Exam (elaborations)
TAX 503 CHAPTER 10 EXAM QUESTIONS AND ANSWERS
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TAX 503 CHAPTER 10 EXAM QUESTIONS AND ANSWERS...
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Match the method of cost allocation to the nature of the asset beingexpensed over a specific period.
Depreciation
Amortization
Depletion - ANSWER - Tangible personal and real property (except
land)
- Intangible assets
- Natural resources
Choose the items included in the calculation of an asset's adjusted
basis. (Check all that apply.) - ANSWER - Add costs necessary to
prepare the asset for use in the business.
- Subtract prior depreciation allowed or allowable on the asset.
- Start with the asset's original basis.
Which of the following items are needed to calculate MACRS
depreciation for an asset? (Check all that apply.) - ANSWER Applicable
depreciation convention
Asset's depreciable basis
Applicable depreciation method
Date placed in service
Applicable recovery period
Antoine owns a car. He uses the car for personal transportation. Which
of the following classifications apply to the car? (Check all that apply.) -
ANSWER -personal property
-personal use property
Which depreciation method is most likely to be used by profitable
businesses with high marginal tax rates? - ANSWER MACRS 200%
declining balance
Match the type of asset with its description.
Personal property
Real property
, Intangible assets
Natural resources - ANSWER Tangible assets such as equipment and
machinery
Buildings and land
Nonphysical assets
Commodities such as oil, timber, and gold
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. - ANSWER same,
different
Which of the following calculations is used to determine an asset's
adjusted basis? - ANSWER Original basis + significant improvements -
depreciation allowed or allowable
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. - ANSWER
False
Janet owns land that she uses in her business. Which of the following
statements is correct regarding the land? - ANSWER The land is
classified as real property, but it can NOT be depreciated, even though it
is a business asset.
Which of the following statements is correct regarding the depreciable
lives of business assets? - ANSWER For financial accounting,
management can choose the estimated life. For tax purposes, the IRS
has set recovery periods for various types of assets.
Profitable businesses will likely use ______ depreciation while
companies with lower marginal rates that are expected to rise over time
will likely use ______ depreciation. - ANSWER 200% declining
balance; straight-line
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