Tax Accounting Assignment 15 Questions With Correct Answers

Tax Accounting Assignment 15 Questions With Correct Answers Match the method of cost allocation to the nature of the asset being expensed over a specific time period. - answerDepreciation - Tangible personal and real property (except land) Amortization - Intangible assets Depletion - Natural resources Which of the following choices reduces the basis of an asset? (Check all that apply.) - answerDepreciation allowed, but not deducted, on the asset Depreciation actually deducted on the asset Which of the following costs should be included in the asset's original cost basis? (Check all that apply) - answerPurchase price Sales tax Installation charges Shipping charges Repairs prior to putting the asset in service Mark's Markers purchased a building and land for $750,000. An appraisal determined that two-thirds of the cost should be attributed to the building and one-third should be attributed to the land. Consequently, Mark's Markers will use a cost basis of $______ for the building and $ __________ for the land. - answer500,000 250,000 Harry inherited 100 shares of stock from his aunt upon her death. Harry's aunt purchased the stock 10 years ago for $20 per share. The stock was worth $50 per share on the date she died. What is the amount of Harry's basis in the stock? - answer$5,000 The method of deducting the cost of tangible personal and real property over its useful life is _________. The method of deducting the cost of intangible assets over a specific time is _________. The method of deducting the cost of natural resources over time is _________ - answerDepreciation ©THEBRIGHT EXAM SOLUTIONS 11/05/2024 12:06 PM Amortization Depletion How does depreciation affect the tax basis of an asset? - answerThe tax basis is reduced by the depreciation allowed or allowable on the asset each year. Mark's Markers purchased a new machine to use in the manufacturing process for $2,500. The sales tax was an additional $150 and the shipping charges were $200. One month after using the machine, a small part broke and needed repair. The cost of the repair was $900. How will Mark's Markers treat the costs for tax purposes? - answerThe cost of $2,850 will be capitalized and depreciated over the asset's life. Repairs of $900 will be expensed immediately. Mark's Markers purchased a building and land for $750,000. How should Mark's Markers account for the purchase? - answerThe land and building must be treated as separate assets with a portion of the total cost allocated to each of the assets Which of the following items are needed to calculate MACRS depreciation for an asset? - answerApplicable recovery period Applicable depreciation method Asset's depreciable basis Date placed in service Applicable depreciation convention Harry received 100 shares of stock from his aunt as a gift. Harry's aunt purchased the stock 10 years ago for $20 per share. The stock was worth $50 per share on the date Harry received the gift. Harry sold the stock for $60 per share. What is the amount of Harry's basis in the stock? - answer$2000 Match the type of asset with its description. - answerPersonal property - Tangible assets such as equipment and machinery Real property - Buildings and land Intangible assets - Non Physical assets Natural resources - Commodities such as oil, timber, and gold Choose the items included in the calculation of an asset's adjusted basis. (Check all that apply. - answerStart with the asset's original basis. Subtract prior depreciation allowed or allowable on the asset. Add costs necessary to prepare the asset for use in the business. ©THEBRIGHT EXAM SOLUTIONS 11/05/2024 12:06 PM In order to compute MACRS depreciation, which of the following pieces of information is NOT required? - answersalvage or residual value for the asset Harry inherited 100 shares of stock from his aunt upon her death. Harry's aunt purchased the stock 10 years ago for $20 per share. The stock was worth $50 per share on the date she died. What is the amount of Harry's basis in the stock? - answer$5000 True or false: Personal property can be business property or personal-use property - answerTrue How does depreciation affect the tax basis of an asset? - answerThe tax basis is reduced by the depreciation allowed or allowable on the asset each year. Which of the following calculations is used to determine an asset's adjusted basis? - answerOriginal basis + significant improvements - depreciation allowed or allowable True or false: In order to calculate MACRS depreciation, the business only needs to know the asset's depreciable basis, the recovery period, and which depreciation method (i.e. 200% declining balance) is used. - answerFalse Antoine owns a car. He uses the car for personal transportation. Which of the following classifications apply to the car? (Check all that apply.) - answerPersonal-use property Personal property Lucky started a new business last year. Since it was the first year of operation, the business purchased $10,000 in machinery and used the straight-line method for depreciation. Business is booming, so Lucky purchased $15,000 in equipment during the current year to help meet production demands. Which of the following statements is true regarding the depreciation choices available to Lucky? - answerThe new machinery can be depreciated using the same method or a different method than the previously purchased machinery. Profitable businesses will likely use ______ depreciation while companies with lower marginal rates that are expected to rise over time will likely use ______ depreciation. - answer200% declining balance; straight-line Which of the following statements is correct regarding the depreciable lives of business assets? - answerFor financial accounting, management can choose the estimated life. For tax purposes, the IRS has set recovery periods for various types of assets. Similar assets purchased in the same year must be depreciated using the _________ (same/different) depreciation method, but similar assets purchased in different years can be depreciated using _________ (same/different) depreciation methods. - answerSame Different