Question

1. Beth's business purchased only one asset during the current year (a full 12-month tax year). Beth placed in service machinery (7-year property) on December 1 with a basis of $65,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2)

MULTIPLE CHOICE

$2,321

$3,250

$9,289

$13,000

None of the choices are correct.

2. Tom Tom LLC purchased a rental house and land during the current year for $152,000. The purchase price was allocated as follows: $101,000 to the building and $51,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year. (Use MACRS Table 3)

MULTIPLE CHOICE

$1,621

$2,296

$2,440

$ 3,455

None of the choices are correct

3. Bonnie Jo purchased a used computer (5-year property) for use in her sole proprietorship. The basis of the computer was $4,100. Bonnie Jo used the computer in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation expense during the first year assuming the sole proprietorship had a loss during the year (Bonnie did not place the property in service in the last quarter): (Use MACRS Table 1)

MULTIPLE CHOICE

$410

$492

$820

$4,100

None of the choices are correct

Answer 1

Question 1

Answer is option A

The asset's recovery period is 7 years and the mid-quarter convention applies because the property was placed in service during the fourth quarter. The calculation is $65,000 × .0357 = $2320.5 = 2321

Question 2

Answer is option B $2,296

The mid-month convention applies. Residential property has a 27.5-year recovery period. Thedepreciation is $2,296 ($101, 000 x 2.273% = 2295.73 = 2296

Question 3

Answer is option B $492

The asset's recovery period is 5 years and the half-year convention applies. The calculation is $4,100 x .2 x 60% = $492