Chapter 10 4040

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

Barbara's Bakery purchased three new assets during the prior year. She chose NOT to use Section 179 to immediately expense the assets and she elected NOT to use bonus depreciation. She purchased furnishings for $15,000 in April, equipment for $6,000 in July, and appliances for $40,000 in November. Using the MACRS tables with a 7-year recovery period, what is the amount of depreciation that can be taken on these assets in the current (second) year?

$16,072

Barbara's Bakery purchased three new assets during the current year. Since this is Barbara's first year in the bakery business, she chose NOT to use Section 179 to immediately expense the assets and she elected NOT to use bonus depreciation. She purchased furnishings for $15,000 in April, equipment for $6,000 in July, and a new appliances for $40,000 in November. Using the MACRS tables with a 7-year recovery period, what is the amount of depreciation that can be taken on these assets in the first year? (Use the depreciation tables in the Appendix to the chapter to answer the question.)

$4,748

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

Rex's Wrecks purchased $1,650,000 in new equipment (7 year property) during 2019. Rex wants to use Section 179 to expense the maximum amount of the purchase. Assuming no limitations due to net income restrictions, Rex can expense

1020000 630000 0

Barbara's Bakery purchased furnishings (7 year property) 4 years ago. During the current year, she sold the furnishings. Her original cost in these assets was $15,000 and she did NOT use bonus depreciation or Section 179 expensing in the year she purchased them. Due to other asset purchases that year, she has been using the mid-quarter convention when calculating the depreciation, and the furnishings were purchased in the second quarter of that year. If Barbara sold the furnishings in October of the current year (recovery period 4), how much depreciation will she will be able to deduct this year.

1571

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

200% declining balance; straight-line

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

Jack and Diane decided to remodel their kitchen. They removed their old cabinets and replaced them with newer, nicer cabinets. They installed the old cabinets in a rental home that they own and lease to other people. The original cost of the old cabinets was $6,000. The fair market value on the date they were installed in the rental house was $2,500. The cost of the new cabinets was $11,000. What amount should Jack and Diane use as the basis for depreciation for the cabinets that have been installed in the rental property?

2500

Tom purchased a 7-year asset for his business in February, three years ago for $4,500 and used the half-year convention for MACRS. He did not deduct any bonus depreciation and he did not elect Sec. 179 expensing in the year of purchase. He sold the asset in April, 2018. How much depreciation will Tom deduct in in the current year (year 4)?

281

Rachelle owns a warehouse that she purchased in September, 19 years ago. The purchase price was $400,000. During May of the current year (year 20), Rachelle sold the warehouse. She will be able to deduct $

3846

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

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 $

52000 14400

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

Applicable depreciation convention Asset's original cost Applicable depreciation method Date placed in service Applicable recovery period

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

Blank 1: 4012.50, 4013, or 4012.5 Blank 2: 2407.50, 2408, or 2407.5

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

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

When comparing depreciation rules for regular tax purposes to those for alternative minimum tax (AMT) purposes, which of the following statements are correct? (Check all that apply.)

Depreciation for real property is the same for both regular tax purposes and AMT purposes. The allowable recovery periods and conventions are the same for all depreciable assets for AMT purposes as for regular tax purposes. For AMT purposes, tangible personal property must be depreciated using the 150 percent declining balance or the straight-line method. For regular tax purposes, tangible personal property is depreciated using the 200 percent declining balance or the straight-line method. For AMT, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base.

When comparing depreciation rules for regular tax purposes to those for alternative minimum tax (AMT) purposes, which of the following statements are correct? (Check all that apply.)

For AMT, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base. Depreciation for real property is the same for both regular tax purposes and AMT purposes. For regular tax purposes, tangible personal property is depreciated using the 200 percent declining balance or the straight-line method. For AMT purposes, tangible personal property must be depreciated using the 150 percent declining balance or the straight-line method. The allowable recovery periods and conventions are the same for all depreciable assets for AMT purposes as for regular tax purposes.

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, the IRS has set recovery periods for various types of assets.

Rex's Wrecks purchased $150,000 in new equipment during the current year. Rex used Section 179 to expense the maximum amount of the purchase. From the following choices, how much did Rex get to expense under Sec. 179, assuming the gross income from his business is $1,200,000 and his expenses (including MACRS depreciation) other than Section 179 were $1,150,000?

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

Which of the following depreciation provisions are available to listed property that is used more than 50% for business purposes? (Check all that apply.)

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 business-use percentage of the cost

Which of the following options is NOT a category for intangible assets?

Natural resources

Which of the following calculations is used to determine an asset's adjusted basis?

Original basis + significant improvements - depreciation allowed or allowable

Which of the following items could be classified as Section 197 intangibles? (Check all that apply.)

Patents Customer lists Trademarks Goodwill

Which of the following choices are categories of intangible assets? (Check all that apply.)

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

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

When comparing depreciation rules for regular tax purposes to those for alternative minimum tax (AMT) purposes, which of the following statements are correct? (Check all that apply.

Section 179 expense is deductible for both regular tax purposes and AMT purposes. For AMT, the difference between regular tax depreciation and AMT depreciation is an adjustment used to calculate the AMT base. The allowable recovery periods and conventions are the same for all depreciable assets for AMT purposes as for regular tax purposes

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-$745,000; MACRS-$297,232

Which of the following depreciation provisions are available to listed property that is used less than 50% for business purposes?

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

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.)

The Section 179 expense for SUVs and trucks weighing over 6,000 pounds is $25,000. 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.

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.

If a business purchases $3,180,000 in equipment during a given year, what is the impact on the Section 179 election?

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

Mark's Markers purchased a new machine to use in the manufacturing process for $2,500. The sales tax was an additional $150 and the shipping charges were $200. One month after using the machine, a small part broke and needed repair. The cost of the repair was $900. How will Mark's Markers treat the costs for tax purposes?

The cost of $2,850 will be capitalized and depreciated over the asset's life. Repairs of $900 will be expensed immediately.

Janet owns land that she uses in her business. Which of the following statements is correct regarding the land?

The land is classified as real property, but it can NOT be depreciated, even though it is a business asset.

How does depreciation affect the basis of an asset?

The original basis is reduced by the depreciation allowed or allowable on the asset.

Which of the following statements is correct regarding the depreciation of automobiles weighing over 6,000 pounds?

These vehicles can be depreciated using regular MACRS percentages.

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.

When does a business have to use the mid-quarter convention?

When more than 40% of the tangible personal property purchased is placed in service during the fourth quarter of the year

When will a taxpayer need to recapture depreciation on listed property, and how is the amount of the recapture determined?

f the business use drops to 50% or below, then the excess of MACRS depreciation over straight-line for all prior years is recaptured.

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.

false

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

salvage or residual value

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 previously owned (i.e. used) property.

true