Question 1

197 intangibles:

Accepted Answer

Intangibles must be amortized over a 15-year life for tax purposes, regardless of their actual useful life, according to the IRS regulations. This rule applies to most intangible assets acquired after August 10, 1993, and to some acquired after July 25, 1991.

Question 2

Which one of the following is true about Section 1231 assets?

Accepted Answer

Section 1231 asset losses must be netted against 1231 asset gains before tax treatment is determined. Section 1231 assets are not treated like capital assets, business property held for 1 year or less is not considered a Section 1231 asset, and company stock is not a Section 1231 asset.

Question 3

Patrick purchased a used passenger automobile on June 1, 2018.He paid $19,000 for the automobile.During 2018, he uses the automobile 75 percent of the time for business.Patrick wishes to claim the maximum amount of depreciation possible (no bonus depreciation or election to expense).
a.Calculate Patrick's depreciation expense on the automobile for 2018.
b.​Calculate Patrick's depreciation expense on the automobile for 2019, assuming the same 75 percent business use.

Accepted Answer

The answer of Patrick purchased a used passenger automobile on...

Question 4

If actual business use of an automobile is less than 100 percent, the annual automobile depreciation limitations must be reduced to reflect the actual business use only.

Accepted Answer

This is true. The automobile depreciation limitations are based on the percentage of business use of the vehicle, so if the actual business use is less than 100 percent, the depreciation must be reduced accordingly.

Question 5

On January 1, 2018, Ted purchased a small software company for $200,000.He paid $120,000 for the fixed assets of the company and $80,000 for goodwill.How much amortization may Ted deduct on his 2018 tax return for the purchased goodwill?

Accepted Answer

Goodwill is amortized over 15 years for tax purposes. Therefore, the annual amortization deduction for the goodwill is $80,000 / 15 = $5,333.33, rounded to $5,333.

Question 6

Which of the following assets is not a Section 1231 asset?

Accepted Answer

Inventory is specifically excluded as a Section 1231 asset. The other choices (A, B, C) are all examples of Section 1231 assets.

Question 7

The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.

Accepted Answer

This statement is false. The annual automobile depreciation limitations apply to all years of the asset's recovery period, not just the first four years.

Question 8

On June 1, 2018, Sandalwood Corporation purchases a passenger automobile for 100 percent use in its business.The automobile is in the 5 year cost recovery class and has a basis for depreciation of $60,000.Assuming that the corporation elects the accelerated method of cost recovery for the asset and does not elect to expense any of its cost or take bonus depreciation, what is the total tax depreciation deduction for the 2018 calendar tax year (Year 1)?

Accepted Answer

The answer of On June 1, 2018, Sandalwood Corporation purchases...

Question 9

Shellie purchased a passenger automobile on March 2, 2018.She paid $65,000 for the automobile and can support business use of 85 percent.Calculate the amount of depreciation on the automobile for 2018 using the accelerated MACRS method (if available), assuming Shellie does not make the election to expense or claim bonus depreciation.

Accepted Answer

The answer of Shellie purchased a passenger automobile on March...

Question 10

Perry develops a successful advertising business that he subsequently sells to his competitor, Carl, for $108,000.Perry retires in the same town where he has always lived and done business.Carl insists that Perry sign a covenant not to compete.The advertising business has no tangible assets; Carl receives only the name of the business, the client lists and whatever going-concern value there is.How should Carl treat the $108,000 cost of the advertising business he purchased?

Accepted Answer

The answer of Perry develops a successful advertising business that...

Question 11

Acquired goodwill is considered to be a Section 197 asset amortized over 15 years for tax purposes.

Accepted Answer

The IRS considers acquired goodwill to be a Section 197 asset that must be amortized over a 15-year period for tax purposes.

Question 12

Scott purchases a small business from Lew on July 1, 2018.He paid the following amounts for the business: $\begin{array}{llcc}
  \text {Land  } &\$100,000  \
 \text { Commercial building } &200,000\
 \text { Furniture and equipment } &78,500\
 \text {Going-concern value  } &50,000\
 \text {Workforce in place  } &29,500\
 \text { Total } &\underline{\$458,000}\
\end{array}$
 
a.How much of the $458,000 purchase price is for Section 197 intangible assets?
b.What amount can Scott deduct on his 2018 tax return as Section 197 intangible amortization?

Accepted Answer

The answer of Scott purchases a small business from Lew...

Question 13

Which one of the following is a Section 197 intangible?

Accepted Answer

Goodwill is considered a Section 197 intangible asset for tax purposes.

Question 14

On June 1, 2018, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business.The auto, with a cost basis of $22,000, has a 5-year recovery period..How much depreciation should be taken for 2018, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

Accepted Answer

The answer of On June 1, 2018, Cork Oak Corporation...

Question 15

What is the maximum depreciation expense deduction for Year 2 (2019)for a passenger automobile, used 100 percent for qualified business use, placed in service on June 15, 2018 and costing $16,000 (the election to expense is not made and no bonus depreciation was taken)?

Accepted Answer

The answer of What is the maximum depreciation expense deduction...

Question 16

Max purchases a new auto in 2018 at a cost of $56,000.He uses the car 80% for business.Assuming a half-year convention, bonus depreciation, but no immediate expensing, what is the depreciation deduction on the auto?

Accepted Answer

The answer of Max purchases a new auto in 2018...

Question 17

Section 197 intangibles:

Accepted Answer

Section 197 intangibles include goodwill, going-concern value, and information bases, among others. They are amortized over a 15-year period, as defined in the Revenue Reconciliation Act of 1993, and not over the actual estimated useful life of the intangible asset. Therefore, all of the above statements are true.

Question 18

If an automobile is purchased for 100 percent use in the taxpayer's business, the annual automobile depreciation limitations do not apply.

Accepted Answer

The annual automobile depreciation limitations apply to all cars used in a taxpayer's business, regardless of the percentage of business use. These limitations cap the amount of depreciation that can be claimed each year.

Question 19

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2018 is:

Accepted Answer

The maximum amount of depreciation including bonus depreciation on a passenger auto placed in service in 2018 is $18,000. This is due to the fact that a passenger auto is considered a vehicle with a Gross Vehicle Weight Rating (GVWR) of 6,000 lbs or less, and the maximum bonus depreciation allowed for such vehicles is $8,000. The standard depreciation limit is $10,000, but with the bonus depreciation, the total amount of depreciation allowed is $18,000. Therefore, choice D is correct.

Question 20

For each of the following independent situations, indicate with a "Yes" if the asset is listed property.Indicate with a "No" if the asset is not listed property.
a.Airplane used 25 percent for business ______
b.Fleet of cabs ______
c.A moving van ______
d.DVD player used 10 percent for business ______
e.A digital camera used 30 percent of the time to list eBay items ______

Accepted Answer

The answer of For each of the following independent situations,...

Quiz 8: Depreciation and Sale of Business Property