for listed property when the business-use is ______ 50%. equal to or less than greater than less than equal to or greater than

equal to or less than

Business assets that are often used for both business and personal purposes are referred to as ___property.

listed

Which of the following options is NOT a category for intangible assets? Research and experimentation costs Patents and copyrights Natural resources Section 197 purchased intangibles Start-up expenditures and organizational costs

natural resources

The business's deductible Sec. 179 expense is limited to the business's __ ___before deducting the Sec. 179 expense. The business can ___ __any amount that cannot be deducted in the current year.

net (taxable) income carry forward

Costs incurred prior to the starting of a business, or shortly thereafter that relate to creating the business entity, are referred to as: goodwill organizational expenditures section 197 intangibles start-up costs

organizational expenditures

Costs of legal services, state fees, and accounting services that relate to creating a business entity and are incurred prior to starting the business are referred to as __ __

organizational expenditures

If an asset's business use drops to 50%, or below, the business must ___any excess accelerated depreciation over the __ __depreciation for all prior years.

recapture straight line

Costs, such as investigating the possibilities of and actually creating or acquiring a trade or business, are referred to as__ -__ costs.

start up