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Exam 9: Capital Recovery: Depreciation, Amortization, and Depletion

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Question 1

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MACRS prescribes rates of depreciation determined by three criteria.What are they?

A) Useful life, property classification, and recovery period
B) Accounting convention, useful life, and property classification
C) Accounting convention, useful life, and recovery period
D) Accounting convention, property classification, and recovery period

E) A) and D)
F) A) and C)

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Question 2

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Which statement concerning class life and recovery period is not true?

A) The class life of an asset and its recovery period under the Alternative Depreciation System (ADS) are generally the same.
B) Except for very short-lived property, the recovery period of an asset under MACRS is generally less than its class life.
C) A class life has been assigned by the IRS to each asset to which a recovery period has been assigned.
D) The class life of an asset is constant, regardless of which straight-line method is used to calculate its depreciation.

E) A) and C)
F) None of the above

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Question 3

Multiple Choice

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During the year, Fine Furnishings, a manufacturer of furniture, purchased the following assets: In computing depreciation of these assets, which of the following conventions will be used?

All methods of depreciation permitted by the IRS prior to the 1981 introduction of ACRS provided taxpayers the opportunity to manipulate the depreciation deduction by underestimating the useful lives of their property.

Expenditures for research and experimentation that are deferred must be amortized ratably over a period of 17 years.

In November of this year, Creative Corn Products, a calendar year taxpayer, placed in service its only equipment purchased during the year.The equipment cost $700,000.All of the equipment qualified as five-year property under MACRS.Ignore bonus depreciation.The maximum deduction that the taxpayer may claim with respect to the equipment is

Due to the ceiling on the amount of first-year expensing and depreciation deductions that may be claimed for automobiles, the basis of a car

Which property is depreciable using MACRS?

Taxpayer K purchased a used stereo system for $12,000 in May.K uses the system 20 hours each week for her business as a music critic, and she and her family use it 30 hours each week for educational and personal purposes.How much may K claim in deductions for depreciation and current expenses associated with the system? (Assume that stereo equipment has a recovery period of five years, regardless of the depreciation method employed.)

The keeping of records required for listed property is extensive but not limitless.What is not required to substantiate the use of listed property?

Which statement is not true of straight-line depreciation under MACRS?

Riverview Incorporated, a calendar year taxpayer, purchased an apartment building on June 1 last year for $1,200,000, of which $200,000 was allocable to the land.The corporation sold the property on June 27 of the current year.The corporation's depreciation for the building for the current year will be approximately

The use of MACRS is precluded for property placed in service prior to the enactment of either version of MACRS, unless the property is transferred in a transaction where both the owner and the user change.

During the year a calendar year taxpayer, Heavenly Hamhocks, a chain of specialty food shops, purchased equipment as follows: Assuming the property is all seven-year property, depreciation for the assets this year would be

During the year, T purchased the items shown below.Indicate which item qualifies for both § 179 limited expensing and bonus depreciation.

The straight-line method must be used for amortizing intangible property such as copyrights.

Which of the following is not considered eligible property for limited expensing under § 179?

Last year, Taxpayer N purchased a car for $12,000 and used it entirely for his construction business.Depreciation that year was $2,400.N hired his son T in February of the current year and allowed him to put the car to personal use on weekends.The value of T's personal use of the car was included as part of his income.If T's personal use of the car this year represented 60 percent of its total use, what income and depreciation expense related to the car should N include on the tax return for his business?

Personal property is

A depreciation deduction may be claimed for a decline in value that occurred while an item of property was held for personal purposes.