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Exam 5: Business Deductions

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Question 71

Multiple Choice

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Augie purchased one new asset during the year (five-year property) on November 10, 2019, at a cost of $660,000. She would like to use the § 179 election and will also take additional first-year depreciation.The income from the business before the cost recovery deduction and the § 179 deduction was $600,000.Determine the maximum cost recovery deduction available on this asset for 2019.

A) $30,500
B) $580,200
C) $600,000
D) $660,000

E) All of the above
F) C) and D)

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Question 72

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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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Question 73

Multiple Choice

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Pat purchased a used five-year class asset on March 15, 2019, for $60,000.He did not elect § 179 expensing. Determine the cost recovery deduction for 2019 for earnings and profits purposes.

Which of the following is a required test for the deduction of a business expense?

Wanda is the Chief Executive Officer of Pink corporation, a publicly traded, calendar year C corporation.For the current year, Wanda's compensation package consists of: How much of Wanda's compensation is deductible by Pink Corporation?

Assets that do not have a determinable useful life are not eligible for cost recovery under MACRS.

If a taxpayer operates an illegal business, no deductions are permitted.

Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

The key date for calculating cost recovery is the date the asset is placed in service.

The cost recovery period for three-year class property is four years.

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are computed as follows. If Tara sells the machine after three years for $15,000, how much gain should she recognize?

Purchased goodwill must be capitalized but can be amortized over a 60-month period.

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug-running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. Which of the following statements is correct?

On June 1, 2019, Red Corporation purchased an existing business.With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2019 for the patent.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

Goodwill associated with the acquisition of a business cannot be amortized.

The amount of the addition to the reserve for bad debts for an accrual method taxpayer is allowed as a deduction for tax purposes but is not allowed for a cash method taxpayer.

The Code does not specifically define what constitutes a trade or business.

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

The amortization period for $58,000 of startup expenses is 180 months.