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Exam 5: Business Deductions

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Question 31

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The cash method can be used even if inventory and cost of goods sold are an income producing factor in the business.

A) True
B) False

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Question 32

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Intangible drilling costs must be capitalized and recovered through depletion.

A) True
B) False

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Question 33

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The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

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.

Howard's business is raising and harvesting peaches.On March 10,2015,Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not make an election to expense assets under § 179 and does not take additional first-year depreciation (if available) .Determine the cost recovery deduction for 2015.

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

For personal property placed in service in 2015,the § 179 maximum deduction is limited to $500,000.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

Motel buildings have a cost recovery period of 27.5 years.

The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.

On January 15,2015,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 2015 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2015.

Tommy,an automobile mechanic employed by an auto dealership,is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise,any investigation expenses are:

Taxpayers may elect to use the straight-line method under MACRS for personalty.

Discuss the difference between the half-year convention and the mid-quarter convention.

In a farming business,MACRS straight-line cost recovery is required for all fruit bearing trees.

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

In the current year,Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum,a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $10,000.Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).

In the current year,Amber Corporation has taxable income of $880,000,alternative minimum taxable income of $600,000,and qualified production activities income (QPAI) of $640,000.The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000.Amber's DPAD for the current year is:

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin: