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Exam 7: Accounting Periods and Methods and Depreciation

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Question 1

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In applying the statutory depreciation percentages from the MACRS tables,the cost of the asset must first be reduced by the prior year's depreciation.

A) True
B) False

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Question 2

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Residential real estate is currently assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

A) True
B) False

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Question 3

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Calculate the following amounts: a.The first year of depreciation on a residential rental building costing $100,000,purchased on November 30. b.The first year of depreciation on an auto used 100 percent in business,costing $30,000,purchased in May 2017.(No bonus depreciation deducted). c.The second year of depreciation on a computer used exclusively for business,costing $7,000,purchased May 2016. d.The third year of depreciation on business furniture costing $1,000,purchased in July 2015,using the half-year convention and accelerated depreciation.

Lanyard purchased office equipment (7-year property)for use in his business.He paid $100,000 for the equipment on July 1,2017.Lanyard did not purchase any other property during the year.For 2017,his business had net income of $350,000,before depreciation and before considering the election to expense. a.What is the maximum amount that Lanyard can deduct in 2017 under the election to expense? b.​ ​ What is the total depreciation (regular depreciation and the amount allowed under the election to expense)on the office equipment for 2017,assuming Lanyard uses the accelerated method under MACRS and claims the maximum amount allowable under the election to expense? c.What is Lanyard's total depreciation deduction for 2018 on the 2017 purchase of equipment?

On January 1,2017,Roxburgia Company places a commercial storage building in service.The costs allocated to construction of the building total $300,000 and land is accounted for separately.Which of the following is a true statement with respect to the depreciation of the building?

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2017 is:

The election to expense is not permitted where listed property does not meet the qualified business use test.

Explain the use of the half-year convention for MACRS depreciation for assets other than real estate and the exception to the half-year convention rule.

The Dot Corporation has changed its year-end from a calendar year-end to August 31.The income for its short period from January 1 to August 31 is $54,000.The tax for this short period is:

Aaron has a successful business with $50,000 of income in 2017.He purchased a new 7-year MACRS property with a cost of $7,000.For tax purposes,what is the largest write-off Aaron can obtain in 2017 for the new asset?

Choose the incorrect statement.

Section 179 immediate expensing can be taken on used property​ .

Which one of the following entities cannot use the cash method for tax purposes?

Cork Oak Corporation purchased a heavy-duty truck (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on May 1,2017 for use in its business.The truck,with a cost basis of $24,000,has a 5-year estimated life.It also is 5-year recovery property.How much depreciation should be taken on the truck for the 2017 calendar tax year using the conventional (for financial accounting purposes) straight-line depreciation method?

On June 1,2017,Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business.The auto,with a cost basis of $22,000,has a 5-year estimated life.It also is 5-year recovery property.How much depreciation should be taken for 2017,assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

A taxpayer places a $50,000 5-year recovery period asset in service in 2017.This is the only asset placed in service in 2017.Assuming half-year convention,no election to expense and no income limitation,what is the amount of total cost recovery deduction?

Mark the correct answer.In cash basis accounting,for tax purposes:

On June 1,2017,Sandalwood Corporation purchases a passenger automobile for 100 percent use in its business.The automobile is in the 5 year cost recovery class and has a basis for depreciation of $30,000.Assuming that the corporation elects the accelerated method of cost recovery for the asset and does not elect to expense any of its cost or take bonus depreciation,what is the total tax depreciation deduction for the 2017 calendar tax year (Year 1) ?

BOND Corporation is owned 25 percent by Brian,30 percent by Orville,20 percent by Nate,and 25 percent by Dart Corporation.Dart Corporation is owned 80 percent by Brian and 20 percent by Nate.Brian and Orville are brothers.Answer each of the following questions about BOND Corporation under the constructive ownership rules of Section 267: a.What is Brian's constructive ownership percentage for Section 267 purposes? b.If Nate sells property to BOND Corporation for a $7,500 loss,what amount of that loss can be recognized for tax purposes (before any annual limitations)?

In general,accrual basis taxpayers recognize income when it is earned,regardless of when it is received.