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Chapter 10 – ACC 5170 – Property Acquistion and Cost Recovery (MC)

36. Tax cost recovery methods do not include:
A. Amortization
B. Capitalization
C. Depletion
D. Depreciation
E. All of these are tax cost recovery methods
B
37. Which of the following business assets is not depreciated?
A. Automobile
B. Building
C. Patent
D. Machinery
E. All of these are depreciated
C
38. An office desk is an example of:
A. Personal property
B. Personal-use property
C. Real property
D. Business property
E. Personal property and Business property
E
39. An example of an asset that is both personal-use and personal property is:
A. A computer used solely to email company employees regarding company activities
B. A storage building used by the CEO to store personal records
C. A computer used solely to monitor the CEO’s investments and to complete her Form 1040
D. A company airplane used by the CEO for business travel
E. All of these are personal-use and personal property
C
40. Which of the following is not usually included in an asset’s tax basis?
A. Purchase price
B. Sales tax
C. Shipping
D. Installation costs
E. All of these are included in an asset’s tax basis
E
41. Which of the following would be considered an improvement rather than a routine maintenance?
A. Oil change
B. Engine overhaul
C. Wiper blade replacement
D. Air filter change
B
42. Tax depreciation is currently calculated under what system?
A. Sum of the years digits
B. Accelerated cost recovery system
C. Modified accelerated cost recovery system
D. Straight line system
E. None of these
C
43. Which is not an allowable method under MACRS?
A. 150 percent declining balance
B. 200 percent declining balance
C. Straight line
D. Sum of the years digits
E. All of these are allowable methods under MACRS
D
44. Which of the allowable methods allows the most accelerated depreciation?
A. 150 percent declining balance
B. 200 percent declining balance
C. Straight line
D. Sum of the years digits
E. None of these allow accelerated depreciation
B
45. How is the recovery period of an asset determined?
A. Estimated useful life
B. Treasury regulation
C. Revenue Procedure 87-56
D. Revenue Ruling 87-56
E. None of these
C
46. Which of the following depreciation conventions are not used under MACRS?
A. Full-month
B. Half-year
C. Mid-month
D. Mid-quarter
E. All of these are used under MACRS
A
47. Which depreciation convention is the general rule for tangible personal property?
A. Full-month
B. Half-year
C. Mid-month
D. Mid-quarter
E. None of these are conventions for tangible personal property
B
48. The MACRS recovery period for automobiles and computers is:
A. 3 years
B. 5 years
C. 7 years
D. 10 years
E. None of these
B
49. Lax, LLC purchased only one asset during the current year. Lax placed in service computer equipment
(5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for
the current year (ignoring §179 and bonus depreciation):
A. $2,000
B. $2,858
C. $3,000
D. $4,000
E. None of these
D
50. Sairra, LLC purchased only one asset during the current year. Sairra placed in service furniture (7-year
property) on April 16 with a basis of $25,000. Calculate the maximum depreciation expense for the
current year, rounding to a whole number (ignoring §179 and bonus depreciation):
A. $1,786
B. $3,573
C. $4,463
D. $5,000
E. None of these
B
51. Beth’s business purchased only one asset during the current year. Beth placed in service machinery (7-
year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense
(ignoring §179 and bonus depreciation):
A. $1,785
B. $2,500
C. $7,145
D. $10,000
E. None of these
A
52. Deirdre’s business purchased two assets during the current year. Deirdre placed in service computer
equipment (5-year property) on January 20 with a basis of $15,000 and machinery (7-year property) on
October 1 with a basis of $15,000. Calculate the maximum depreciation expense, rounded to a whole
number (ignoring §179 and bonus depreciation):
A. $1,286
B. $5,144
C. $5,786
D. $6,000
E. None of these
C
53. Suvi, Inc. purchased two assets during the current year. Suvi placed in service computer equipment (5-
year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November
18 with a basis of $10,000. Calculate the maximum depreciation expense, rounded to a whole number
(ignoring §179 and bonus depreciation):
A. $857
B. $3,357
C. $5,429
D. $6,000
E. None of these
C
54. Wheeler LLC purchased two assets during the current year. Wheeler placed in service computer
equipment (5-year property) on November 16 with a basis of $15,000 and furniture (7-year property)
on April 20 with a basis of $11,000. Calculate the maximum depreciation expense, rounding to a whole
number (ignoring §179 and bonus depreciation):
A. $1,285
B. $2,714
C. $4,572
D. $5,200
E. None of these
B
55. Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the midquarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the
property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a
whole number:
A. $898
B. $2,095
C. $2,461
D. $2,394
E. None of these
B
56. Anne LLC purchased computer equipment (5-year property) on August 29 with a basis of $30,000 and
used the half-year convention. During the current year, which is the fourth year Anne LLC owned the
property, the property was disposed of on January 15. Calculate the maximum depreciation expense:
A. $432
B. $1,728
C. $1,874
D. $3,456
E. None of these
B
57. Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed
in service on August 12. Calculate Poplock’s maximum depreciation for this first year, rounded to the
nearest whole number:
A. $2,648
B. $3,371
C. $3,751
D. $4,774
E. None of these
A
58. Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase
price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed
in service on May 22. Calculate Tom Tom’s maximum depreciation for this first year:
A. $1,605
B. $2,273
C. $2,408
D. $3,410
E. None of these
B
59. Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price
was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed
in service on October 2. If the property is disposed of on February 27 during the 10th year, calculate
Simmons’ maximum depreciation in the 10th year:
A. $641
B. $909
C. $5,128
D. $7,346
E. None of these
B
60. Which of the following assets are eligible for §179 expensing?
A. Used office machinery
B. Qualified leasehold improvements
C. A new delivery truck
D. Used office furniture
E. All of these
A
61. Lenter LLC placed in service on April 29, 2015 machinery and equipment (7-year property) with a basis of $600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing). Assume that the 2014 §179 limits are extended to 2015:
A. $85,740
B. $120,000
C. $514,290
D. $585,740
E. None of these
E
62. Littman LLC placed in service on July 29, 2015 machinery and equipment (7-year property) with a basis of $600,000. Littman’s income for the current year before any depreciation expense was $100,000. Which
of the following statements is true to maximize Littman’s total depreciation expense for 2015? (Assume
that the 2014 §179 limits are extended to 2015.)
A. Littman should take §179 expense equal to the maximum $500,000.
B. Littman should take no §179 expense.
C. Littman’s §179 expense will be greater than $100,000.
D. Littmen’s §179 expense will be less than $100,000.
E. None of these.
D
63. Crouch LLC placed in service on May 19, 2015 machinery and equipment (7-year property) with a
basis of $2,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the
maximum depreciation expense including §179 expensing (but ignoring bonus expensing). (Assume that the 2014 §179 limits are extended to 2015)
A. $314,380.
B. $440,000.
C. $571,510.
D. $742,930.
E. None of these
C
64. Clay LLC placed in service machinery and equipment (7-year property) with a basis of $2,450,000 on June 6, 2015. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum
depreciation expense including §179 expensing (ignoring any possible bonus expensing), rounded to a
whole number. (Assume that the 2014 §179 limits are extended to 2015)
A. $350,105
B. $392,960
C. $778,070
D. $864,395
E. None of these
B
65. Bonnie Jo purchased a used computer (5-year property) for use in her sole proprietorship. The basis of the computer was $2,400. Bonnie Jo used the computer in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo’s depreciation expense during the first year assuming the sole proprietorship had a loss during the year (Bonnie did not place the property in service in the last quarter):
A. $240
B. $288
C. $480
D. $2,400
E. None of these
B
66. Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior
year. The basis of the computer was $2,400. Billie Bob used the computer in his business 60 percent
of the time during the first year. During the second year, Billie Bob used the computer 40 percent
for business use. Calculate Billie Bob’s depreciation expense during the second year assuming the
sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last
quarter):
A. $0
B. $48
C. $192
D. $336
E. None of these
B
67. Which of the following assets is eligible for bonus depreciation?
A. Used office machinery
B. Qualified leasehold improvements
C. A new delivery truck
D. Used office furniture
E. All of these
C
68. Potomac LLC purchased an automobile for $30,000 on August 5, 2015. What is Potomac’s depreciation
expense for 2015 (ignore any possible bonus depreciation)?
A. $3,160
B. $4,287
C. $6,000
D. $30,000
E. None of these
A
69. Arlington LLC purchased an automobile for $40,000 on July 5, 2015. What is Arlington’s depreciation
expense for 2015 if its business use percentage is 75 percent (ignore any possible bonus depreciation)?
A. $2,370
B. $3,160
C. $6,000
D. $8,000
E. None of these
A
70. Assume that Bethany acquires a competitor’s assets on March 31st. The purchase price was $150,000.
Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197
intangible asset). What is Bethany’s amortization expense for the current year, rounded to the nearest
whole number?
A. $0
B. $1,250
C. $1,319
D. $1,389
E. None of these
D
71. Assume that Brittany acquires a competitor’s assets on September 30th of year 1 for $350,000. Of that
amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible
assets (goodwill and a 1-year non-compete agreement). Given, that the non-compete agreement expires
on September 30th of year 2, what is Brittany’s amortization expense for the second year, rounded to the
nearest whole number?
A. $0
B. $1,667
C. $2,917
D. $3,333
E. None of these
D
72. Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of
the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the
year?
A. $0
B. $2,500
C. $5,000
D. $10,000
E. None of these
C
73. Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business
started on November 23rd of the current year, what is the total expense she may deduct with respect to
the start-up costs for her initial year, rounded to the nearest whole number?
A. $2,555
B. $3,544
C. $5,522
D. $52,000
E. None of these
B
74. Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization expense Daschle may deduct during the current year?
A. $0
B. $6,500
C. $7,000
D. $12,000
E. None of these
C
75. Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July
15th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total
amortization expense Jorge may deduct during the current year?
A. $0
B. $5,500
C. $6,000
D. $12,000
E. None of these
C
76. Geithner LLC patented a process it developed in the current year. The patent is expected to create
benefits for Geithner over a 10 year period. The patent was issued on April 15th and the legal costs
associated with the patent were $43,000. In addition, Geithner had unamortized research expenditures of
$15,000 related to the process. What is the total amortization expense Geithner may deduct during the
current year?
A. $2,417
B. $2,174
C. $4,108
D. $4,350
E. None of these
D
77. Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe
paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of
turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for
$200,000. What is Santa Fe’s cost depletion expense for the current year?
A. $60,000
B. $90,000
C. $110,000
D. $300,000
E. None of these
B
78. Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe
paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of
turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa
Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe’s cost depletion
expense for the current year?
A. $60,000
B. $90,000
C. $190,000
D. $160,000
E. None of these
A
79. What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15
percent?
Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000
ounces of silver from the deposit. Lucky Strike mined the silver and sold it reporting gross receipts of
$1.8 million, $2.5 million, and $2 million for years 1 through 3, respectively. During years 1 - 3, Lucky
Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000), $400,000,
and $100,000, respectively. In years 1 - 3, Lucky Strike actually extracted 300,000 ounces of silver as
follows: (Photo)
A. $200,000
B. $375,000
C. $400,000
D. $450,000
E. None of these
79. What is Lucky Strike’s depletion expense for year 2 if the applicable percentage depletion for silver is 15
percent?
Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000
ounces of silver from the deposit. Lucky Strike mined the silver and sold it reporting gross receipts of
$1.8 million, $2.5 million, and $2 million for years 1 through 3, respectively. During years 1 – 3, Lucky
Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000), $400,000,
and $100,000, respectively. In years 1 – 3, Lucky Strike actually extracted 300,000 ounces of silver as
follows: (Photo)

A. $200,000
B. $375,000
C. $400,000
D. $450,000
E. None of these

D
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