Question 1

Which of the following business assets is not depreciated?
A)Automobile
B)Building
C)Patent
D)Machinery
E)All of the assets are depreciated.

Accepted Answer

Patents are not depreciated because they have a limited useful life and are amortized over their legal or economic life instead. Depreciation is used for physical assets that experience wear and tear over time. Patents are not subject to depreciation because they are considered to have a finite useful life. Rather, they are amortized over the course of their useful life.

Question 2

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Accepted Answer

The answer of The alternative depreciation system requires both a...

Question 3

All assets subject to amortization have the same recovery period.

Accepted Answer

Different types of assets have different recovery periods for amortization, based on their expected useful life. The recovery period for assets subject to amortization can vary depending on the type of asset and the method of amortization used. Some assets may have a recovery period of several years, while others may have a recovery period of several decades.

Question 4

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

Accepted Answer

When a business purchases a patent or copyright, the cost is capitalized and amortized over its useful life. However, if the business self-creates the intangible, only the costs that can be directly attributed to the creation process (like legal fees for patent registration) are capitalized and amortized; many initial research and development costs are expensed as incurred.

Question 5

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 CEOs investments and to complete her Form 1040. D)

A company airplane used by the CEO for business travel.P1P1_E E)All of the assets are personal-use and personal property.

Accepted Answer

A computer used solely to monitor the CEO's investments and to complete her Form 1040 is considered both personal-use (as it is used for personal financial management and tax preparation) and personal property (as it is a tangible asset owned by an individual).

Question 6

Goodwill and customer lists are examples of §197 amortizable assets.

Accepted Answer

Goodwill and customer lists are both listed as examples of §197 intangible assets that can be amortized over time for tax purposes. Goodwill and customer lists are specifically listed as examples of §197 intangible assets in the Internal Revenue Code, and are subject to amortization over 15 years.

Question 7

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

Accepted Answer

Major integrated oil and gas producers are generally not allowed to take percentage depletion for tax purposes; they must use cost depletion. Percentage depletion is available only to independent producers and royalty owners under U.S. tax law.

Question 8

Used property is eligible for bonus depreciation.

Accepted Answer

Under current tax laws, used property is eligible for bonus depreciation. The Tax Cuts and Jobs Act (TCJA) of 2017 allows for 100% bonus depreciation on qualifying used property acquired and placed in service after September 27, 2017. This includes both tangible property and certain qualified improvement property.

Question 9

The method for tax amortization is always the straight-line method.

Accepted Answer

The answer of The method for tax amortization is always...

Question 10

Depletion is the method taxpayers use to recover their capital investment in natural resources.

Accepted Answer

Depletion is a tax deduction used to recover the cost of natural resources through their sale or extraction. It is used to reflect the reduction in the value of the resource as it is being used up. Depletion is a tax deduction that allows taxpayers to recover their capital investment in natural resources such as oil, gas, minerals, and timber. This deduction is based on the idea that these resources have a limited lifespan and will eventually be depleted or exhausted through extraction or harvesting. Taxpayers can use depletion to offset their taxable income and reduce their overall tax liability.

Question 11

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

Accepted Answer

Listed property refer to assets that can be used for both business and personal purposes, such as vehicles, computers and cameras. Listed property includes items such as cars, computers, and phones that are commonly used for both business and personal purposes.

Question 12

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

Accepted Answer

This statement about the treatment of research and experimentation expenditures is true. Businesses have the option to immediately expense these costs or to capitalize them and amortize them over time, but the amortization period must be at least 60 months. This statement is true. Businesses can choose to immediately expense research and experimentation expenditures, or they may choose to capitalize and amortize them over a period of not less than 60 months using the straight-line method.

Question 13

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 the choices are included in an asset's tax basis.

Accepted Answer

All of the choices listed (purchase price, sales tax, shipping, and installation costs) are typically included in an asset's tax basis. The tax basis of an asset is essentially its cost for tax purposes, which includes the purchase price and all expenses incurred to acquire and prepare the asset for use.

Question 14

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.

Accepted Answer

Businesses can deduct percentage depletion when they sell the natural resource, and they deduct cost depletion in the year they produce or extract the natural resource. Percentage depletion allows businesses to deduct a percentage of the gross income from the sale of the natural resource, while cost depletion allows businesses to deduct the cost of extracting or producing the natural resource. Businesses can deduct percentage depletion when they sell the natural resource, which is calculated as a percentage of the gross income from the sale. Cost depletion, on the other hand, is deducted in the year they produce or extract the natural resource and is calculated as a percentage of the total cost of the resource.

Question 15

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

Accepted Answer

Taxpayers can only expense up to $5,000 of start-up costs and $5,000 of organizational expenses in the year that the business begins. Any remaining costs must be amortized over a period of 180 months (15 years). Taxpayers may only expense up to $5,000 of start-up costs and $5,000 of organizational expenditures in the first year of business. Any excess must be amortized over 180 months.

Question 16

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.

Accepted Answer

An office desk is considered personal property because it is movable and not permanently attached to the land or buildings. When used in a business context, it also qualifies as business property, reflecting its role in commercial activities.

Question 17

Limits are placed on the depreciation of luxury automobiles.

Accepted Answer

The IRS places limits on the amount of depreciation that can be claimed on luxury automobiles to prevent excessive tax benefits. The IRS places limits on the amount of depreciation that can be claimed for luxury automobiles used for business purposes. This is to prevent individuals from taking advantage of excessive tax deductions for expensive vehicles.

Question 18

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

Accepted Answer

The answer of To increase their depreciation deduction on automobiles,...

Question 19

Cost depletion is available to all natural resource producers.

Accepted Answer

Cost depletion is a method of accounting that can be used by natural resource producers to allocate the cost of the asset over its estimated recoverable units. This method is available to all natural resource producers who hold a depletable natural resource asset, such as oil, gas, minerals, or timber. Cost depletion is an allowable deduction for all natural resource producers.

Question 20

If the business-use percentage for listed property falls below 50 percent, the only adjustment isthat all future depreciation must be calculated under the straight-line method.

Accepted Answer

If the business-use percentage for listed property falls below 50 percent, not only must all future depreciation be calculated under the straight-line method, but the taxpayer may also need to recapture any excess depreciation taken in previous years over the amount that would have been allowed using the straight-line method.

Quiz 10: Property Acquisition and Cost Recovery

Which of the following business assets is not depreciated?