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Exam 5: Business Deductions

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Question 61

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If startup expenses total $53,000, $51,000 of those costs are amortized over 180 months.

A) True
B) False

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Question 62

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All domestic bribes (i.e., to a U.S.official) are disallowed as deductions.

A) True
B) False

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Question 63

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Last year, Green Corporation incurred the following expenditures in the development of a new plant process: During the current year, benefits from the project began being realized in May.If Green Corporation elects a 60 month deferral and amortization period, determine the amount of the deduction for the current year.

A major objective of MACRS is to:

Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.

The amount of startup expenditures that can be deducted in the year incurred is the greater of the actual amount of such expenses or $5,000.

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

Alice purchased office furniture on September 20, 2018, for $100,000.On October 10, 2018, she purchased business computers for $80,000.Alice placed all of the assets in service on January 15, 2019.She did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2019.

LD Partnership, a cash basis taxpayer, purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land but can deduct the $150,000 paid for the building in the current tax year.

Which of the following is not a characteristic of MACRS for property other than real estate?

Land costs generally are amortized rather than being cost recovered under MACRS.

On June 1 of the current year, Tab converted a machine from personal use to rental property.At the time of the conversion, the machine was worth $90,000.Five years ago, Tab purchased the machine for $120,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

Hazel purchased a new business asset (five-year asset) on September 30, 2019, at a cost of $100,000.On October 4, 2019, she placed the asset in service.This was the only asset she placed in service in 2019.Hazel did not elect § 179 or additional first-year depreciation.On August 20, 2020, Hazel sold the asset.Determine the cost recovery for 2020 for the asset.

On January 15, 2019, Vern purchased the rights to a mineral interest for $3,500,000.At that time, it was estimated that the recoverable units would be 500,000.During the year, 40,000 units were mined and 25,000 units were sold for $800,000.Vern incurred expenses during 2019 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2019.

The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000 even if $20,000 cannot be expensed in the current year because of the taxable income limitation.

Isabella owns two business entities.She may be able to use the cash method for one and the accrual method for the other.

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.

On January 2, 2019, Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 7-year remaining life, a covenant not to compete for 10 years, and goodwill. Of the purchase price, $140,000 was paid for the patent and $60,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $100,000.What is the amount of the amortization deduction for 2019?

Motel buildings have a cost recovery period of 27.5 years.