Question 1

Broadus,a calendar year taxpayer,purchased a total of $128,300 tangible personalty in 2017.Broadus' taxable income without regard to a Section 179 deduction was $92,600.Which of the following statements is true?

Accepted Answer

Broadus can elect to expense the full cost of $128,300 under Section 179, but the deduction is limited to the taxable income of $92,600.

Question 2

Song Company,a calendar year taxpayer,purchased a total of $2,034,400 tangible personalty in 2017.How much of this cost can Song elect to expense under Section 179?

Accepted Answer

The answer of Song Company,a calendar year taxpayer,purchased a total...

Question 3

Belsap Inc.,a calendar year taxpayer,purchased a total of $590,000 depreciable personalty during May 2017.Which of the following statements is true?

Accepted Answer

Belsap can elect to expense up to $510,000 of the cost under Section 179. The remaining $80,000 is subject to MACRS depreciation over the appropriate recovery period.

Question 4

Lensa Inc.purchased machinery several years ago for $400,000.This year,book depreciation on the machinery was $40,000,MACRS depreciation was $35,720,and Lensa's marginal tax rate is 35%.Which of the following statements is true?

Accepted Answer

The answer of Lensa Inc.purchased machinery several years ago for...

Question 5

Laven Company,a calendar year taxpayer,purchased a total of $561,240 new depreciable personalty during 2017.Which of the following statements is true?

Accepted Answer

The answer of Laven Company,a calendar year taxpayer,purchased a total...

Question 6

Dorian,a calendar year corporation,purchased $1,568,000 of equipment on May 3.This was Dorian's only purchase of depreciable property for the year.If the equipment has a 10-year recovery period,refer to Table 7.2 and compute Dorian's first and second-year MACRS depreciation.(Disregard the Section 179 deduction and bonus depreciation in making your calculation.)

Accepted Answer

The answer of Dorian,a calendar year corporation,purchased $1,568,000 of equipment...

Question 7

WR&Z Company,a calendar year taxpayer,paid $6,400,000 for a commercial office building and allocated $400,000 of the cost to the land and $6,000,000 of the cost to the building.WR&Z place the realty in service on May 11.Refer to the appropriate MACRS Table in Chapter 7 to compute WR&Z's first-year depreciation on the realty.

Accepted Answer

The answer of WR&Z Company,a calendar year taxpayer,paid $6,400,000 for...

Question 8

Kemp Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2017.Kemp made one asset purchase: manufacturing equipment costing $543,600.The equipment has a 7-year recovery period and was placed in service on June 14.Assuming that Kemp made the Section 179 election with respect to the equipment,compute Kemp's 2017 cost recovery deduction.

Accepted Answer

Since Kemp made the Section 179 election with respect to the equipment, they can deduct up to $510,000 in 2017. Therefore, they can deduct the entire cost of the equipment ($543,600) as a Section 179 expense deduction. 
The remaining $33,600 is then subject to regular MACRS depreciation. Since the equipment was placed in service on June 14, 2017, Kemp can take a half-year of MACRS depreciation for the equipment in 2017. Using the 200% declining balance method for 7-year property, the half-year depreciation rate is 14.29% (2.857% x 5). Therefore, Kemp's cost recovery deduction for the equipment in 2017 is:

Section 179 expense deduction: $543,600 
MACRS depreciation: ($33,600 x 14.29%) = $4,801 
Total cost recovery deduction: $543,600 + $4,801 = $529,201.

Therefore, choice (B) is the correct answer.

Question 9

Norwell Company purchased $1,413,200 of new business equipment on July 10,2017.This was Norwell's only asset purchase for its 2017 taxable year.Compute Norwell's total tax depreciation deduction for this 7-year recovery property.

Accepted Answer

The answer of Norwell Company purchased $1,413,200 of new business...

Question 10

Cobly Company,a calendar year taxpayer,made only one asset purchase this year: machinery costing $1,932,500.The machinery is 7-year recovery property,and Cobly placed it in service on October 12.How many months of MACRS depreciation on the machinery is Cobly allowed?

Accepted Answer

The midquarter convention applies because Cobly placed more than 40% (100%) of its depreciable personalty into service in the fourth quarter.

Question 11

W&F Company,a calendar year taxpayer,purchased a total of $2,034,700 tangible personalty in 2017.How much of this cost can W&F elect to expense under Section 179?

Accepted Answer

Section 179 allows taxpayers to expense up to a certain dollar amount of tangible personal property purchased during the year. For the 2017 tax year, the maximum amount that can be expensed under Section 179 is $510,000. However, this amount is reduced dollar-for-dollar for purchases over $2,030,000. Since W&F purchased $2,034,700 in tangible personal property, the maximum amount it can elect to expense under Section 179 is $510,000 - ($2,034,700 - $2,030,000) = $505,300. Therefore, the correct answer is C.

Question 12

Which of the following statements about MACRS is false?

Accepted Answer

All statements about MACRS are true.

Question 13

Maxcom Inc.purchased 15 passenger automobiles for use by its sales force.Which of the following statements is true?

Accepted Answer

The answer of Maxcom Inc.purchased 15 passenger automobiles for use...

Question 14

Gowda Inc.,a calendar year taxpayer,purchased $1,496,000 of equipment on March 23.This was Gowda's only purchase of depreciable property for the year.If the equipment has a 7-year recovery period,refer to Table 7.2 and compute Gowda's first and second-year MACRS depreciation.(Disregard the Section 179 deduction and bonus depreciation in making your calculation.)

Accepted Answer

The answer of Gowda Inc.,a calendar year taxpayer,purchased $1,496,000 of...

Question 15

D&R Company,a calendar year corporation,purchased $1,116,000 of equipment on August 3.This was D&R's only purchase of depreciable property for the year.If the equipment has a 7-year recovery period,refer to Table 7.2 and compute D&R's first and second-year MACRS depreciation.(Disregard the Section 179 deduction and bonus depreciation in making your calculation.)

Accepted Answer

According to Table 7.2, 7-year property has a first-year MACRS depreciation rate of 14.29% and a second-year MACRS depreciation rate of 24.49%. Applying these rates to the cost of the equipment, we get:

First year depreciation: $1,116,000 x 14.29% = $159,476
Second year depreciation: ($1,116,000 - $159,476) x 24.49% = $273,308

Therefore, the correct choice is B.

Question 16

Pyle Inc.,a calendar year taxpayer,generated over $10 million taxable income in 2017.Pyle made one asset purchase: new transportation equipment costing $322,000.The equipment has a 5-year recovery period and was placed in service on February 9.Assuming that Pyle made the Section 179 election with respect to the equipment,compute Pyle's 2017 cost recovery deduction.

Accepted Answer

Pyle can elect to expense the entire cost of the equipment ($322,000) under Section 179, as the limit for Section 179 in 2017 was $510,000, which is more than the cost of the equipment.

Question 17

Kaskar Company,a calendar year taxpayer,paid $3,350,000 for a residential apartment complex and allocated $350,000 of the cost to the land and $3,000,000 of the cost to the building.Kaskar place the realty in service on September 29.Refer to the appropriate MACRS Table in Chapter 7 to compute Kaskar's first-year depreciation on the realty.

Accepted Answer

The answer of Kaskar Company,a calendar year taxpayer,paid $3,350,000 for...

Question 18

Which of the following statements concerning MACRS depreciation is true?

Accepted Answer

MACRS (Modified Accelerated Cost Recovery System) depreciation for buildings is indeed not accelerated and is computed using the straight-line method. This is in contrast to many other types of property under MACRS, which are depreciated using accelerated methods.

Question 19

Durna Inc.,a calendar year taxpayer,made two asset purchases this year.The first purchase was a machine costing $874,000,and the second purchase was equipment costing $660,000.Both assets are 7-year recovery property.Durna placed the machine in service on March 27 and the equipment in service on December 14.How many months of MACRS depreciation is Durna allowed for each asset?

Accepted Answer

For assets placed in service during the year, the IRS allows for half-year depreciation. Since the machine was placed in service on March 27, Durna is allowed 9/12 months (or 0.75) of depreciation for the first year. For the equipment placed in service on December 14, Durna is allowed 2.5/12 months (or 0.2083) of depreciation for the first year. Therefore, Durna is allowed 10.5 months of MACRS depreciation for the machine and 1.5 months of MACRS depreciation for the equipment.

Question 20

Essco Inc.,a calendar year taxpayer,made two asset purchases this year.The first purchase was a machine costing $836,000,and the second purchase was equipment costing $494,000.Both assets are 7-year recovery property.Essco placed the machine in service on July 21 and the equipment in service on October 14.How many months of MACRS depreciation is Essco allowed for each asset?

Accepted Answer

The midquarter convention does not apply because Essco placed only 37% of its depreciable personalty into service in the fourth quarter.

Quiz 7: Property Acquisitions and Cost Recovery Deductions