1 E Corporation is a subchapter S corporation owned by
1. E Corporation is a subchapter S corporation owned by three individuals with calendar year ends. The corporation sells a sports drink as its principal product and has similar sales each month. What options does E Corporation have in choosing a tax year?
a. E Corporation may choose any month end as its tax year.
b. Because the owners of E Corporation have tax years ending in December, E Corporation must also choose a December year-end.
c. E Corporation may choose an October, November, or December tax year-end.
d. E Corporation may choose a tax year ending in September, October, or November, but only if the corporation also makes an annual cash deposit and adjusts the amount every year depending on the income deferred.
2. Income and loss from which of the following entities is passed through and taxed on the individual’s personal tax returns?
a. S corporation
b. Partnership
c. Each of the above
d. Neither of the above
3. Which of the following is an acceptable method of accounting under the tax law?
a. The accrual method
b. The hybrid method
c. The cash method
d. All of the above are acceptable
e. None of the above
4. Which of the following entities is required to report on the accrual basis?
a. An accounting firm operating as a Personal Service Corporation.
b. A manufacturing business with $15 million of gross receipts operating as a regular C corporation.
c. A corporation engaged in tropical fruit farming in Southern California.
d. All of the above corporations must report on the accrual basis.
5. Alice purchases a rental house on August 22, 2014, for a cost of $174,000. Of this amount, $100,000 is considered to be allocable to the cost of the home, with the remaining $74,000 allocable to the cost of the land. What is Alice’s maximum depreciation deduction for 2014 using MACRS?
a. $2,373
b. $2,071
c. $1,364
d. $1,190
e. $1,009
6. An asset (not an automobile) put in service in June 2014 has a depreciable basis of $35,000 and a recovery period of 5 years. Assuming half-year convention and no election to expense is made, what is the maximum amount of cost that can be deducted in 2014?
a. $3,500
b. $5,833
c. $7,000
d. $35,000
e. None of the above
7. James purchased office equipment for his business. The equipment has a depreciable basis of $14,000 and was put in service on June 1, 2014. James decides to elect straight-line depreciation under MACRS for the asset over the minimum number of years (7 years), and does not make the election to expense. What is the amount of his depreciation deduction for the equipment for the 2014 tax year?
a. $2,000
b. $1,000
c. $500
d. $0
e. None of the above
8. Which of the following statements with respect to the depreciation of property under MACRS is incorrect?
a. Under the half-year convention, one-half year of depreciation is allowed in the year the property is placed in service.
b. If a taxpayer elects to use the straight-line method of depreciation for property in the 5-year class, all other 5-year class property acquired during the year must also be depreciated using the straight-line method.
c. In some cases, when a taxpayer places a significant amount of property in service during the last quarter of the year, real property must be depreciated using a mid-quarter convention.
d. Real property acquired after 1986 must be depreciated using the straight-line method.
e. The cost of property to which the MACRS rate is applied is not reduced for estimated salvage value.
9. Which of the following is not true about the MACRS depreciation system?
a. A salvage value must be determined before depreciation percentages are applied to depreciable real estate.
b. Residential rental buildings are depreciated over 27.5 years straight-line.
c. Commercial real estate buildings are depreciated over 39 years straight-line.
d. No matter when during the month depreciable real estate is purchased, it is considered to have been purchased at mid-month for MACRS depreciation purposes.
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