Module 5 MCQ

On June 1, 2021, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount. a. $0 b. $241 c. $907 d. $1,687

a. $0

On May 30, 2020, Jane purchased a factory building to use for her business. In August 2021, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2021. a. $2,889 b. $4,173 c. $4,815 d. $25,000

a. $2,889

Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2021 at a cost of $100,000. On November 18, 2021, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000. Indigo does not make a § 179 expense election and chooses not to take additional first-year depreciation. What is Indigo's total MACRS deduction for 2021? a. $27,145. b. $30,000. c. $36,785. d. $150,000.

a. $27,145.

Which of the following depreciation conventions are not used under MACRS? a. Full-month. b. Mid-month. c. Half-year. d. Mid-quarter.

a. Full-month.

On January 15, 2021, Dillon purchased the rights to a mineral interest for $3,500,000. At that time, it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Dillon incurred expenses during 2021 of $500,000. The percentage depletion rate is 22%. Determine Dillon's depletion deduction for 2021. a. $150,000. b. $175,000. c. $176,000. d. $200,000.

b. $175,000.

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2021. Determine the cost recovery deduction for the year of the sale. a. $16,025 b. $19,838 c. $26,458 d. $158,750

b. $19,838

The only asset Bill purchased during 2021 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under § 179 whenever it is applicable. The net income from the business before the § 179 deduction is $100,000. Determine Bill's maximum deduction with respect to the property for 2021. a. $1,428 b. $2,499 c. $26,749 d. $33,375

b. $2,499

Kenji purchased a used business asset (seven-year property) on September 30, 2021, at a cost of $200,000. This is the only asset he purchased during the year. Kenji did not elect to expense any of the assets under § 179, did not claim additional first-year depreciation, and did not elect straight-line cost recovery. Kenji sold the asset on July 17, 2022. Determine the cost recovery deduction for 2022. a. $19,133 b. $24,490 c. $34,438 d. $55,100

b. $24,490

Tan Company acquires a new machine (10-year property) on January 15, 2021, at a cost of $200,000. Tan also acquires another new machine (7-year property) on November 5, 2021, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2021. a. $24,000 b. $25,716 c. $102,000 d. $132,858

b. $25,716

Mauve Corporation begins business on April 2, 2021. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Mauve can elect to deduct in 2021. a. $0 b. $3,200 c. $4,267 d. $7,950

b. $3,200

On March 1, 2021, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2021, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease. a. $0 b. $35 c. $59 d. $70

b. $35

Bhaskar purchased a new factory building and land on September 10, 2021, for $3,700,000. ($500,000 of the purchase price was allocated to the land.) He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2022. a. $23,328 b. $80,000 c. $82,048 d. $92,500

b. $80,000

. On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago, Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery? a. $70,000 b. $90,000 c. $120,000 d. $140,000

b. $90,000

Which of the following is not a characteristic of MACRS for property other than real estate? a. MACRS uses shorter asset lives. b. MACRS increases taxable income in the early years of the asset's life. c. MACRS accelerates cost recovery. d. MACRS decreases taxable income in the early years of the asset's life.

b. MACRS increases taxable income in the early years of the asset's life.

Hans purchased a new passenger automobile on August 17, 2021, for $30,000. During the year, the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2021. a. $500 b. $1,000 c. $1,200 d. $1,333

c. $1,200

On June 1, 2021, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2021 for the patent. a. $0 b. $1,667 c. $11,667 d. $35,000

c. $11,667

Carlos purchased an apartment building on November 16, 2021, for $3,000,000. Determine the cost recovery deduction for 2021. a. $9,630 b. $11,910 c. $13,650 d. $22,740

c. $13,650

On January 1, 2021, SymboNet Company completed its acquisition of NetOpen. As part of the acquisition, $2 million was allocated to goodwill. What is SymboNet's amortization deduction related to the goodwill for 2021? a. $0. b. $100,000. c. $133,333. d. $200,000.

c. $133,333.

On July 17, 2020, Hernan places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2021, he used the automobile 40% for business and 60% for personal use. Hernan chooses not to take § 179 or additional first-year depreciation. Determine the cost recovery recapture for 2021. a. $0 b. $528 c. $2,000 d. $2,500

c. $2,000

Hazel purchased a new business asset (five-year asset) on September 30, 2021, at a cost of $100,000. On October 4, 2021, she placed the asset in service. This was the only asset she placed in service in 2021. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2022, Hazel sold the asset. Determine the cost recovery for 2022 for the asset. a. $14,250 b. $19,000 c. $23,750 d. $38,000

c. $23,750

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2021 for $900,000. What is the maximum cost recovery deduction it may take for 2021? a. $18,297. b. $22,617. c. $25,911. d. $31,365.

c. $25,911.

On July 10, 2021, Ariff places in service a new SUV that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2021, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation. a. $14,000 b. $26,200 c. $34,960 d. $70,000

c. $34,960

On June 1, 2020, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation. Determine the cost recovery deduction for 2021. a. $3,290 b. $3,570 c. $4,704 d. $10,100

c. $4,704

On June 1, 2021, Nico places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) Nico does not take additional first-year depreciation. Determine the cost recovery deduction for 2021. a. $1,776 b. $1,896 c. $4,800 d. $6,000

c. $4,800

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the patent was $207,000 and Byrne is a calendar year taxpayer. In the current tax year, how much of the patent's cost may Byrne amortize? a. $1,150. b. $4,600. c. $9,200. d. $13,800.

c. $9,200.

A major objective of MACRS is to: a. Reduce the amount of the cost recovery deduction on businesses tax returns. b. Ensure that the amount of cost recovery for tax purposes will be the same as book depreciation. c. Help companies achieve a faster write-off of their capital assets. d. Require companies to use the actual economic lives of assets in calculating cost recovery for tax purposes.

c. Help companies achieve a faster write-off of their capital assets.

Which of the following assets would be subject to cost recovery? a. A painting by Picasso hanging on a physician's office wall. b. An antique vase in a doctor's waiting room. c. Landscaping around the doctor's office. d. Choices a., b., and c.

c. Landscaping around the doctor's office.

During the past two years, through extensive advertising and improved customer relations, Orange Corporation estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of goodwill Orange may amortize. a. $33,333 b. $26,667 c. $16,667 d. $-0-

d. $-0-

. Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows. Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $ 8,000 Year 2 9,600 12,800 Year 3 5,760 7,680 If Tara sells the machine after three years for $15,000, how much gain should she recognize? a. $3,480 b. $6,360 c. $9,240 d. $11,480

d. $11,480

In 2020, Mei had a § 179 deduction carryover of $30,000. In 2021, she elected § 179 for an asset acquired at a cost of $115,000. Mei's § 179 business income limitation for 2021 is $140,000. Determine Mei's § 179 deduction for 2021. a. $25,000 b. $115,000 c. $130,000 d. $140,000

d. $140,000

Alice purchased office furniture on September 20, 2020, for $100,000. On October 10, 2020, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2021. She did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2021. a. $6,426 b. $14,710 c. $25,722 d. $30,290

d. $30,290

On May 2, 2021, Imani placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 60% for business and 40% for personal use. Determine Imani's total cost recovery for 2021. Imani wants to use both §179 and additional first-year depreciation. a. $7,200 b. $26,200 c. $27,200 d. $36,000

d. $36,000

James purchased a new business asset (three-year personalty) on July 23, 2021, at a cost of $40,000. James takes additional first-year depreciation but does not elect § 179 expense on the asset. Determine the cost recovery deduction for 2021. a. $8,333 b. $26,666 c. $33,333 d. $40,000

d. $40,000

Bonnie purchased a new business asset (five-year property) on March 10, 2021, at a cost of $30,000. She also purchased a new business asset (seven-year property) on November 20, 2021, at a cost of $13,000. Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery. Bonnie takes additional first-year depreciation. Determine the cost recovery deduction for 2021 for these assets. a. $7,858 b. $9,586 c. $21,915 d. $43,000

d. $43,000

White Company acquires a new machine (seven-year property) on January 10, 2021, at a cost of $620,000. White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2021, assuming that White reports taxable income of $800,000. a. $88,598 b. $301,159 c. $568,574 d. $620,000

d. $620,000

Angie purchased one new asset during the year (five-year property) on November 10, 2021, at a cost of $660,000. She would like to use the § 179 election and will also take additional first-year depreciation. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the maximum cost recovery deduction available on this asset for 2021. a. $30,500 b. $580,200 c. $600,000 d. $660,000

d. $660,000

Maple Company purchases new equipment (7-year MACRS property) on January 10, 2021, at a cost of $430,000. Maple also purchases new machines (5-year MACRS property) on July 19, 2021 at a cost of $290,000. Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply. What is Maple's total MACRS deduction for 2021? a. $119,447. b. $560,000. c. $617,148. d. $720,000.

d. $720,000.

Cora purchased a hotel building on May 17, 2021, for $3,000,000. Determine the cost recovery deduction for 2022. a. $48,150 b. $59,520 c. $69,000 d. $76,920

d. $76,920

Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in January of the following year. No assets were purchased in the following year. Grape's cost recovery would begin: a. In the current year using a mid-quarter convention. b. In the current year using a half-year convention. c. In the following year using a mid-quarter convention. d. In the following year using a half-year convention.

d. In the following year using a half-year convention.

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes? a. Cost of asset. b. Property recovery class. c. Half-year convention. d. Salvage (or residual) value.

d. Salvage (or residual) value.