question

Crouch LLC placed in service on May 19, 2013 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):

answer

$571,510

question

Which of the following is not a §1245 asset if held for more than one year?

answer

Land

question

Mary traded furniture used in her business to a furniture dealer for some new furniture. Mary originally purchased the furniture for $45,000 and it had an adjusted basis of $20,000 at the time of the exchange. The new furniture had a fair market value of $40,000. Mary also gave $4,000 to the dealer in the transaction. What is Mary's adjusted basis in the new furniture after the exchange?

answer

$24,000

question

Which of the following is NOT considered a related party for the purpose of limitation on accruals to related parties?

answer

A minority shareholder when the taxpayer is a corporation

question

Riley operates a plumbing business and this year the 3-year old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction?

answer

$4,600

question

The sale of machinery at a loss that was used in a trade or business and held for more than one year results in the following type of loss?

answer

§1231

question

Paris operates a talent agency as a sole proprietorship, and this year she incurred the following expenses in operating her talent agency. What is the total deductible amount of these expenditures? $1,000 dinner with a film producer where no business was discussed $500 lunch with sister Nicky where no business was discussed $700 business dinner with a client but Paris forgot to keep any records (oops!) $900 tickets to the opera with a client following a business meeting

answer

$450

question

A taxpayer that receives boot in a like-kind exchange resulting in a gain recognizes as gain the lesser of the fair market value of the boot received or the gain realized.

answer

True

question

The gain or loss realized is the amount realized less the adjusted basis.

answer

True

question

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than the amount of the allowable depreciation.

answer

False

question

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:

answer

$2,273

question

Which of the following types of transactions may not typically be accounted for using the cash method?

answer

sales of inventory

question

For corporations, §291 recaptures 20 percent of the lesser of depreciation taken or the realized gain as ordinary income.

answer

True

question

A business generally adopts a fiscal or calendar year by using that year end on the first tax return for the business.

answer

True

question

Which is not an allowable method under MACRS?

answer

Sum of the years digits

question

Which of the following is likely to be a fully deductible business expense?

answer

Salaries in excess of the industry average paid to attract talented employees.

question

Qualified production activity income for calculating the domestic production activities deduction is limited to taxable income for a business or modified AGI for an individual.

answer

True

question

Which of the following is a true statement?

answer

Meals, lodging, and incidental expenditures are only deductible if the taxpayer is away from home overnight while traveling.

question

George operates a business that generated adjusted gross income of $250,000 and taxable income of $170,000 this year (before the domestic production activities deduction). Included in income was $70,000 of qualified production activities income. George paid $60,000 of wages to employees engaged in domestic manufacturing. What domestic production activities deduction will George be eligible to claim this year?

answer

$6,300

question

The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business, and held for more than one year results in the following types of gain or loss?

answer

§1245 and §1231

question

Alpha sold machinery, which it used in its business, to Beta, a related entity, for $40,000. Beta used the machinery in its business. Alpha bought the equipment a few years ago for $50,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Alpha's gain?

answer

$20,000 ordinary income under §1239.

question

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?

answer

$1,389

question

Which of the following is not an involuntary conversion?

answer

A foreclosure.

question

Beth operates a plumbing firm. In August of last year she signed a contract to provide plumbing services for a renovation. Beth began the work that August and finished the work in December of last year. However, Beth didn't bill the client until January of this year and she didn't receive the payment until March when she received payment in full. When should Beth recognize income under the accrual method of accounting?

answer

In December of last year

question

Arlington LLC traded machinery used in its business to a machinery dealer for some new machinery. Arlington originally purchased the machinery for $60,000 and it had an adjusted basis of $28,000 at the time of the exchange. The new machinery had a fair market value of $35,000. Arlington also received $2,000 of office equipment in the transaction. What is Arlington's gain or loss recognized on the exchange?

answer

$2,000.

question

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

answer

False

question

Mike started a calendar year business on September 1st of this year by paying 12 months rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

answer

$12,000 under the cash method and $4,000 under the accrual method

question

Ajax Computer Company is an accrual method calendar year taxpayer. Ajax has never advertised in the national media prior to this year. In November of this year, however, Ajax paid $1 million for television advertising time during a "super" sporting event scheduled to take place in early February of next year. In addition, in November of this year the company paid $500,000 for advertising time during a professional golf tournament in April of next year. What amount of these payments, if any, can Ajax deduct this year?

answer

$1 million

question

Generally, the amount realized is everything of value received in a sale less selling expenses.

answer

True

question

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

answer

True

question

Sairra, LLC purchased only one asset during the current year. It 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):

answer

$3,573

question

Which of the following realized gains results in a recognized gain?

answer

Sale to a related party.

question

The §1231 lookback rule recharacterizes §1231 gains if §1231 losses have created ordinary losses in the last 5 years.

answer

True

question

Which of the following sections does not currently recapture or recharacterize a taxpayer's gain?

answer

§1250

question

Lenter LLC placed in service on April 29, 2013 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):

answer

$514,290

question

A fiscal tax year can end on the last day of any month other than December. True

answer

True

question

Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?

answer

selling expenditures

question

The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

answer

True

question

Which of the following is an explanation for why insurance premiums on a key employee are not deductible?

answer

The insurance deduction would offset taxable income without the potential for the proceeds generating taxable income.

question

Deirdre's business purchased two assets during the current year. It 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):

answer

$5,786

question

f a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

answer

False

question

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

answer

True

question

Which of the following gains does not result solely in an ordinary gain or loss?

answer

Sale of equipment where the gain realized exceeds the accumulated depreciation.

question

The MACRS depreciation tables automatically switch to the straight-line method when it exceeds the declining balance method.

answer

True

question

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

answer

False

question

Which of the following is true regarding depreciation recapture?

answer

Changes the character of a gain.

question

Bill operates a proprietorship using the cash method of accounting, and this year he received the following payments: • $100 in cash from a customer for services rendered this year • a promise to pay $200 from a customer for services rendered this year • tickets to a football game worth $250 as payment for services performed last year • a check for $170 for services rendered this year that Bill forgot to cash How much income should Bill realize on Schedule C?

answer

$520

question

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

answer

True

question

Brad sold a rental house that he owned for $250,000. Brad bought the rental house five years ago for $225,000 and has claimed $50,000 of depreciation expense. What is the amount and character of Brad's gain or loss?

answer

$25,000 §1231 gain and $50,000 unrecaptured §1250 gain.

question

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?

answer

$3,544

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