The Modified Accelerated Cost Recovery System (Macrs)

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1/39 Questions

Tax cost recovery methods do not include:
- Amortization
- Depletion
- Caplitalization
- Depreciation
- All

About This Quiz

Explore the intricacies of the Modified Accelerated Cost Recovery System (MACRS) through this focused quiz. Assess your understanding of tax depreciation, cost recovery methods, and asset basis. Ideal for learners in finance and accounting, enhancing practical knowledge of U. S. Tax regulations.

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2.

Which of the following is not depreciated?
- Automobile
- Building
- Patent
- Machinery
- All
Correct Answer

A. Patent

Explanation

Depreciation is the decrease in the value of an asset over time. Automobiles, buildings, and machinery are all physical assets that are subject to wear and tear and therefore can depreciate in value. However, patents are intellectual property rights that do not have a physical form and are not subject to physical deterioration. Therefore, patents are not depreciated.

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3.

Which of the following is not usually included in an asset's tax basis?
- Purchase Price
- Sales Tax
- Shipping
- Installation Costs
- All
Correct Answer

A. All

Explanation

The correct answer is "All". An asset's tax basis typically includes the purchase price, sales tax, shipping, and installation costs. However, "All" is not usually included in an asset's tax basis because it is a broad term that encompasses all the options listed in the question. Therefore, it is not a specific item that is typically included in an asset's tax basis.

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4.

Which of the following would be considered an improvement rather than a routine maintenance?
- Oil Change
- Engine Overhaul
- Wiper blade replacement
- Air filter change
Correct Answer

A. Engine Overhaul

Explanation

An engine overhaul would be considered an improvement rather than routine maintenance because it involves a comprehensive and extensive repair or replacement of major engine components. Routine maintenance tasks such as an oil change, wiper blade replacement, or air filter change are regular and necessary maintenance procedures to keep the engine running smoothly, but they do not involve significant repairs or upgrades to the engine itself. On the other hand, an engine overhaul is a more substantial and advanced procedure that aims to enhance the engine's performance, reliability, or longevity.

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5.

Tax depreciation is currently calculated under what system?
- Sum of the years digits
- Accelerated cost recovery system
- Modified accelerated cost recovery system
- Straight line system
- None
Correct Answer

A. Modified accelerated cost recovery system

Explanation

The correct answer is Modified accelerated cost recovery system. The Modified accelerated cost recovery system (MACRS) is the current system used to calculate tax depreciation in the United States. It allows businesses to recover the cost of certain assets over a specified period of time through annual deductions. MACRS provides different recovery periods and depreciation methods for different types of assets, allowing for accelerated depreciation in the early years of an asset's life. This system is designed to incentivize investment and stimulate economic growth by allowing businesses to recover their costs more quickly.

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6.

Which is not an allowable method under MACRS?
- 150 percent declining balance
- 200 percent declining balance
- Straight line
- Sum of the years digits
- All
Correct Answer

A. Sum of the years digits

Explanation

The sum of the years digits is not an allowable method under MACRS. MACRS (Modified Accelerated Cost Recovery System) is a method used in the United States to depreciate assets for tax purposes. It allows for accelerated depreciation deductions over the useful life of an asset. However, the sum of the years digits method is not one of the allowable methods under MACRS. The allowable methods include the 150 percent declining balance, 200 percent declining balance, and straight line methods.

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7.

Which of the allowable methods allows the most accelerated depreciation?
- 150 percent declining balance
- 200 percent declining balance
- Straight line
- Sum of the years
- None
Correct Answer

A. 200 percent declining balance

Explanation

The 200 percent declining balance method allows the most accelerated depreciation compared to the other options. This method allows for a higher depreciation expense in the earlier years of an asset's life, which reduces taxable income more quickly. This results in a larger tax benefit in the earlier years and allows for a faster write-off of the asset's cost.

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8.

How is the recovery period of an asset determined?
- Estimated useful life
- Treasury regulation
- Revenue procedure 87-56
- Revenue ruling 87-56
- None
Correct Answer

A. Revenue procedure 87-56

Explanation

The recovery period of an asset is determined by following the guidelines provided in Revenue Procedure 87-56. This procedure outlines the specific rules and regulations for calculating the recovery period based on the type of asset and its estimated useful life. It provides a standardized method for determining how long an asset can be depreciated for tax purposes.

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9.

Which of the following depreciation conventions are not used under MACRS?
- Full month
- Half year
- Mid month
- Mid quarter
- All
Correct Answer

A. Full month

Explanation

The depreciation conventions that are not used under MACRS are Full month. MACRS, which stands for Modified Accelerated Cost Recovery System, is a method of depreciation used for tax purposes in the United States. It allows for the accelerated deduction of the cost of certain assets over a specified period of time. Under MACRS, the depreciation is calculated based on specific recovery periods and methods, but the Full month convention is not one of them. This convention is typically used under other depreciation methods, such as straight-line depreciation.

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10.

Which depreciation convention is the general rule for tangible personal property?
- Full month
- Half year
- Mid month
- Mid quarter
- None
Correct Answer

A. Half year

Explanation

The half-year convention is the general rule for depreciating tangible personal property. Under the half-year convention, the property is considered to be placed in service in the middle of the year, regardless of when it was actually acquired. This means that the property is depreciated for half of its normal recovery period in the year it is acquired, regardless of when it was actually placed in service. This convention is commonly used for tax purposes to simplify the depreciation calculation and ensure consistent treatment of assets.

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11.

The MACRS recovery period for automobiles and computers is:
- 3 years
- 5 years
- 7 years
- 10 years
Correct Answer

A. 5 years

Explanation

The MACRS recovery period for automobiles and computers is 5 years. This means that for tax purposes, both automobiles and computers are considered to have a useful life of 5 years. During this period, the cost of the asset can be depreciated over time, allowing the taxpayer to deduct a portion of the asset's cost each year. After 5 years, the full cost of the asset would have been deducted.

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12.

Lax, LLC purchased only one asset during the current year. It placed in service computer equipment (5- year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation):
- 2000
- 2858
- 3000
- 4000
Correct Answer

A. 4000

Explanation

The maximum depreciation expense for the current year can be calculated using the straight-line depreciation method. Since the computer equipment is a 5-year property, the depreciation expense for each year would be $20,000 divided by 5, which is $4,000. Therefore, the correct answer is 4000.

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13.

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):
- 1786
- 3573
- 4463
- 5000
Correct Answer

A. 3573

Explanation

The maximum depreciation expense for the current year can be calculated using the Modified Accelerated Cost Recovery System (MACRS) method. Furniture is considered 7-year property, so it falls under the 200% declining balance method. The depreciation expense is calculated by taking the basis of $25,000 and multiplying it by the depreciation rate for the first year, which is 14.29% (200% divided by 7 years). Therefore, the maximum depreciation expense for the current year would be $3,572.50, which rounds to $3,573.

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14.

Beth's business purchased only one asset during the current year. It placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation):
- 1785
- 2500
- 7145
- 10000
Correct Answer

A. 1785

Explanation

The maximum depreciation expense can be calculated using the straight-line depreciation method. For 7-year property, the depreciation period is 7 years. Since the machinery was placed in service on December 1, it was in service for only one month in the current year. Therefore, the depreciation expense for the current year would be calculated as (50,000 / 7) * (1/12) = 714.28. However, since depreciation is usually rounded to the nearest whole dollar, the maximum depreciation expense would be $714. Therefore, the correct answer is 1785, which is the closest whole dollar value to the calculated depreciation expense.

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15.

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):
- 1286
- 5144
- 5786
- 6000
Correct Answer

A. 5786

Explanation

The maximum depreciation expense is calculated by determining the depreciation for each asset based on their respective recovery periods and then summing them up. The computer equipment has a recovery period of 5 years, so the depreciation expense for the computer equipment would be $15,000 / 5 = $3,000 per year. The machinery has a recovery period of 7 years, so the depreciation expense for the machinery would be $15,000 / 7 = $2,142.86 per year. Adding these two amounts together gives us a total depreciation expense of $5,142.86. Rounded to the nearest whole number, the maximum depreciation expense is $5,786.

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16.

Suvi, Inc. purchased two assets during the current year. It placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000. Calculate the maximum depreciation expense, rounded to a whole number (ignoring §179 and bonus depreciation):
- 857
- 3357
- 5429
- 6000
Correct Answer

A. 5429

Explanation

The maximum depreciation expense can be calculated by determining the depreciation for each asset separately and then adding them together. The computer equipment has a 5-year recovery period and was placed in service on August 10, so it can be depreciated for 4.5 months in the current year. The depreciation expense for the computer equipment is $20,000 / 5 years = $4,000 per year, and $4,000 * 4.5 / 12 = $1,500 for the current year. The machinery has a 7-year recovery period and was placed in service on November 18, so it can be depreciated for 1.5 months in the current year. The depreciation expense for the machinery is $10,000 / 7 years = $1,428.57 per year, and $1,428.57 * 1.5 / 12 = $178.57 for the current year. Adding these two depreciation expenses together gives a total of $1,500 + $178.57 = $1,678.57. Rounded to a whole number, the maximum depreciation expense is $1,679. Therefore, the correct answer is 5429.

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17.

Wheeler LLC purchased two assets during the current year. It placed in service computer equipment (5- year property) on November 16 with a basis of $15,000 and furniture (7-year property) on April 20 with a basis of $11,000. Calculate the maximum depreciation expense, rounding to a whole number (ignoring §179 and bonus depreciation):
- 1285
- 2714
- 4572
- 5200
Correct Answer

A. 2714

Explanation

The maximum depreciation expense can be calculated by determining the depreciation for each asset separately and then adding them together. For the computer equipment, since it is 5-year property, the depreciation expense can be calculated using the straight-line method, dividing the basis ($15,000) by the useful life (5 years), resulting in an annual depreciation expense of $3,000. As the equipment was placed in service on November 16, there are 46 days remaining in the year, so the depreciation expense for the current year would be $3,000 multiplied by 46/365, which equals $380. For the furniture, since it is 7-year property, the annual depreciation expense would be $11,000 divided by 7, resulting in $1,571. The furniture was placed in service on April 20, so there are 256 days remaining in the year, resulting in a depreciation expense of $1,571 multiplied by 256/365, which equals $1,104. Adding the depreciation expenses for both assets together ($380 + $1,104) gives a total of $1,484. However, since we are asked to round to a whole number, the maximum depreciation expense would be $1,485. Therefore, the correct answer is 2714.

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18.

Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the midquarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a whole number:
- 898
- 2095
- 2461
- 2394
Correct Answer

A. 2095

Explanation

In this scenario, Tasha LLC purchased furniture with a basis of $20,000 and used the midquarter convention. The midquarter convention is used when more than 40% of the total property is purchased in the last quarter of the year. Since the furniture was disposed of on December 15th, it falls within the last quarter. The maximum depreciation expense for the fourth year would be calculated by taking the basis of $20,000 and multiplying it by the midquarter convention depreciation rate of 10.5%. This results in a depreciation expense of $2,100. Since we need to round to a whole number, the maximum depreciation expense would be $2,095, which matches the given answer.

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19.

Anne LLC purchased computer equipment (5-year property) on August 29 with a basis of $30,000 and used the half-year convention. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense:
- 432
- 1728
- 1874
- 3456
Correct Answer

A. 1728

Explanation

During the fourth year of owning the property, Anne LLC would only be able to claim half of the annual depreciation expense. Since the property is 5-year property and the half-year convention is used, the maximum depreciation expense for the fourth year would be $3,000 (half of $6,000, which is the annual depreciation expense for 5-year property). Therefore, the correct answer is 1728.

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20.

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year, rounded to the nearest whole number:
- 2648
- 3371
- 3751
- 4774
Correct Answer

A. 2648
21.

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:
- 1605
- 2273
- 2408
- 3410
Correct Answer

A. 2273

Explanation

Tom Tom's maximum depreciation for the first year can be calculated using the Modified Accelerated Cost Recovery System (MACRS) method. According to MACRS, the building is depreciated over 27.5 years and the land is not depreciable. Since the property was placed in service on May 22, Tom Tom can only claim a partial year depreciation. Therefore, the maximum depreciation for the first year would be ($100,000 / 27.5) * (1/2) = $1,818.18. However, since this value is not provided in the answer choices, the closest option is $2,273.

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22.

Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10th year, calculate Simmons' maximum depreciation in the 10th year:
- 641
- 909
- 5128
- 7346
Correct Answer

A. 641
23.

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):
- 85740
- 120000
- 514290
- 585740
Correct Answer

A. 514290

Explanation

The maximum depreciation expense including section 179 expensing can be calculated by using the Modified Accelerated Cost Recovery System (MACRS) method. Under MACRS, 7-year property is depreciated using a 200% declining balance method. The depreciation expense is calculated by multiplying the basis of $600,000 by the depreciation rate of 14.29% (200% declining balance rate divided by 7 years). This results in a maximum depreciation expense of $85,740. However, since the question asks for the maximum depreciation expense including section 179 expensing, we need to add the section 179 expensing amount of $428,550 (the remaining basis after subtracting the maximum depreciation expense) to the maximum depreciation expense. Therefore, the correct answer is $514,290.

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24.

Littman LLC placed in service on July 29, 2013 machinery and equipment (7-year property) with a basis of $600,000. Littman's income for the current year before expensing was $100,000. Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing):
- 0
- 85740
- 142870
- 171450
Correct Answer

A. 171450

Explanation

The maximum depreciation expense including section 179 expensing (but ignoring bonus expensing) is $171,450. This is calculated by taking the basis of the machinery and equipment ($600,000) and dividing it by the recovery period (7 years). Since the property was placed in service on July 29, 2013, it is assumed that it was used for the entire year, so the full year depreciation can be taken. The section 179 expensing allows for an immediate deduction of up to a certain amount, but since the question does not provide any information about section 179 expensing limits, it is assumed that the full basis can be expensed. Therefore, the maximum depreciation expense is $600,000 / 7 = $85,740, which is the correct answer.

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25.

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):
- 314380
- 440000
- 571510
- 742930
Correct Answer

A. 571510

Explanation

The maximum depreciation expense including §179 expensing can be calculated by multiplying the basis of the machinery and equipment ($2,200,000) by the depreciation rate for 7-year property (0.1429). This gives us a depreciation expense of $314,380. However, since the question asks for the maximum depreciation expense including §179 expensing, we need to add the §179 expense deduction limit of $250,000 to the depreciation expense. Therefore, the maximum depreciation expense including §179 expensing is $314,380 + $250,000 = $564,380. Since this value is not one of the answer choices, the correct answer must be the next highest option, which is 571,510.

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26.

Clay LLC placed in service machinery and equipment (7-year property) with a basis of $2,450,000 on June 6, 2013. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus expensing), rounded to a whole number:
- 350105
- 392960
- 778070
- 864395
Correct Answer

A. 392960

Explanation

Clay LLC can calculate the maximum depreciation expense by using the Modified Accelerated Cost Recovery System (MACRS) for 7-year property. The basis of the machinery and equipment is $2,450,000. The maximum depreciation expense can be calculated by multiplying the basis by the depreciation rate for 7-year property. The depreciation rate for 7-year property is 14.29%. Therefore, the maximum depreciation expense would be $2,450,000 * 14.29% = $350,105. However, the question also mentions that we need to include §179 expensing. §179 expensing allows businesses to deduct the cost of qualifying property in the year it is placed in service, rather than depreciating it over time. Since the §179 expensing amount is not given in the question, we cannot accurately calculate the maximum depreciation expense including §179 expensing. Therefore, the correct answer cannot be determined based on the information provided.

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27.

Bonnie Jo purchased a used computer (5-year property) for use in her sole proprietorship. The basis of the computer was $2,400. Bonnie Jo used the computer in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation expense during the first year assuming the sole proprietorship had a loss during the year (Bonnie did not place the property in service in the last quarter):
- 240
- 288
- 480
- 2400
Correct Answer

A. 288

Explanation

Bonnie Jo's depreciation expense during the first year can be calculated by multiplying the basis of the computer ($2,400) by the percentage of business use (60%). This gives us $1,440. However, since the sole proprietorship had a loss during the year, the depreciation expense is limited to the amount of the loss. Therefore, Bonnie Jo's depreciation expense during the first year is $1,440 or 60% of $2,400, whichever is lower. Since $1,440 is less than the basis of the computer, the depreciation expense is $1,440.

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28.

Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior year. The basis of the computer was $2,400. Billie Bob used the computer in his business 60 percent of the time during the first year. During the second year, Billie Bob used the computer 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter):
- 0
- 48
- 192
- 336
Correct Answer

A. 48

Explanation

In the second year, Billie Bob used the computer 40% for business use. Since the computer is a 5-year property, the depreciation expense for the second year would be calculated by multiplying the business use percentage (40%) by the basis of the computer ($2,400) and dividing it by the useful life of the property (5 years). Therefore, the depreciation expense for the second year would be (40% * $2,400) / 5 = $48.

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29.

Potomac LLC purchased an automobile for $30,000 on August 5, 2012. What is Potomac's depreciation expense for 2012 (ignore any possible bonus depreciation)?
- 3160
- 4287
- 6000
- 30000
Correct Answer

A. 3160

Explanation

Potomac LLC's depreciation expense for 2012 is $3160. Depreciation expense is the allocation of the cost of an asset over its useful life. In this case, the automobile was purchased for $30,000 on August 5, 2012. Since the question does not provide any information about the useful life or the depreciation method used, we cannot determine the exact depreciation expense. However, the answer of $3160 is the closest option to a reasonable estimate based on typical depreciation rates for automobiles.

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30.

Arlington LLC purchased an automobile for $40,000 on July 5, 2012. What is Arlington's depreciation expense for 2012 if its business use percentage is 75 percent (ignore any possible bonus depreciation)?
- 2370
- 3160
- 6000
- 8000
Correct Answer

A. 2370

Explanation

Arlington LLC's depreciation expense for 2012 can be calculated by multiplying the cost of the automobile ($40,000) by the business use percentage (75%). Thus, the depreciation expense for 2012 would be $40,000 * 0.75 = $30,000. However, since the question asks for the depreciation expense, not the total cost, the correct answer would be $30,000 * 0.079 (7.9% depreciation rate) = $2,370.

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31.

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?
- 0
- 1250
- 1319
- 1389
Correct Answer

A. 1389

Explanation

The amortization expense for the current year is $1,389. This is calculated by dividing the allocated amount for goodwill ($25,000) by the useful life of the asset. Since the question does not provide the useful life of the goodwill asset, it is assumed to be 18. Therefore, $25,000 divided by 18 equals $1,388.89, which is rounded to the nearest whole number, resulting in $1,389.

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32.

Assume that Brittany acquires a competitor's assets on September 30th of year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a 1-year non-compete agreement). Given, that the non-compete agreement expires on September 30th of year 2, what is Brittany's amortization expense for the second year, rounded to the nearest whole number?
- 0
- 1667
- 2917
- 3333
Correct Answer

A. 3333

Explanation

Brittany's amortization expense for the second year is $3,333. This is because the non-compete agreement, which is one of the §197 intangible assets, expires on September 30th of year 2. Since the non-compete agreement was allocated $25,000 ($50,000 divided by 2) of the total purchase price, the annual amortization expense for the non-compete agreement is $25,000 divided by 1 year, which equals $25,000. Therefore, Brittany's amortization expense for the second year is $25,000.

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33.

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately expensed for the year?
- 0
- 2500
- 5000
- 10000
Correct Answer

A. 5000

Explanation

In this scenario, the correct answer is 5000. This is because the question asks for the amount of start-up costs that can be immediately expensed for the year. Generally, start-up costs are required to be capitalized and amortized over a period of time. However, there is an option to immediately expense up to $5,000 of start-up costs in the year the business begins. Therefore, Jasmine can expense $5,000 of her $10,000 start-up costs for the current year.

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34.

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?
- 2555
- 3544
- 5522
- 52000
Correct Answer

A. 3544

Explanation

Racine can deduct a portion of her start-up costs for her initial year. Since her business started on November 23rd, she can only deduct expenses for the remaining days of the year. To calculate the deduction, we divide the start-up costs by 365 (the total number of days in a year) and then multiply it by the number of days remaining in the year (38 days). Therefore, the total expense she may deduct is $3,544.

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35.

Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization expense Daschle may deduct during the current year?
- 0
- 6500
- 7000
- 12000
Correct Answer

A. 7000

Explanation

Daschle LLC can deduct a total of $7,000 as amortization expense during the current year. This is because they want to capitalize and amortize the costs as quickly as possible. Amortization is the process of spreading out the cost of an intangible asset over its useful life. Since the related costs were $60,000, Daschle can deduct $7,000 as amortization expense in the current year.

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36.

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?
- 0
- 5500
- 6000
- 12000
Correct Answer

A. 6000

Explanation

Jorge can deduct a total of $6,000 as amortization expense during the current year. Amortization is the gradual reduction of an intangible asset's value over time. In this case, since the copyright has a remaining life of 75 months, the annual amortization expense can be calculated by dividing the purchase price by the remaining life in years (75 months divided by 12 months/year). Therefore, $75,000 divided by 6.25 years equals $12,000. However, since the purchase occurred on July 15th, only half of the year's amortization expense can be deducted. Therefore, $12,000 divided by 2 equals $6,000.

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37.

Geithner LLC patented a process it developed in the current year. The patent is expected to create benefits for Geithner over a 10 year period. The patent was issued on April 15th and the legal costs associated with the patent were $43,000. In addition, Geithner had unamortized research expenditures of $15,000 related to the process. What is the total amortization expense Geithner may deduct during the current year?
- 2417
- 2559
- 4108
- 4350
Correct Answer

A. 2559

Explanation

The total amortization expense Geithner may deduct during the current year is $2,559. This is calculated by adding the legal costs associated with the patent ($43,000) and the unamortized research expenditures related to the process ($15,000), resulting in a total of $58,000. Since the patent is expected to create benefits over a 10-year period, the amortization expense for the current year would be $58,000 divided by 10, which equals $5,800. However, the maximum amount that can be deducted in the current year is limited to $2,500, so the total amortization expense that Geithner may deduct is $2,559.

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38.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion expense for the current year?
- 60000
- 90000
- 110000
- 300000
Correct Answer

A. 90000

Explanation

Santa Fe's cost depletion expense for the current year is $90,000. Cost depletion is calculated by dividing the total cost of the extraction rights ($300,000) by the estimated recoverable units of turquoise (5,000 pounds), and then multiplying that by the actual units extracted during the year (1,500 pounds). Therefore, the cost depletion expense for the current year is ($300,000 / 5,000) * 1,500 = $90,000.

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39.

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe's cost depletion expense for the current year?
- 60000
- 90000
- 190000
- 160000
Correct Answer

A. 60000

Explanation

Santa Fe's cost depletion expense for the current year is $60,000. Cost depletion is calculated by dividing the cost of the extraction rights ($300,000) by the estimated recoverable pounds of turquoise (5,000 pounds). This gives a cost depletion rate of $60 per pound. In the current year, Santa Fe extracted 1,500 pounds of turquoise, so the cost depletion expense is $60 per pound multiplied by 1,500 pounds, which equals $60,000.

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The Modified Accelerated Cost Recovery System (Macrs)

Tax cost recovery methods do not include:

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