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Aaron,a shareholder-employee of Pigeon,Inc. ,receives a $300,000 salary.The IRS classifies $100,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Aaron's gross income by $100,000 and increase Pigeon's gross income by $100,000.

A) True
B) False

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Under the MACRS straight-line election for personalty,only the half-year convention is applicable.

A) True
B) False

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Graham,a CPA,has submitted a proposal to do the annual audit for a municipality.Owen,the city treasurer,tells Graham that for a $1,000 fee,he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

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The payment from Graham to Owen appears ...

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On June 1,2015,Sam purchased used farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Determine the cost recovery deduction for 2015.


A) $5,000
B) $7,500
C) $10,000
D) $78,750
E) None of the above

F) C) and D)
G) A) and B)

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On June 1,2015,Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car. ) She does not take additional first-year depreciation (if available) .Determine the cost recovery deduction for 2016.


A) $3,160
B) $3,290
C) $3,570
D) $6,720
E) None of the above

F) B) and C)
G) A) and E)

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On May 30,2014,Jane purchased a factory building to use for her business.In August 2015,Jane paid $300,000 for improvements to the building.Determine Jane's total deduction with respect to the building improvements for 2015.


A) $2,889
B) $4,173
C) $4,815
D) $25,000
E) None of the above

F) A) and B)
G) B) and E)

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The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

A) True
B) False

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The only asset Bill purchased during 2015 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2015.


A) $1,428
B) $2,499
C) $26,749
D) $33,375
E) None of the above

F) C) and D)
G) B) and C)

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Ordinary and necessary business expenses,other than cost of goods sold,of an illegal drug trafficking business do not reduce taxable income.

A) True
B) False

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Antiques may be eligible for cost recovery if they are used in a trade or business.

A) True
B) False

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Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.

A) True
B) False

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Land improvements are generally not eligible for cost recovery.

A) True
B) False

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Property used for the production of income is not eligible for § 179 expensing.

A) True
B) False

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If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project if less than 60 months.

A) True
B) False

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The factor for determining the cost recovery for eligible real estate under MACRS,in the year of disposition,is taken from the month of the disposition.

A) True
B) False

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If an automobile is placed in service in 2015,the limitation for cost recovery in 2017 will be based on the cost recovery limits for the year 2015.

A) True
B) False

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Property which is classified as personalty may be depreciated.

A) True
B) False

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Mary purchased a new five-year class asset on March 7,2015.The asset was listed property (not an automobile) .It was used 60% for business and the rest of the time for personal use.The asset cost $900,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $600,000.Mary also takes additional first-year depreciation (if available) .Determine the total deductions with respect to the asset for 2015.


A) $72,000
B) $271,600
C) $524,000
D) $600,000
E) None of the above

F) A) and B)
G) A) and C)

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All listed property is subject to the substantiation requirements of § 274.

A) True
B) False

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On June 1,2015,James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car. ) James does not take additional first-year depreciation (if available) .Determine the cost recovery deduction for 2015.


A) $1,776
B) $1,896
C) $4,800
D) $8,000
E) None of the above

F) A) and C)
G) A) and B)

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