Depreciation And Cost-Recovery Concepts - Sample Questions 1 - 7

1. Which of the following properties must use cost depletion?

A) Oil wells
Gas wells

2. Lefty Printing Company purchased a new printing press for $1 million. Under Section 179 rules, a small business is allowed a first year deduction for equipment in what amount?

A) $250,000
$1 million

3. If the new printing press that Lefty Printing Company just purchased cost them $2,350,000, then how much would be their first year deduction under the Section 179 rules?

A) $100,000

Chicago Computers Inc. (CCI) purchased some equipment last year to be used for their computer business. If the owner of CCI wants to maximize her tax depreciation, then she should use which depreciation method?

A) Accelerated Cost Recovery System (ACRS)
Straight-Line depreciation
Amortization Fast Line Method
D) Modified Accelerated Cost Recovery System (MACRS)

5. Which of the following Section 197 intangible property would qualify for Amortization:

(1) Goodwill
(2) Sports franchise
(3) Interests in land
(4) Copyright
(5) Costs of acquiring customer lists

A) 1, 3 and 5 only
1, 3 and 4 only
1, 4 and 5 only
D) 1, 2 and 4 only

6. Value Cola Canning had 125 employees and a taxable income of $275,000 this year. They purchased $1 million in new canning equipment during the year, and their CPA is recommending the Section 179 deduction. What is their maximum allowable deduction under Section 179 and carry forward amount (if any) for this year's tax filing?

A) Maximum Section 179 deduction is $275,000 / Carry forward is $225,000.
Maximum Section 179 deduction is $500,000 / Carry forward is $0.
Maximum Section 179 deduction is $1,000,000 / Carry forward is $0.
D) Maximum Section 179 deduction is $0 / Carry forward is $500,000.

7. Jeffrey purchased a truck this year (year one). He used the truck for business use 75% of the time. His adjusted gross income was $70,000 and the cost of the truck was $30,000. The MACRS statutory percentage for five-year property in year one is 20%. What is Jeffrey's depreciation deduction for year one?

A) $3,000
D) $4,500

Answer Key
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