Question: 10 Assume that a taxpayer purchases a computer in 2014

10. Assume that a taxpayer purchases a computer in 2014 that has an estimated useful life of 10 years. If the computer is used 100 percent for business and no election to expense was made, what is the MACRS recovery period that must be used for cost recovery on the taxpayer’s tax return?
a. 5 years
b. 7 years
c. 8 years
d. 10 years
e. 1 year
11. On July 20, 2014, Kelli purchases office equipment at a cost of $12,000. Kelli makes the election to expense for 2014. She is self-employed as an attorney, and, in 2014, her business has a net income of $6,000 before considering this election to expense. Kelli has no other income or expenses for the year. What is the maximum amount that Kelli may deduct for 2014 under the election to expense, assuming she elects to expense the entire $12,000 purchase?
a. $24,000
b. $12,000
c. $6,000
d. $3,000
e. $1,000
12. Which of the following is not considered listed property for purposes of determining the taxpayer’s depreciation deduction?
a. A computer used exclusively by the taxpayer in managing his investment portfolio
b. An automobile used 40 percent by an employee in providing services to his employer
c. A computer used by a bank executive, on the bank premises, in performing services as an employee
d. A computer used by a taxpayer 40 percent in managing her investment portfolio and 20 percent in her business as an accountant
e. None of the above
13. The amortization period for Section 197 intangibles is:
a. 5 years
b. 7 years
c. 10 years
d. 15 years
e. 40 years
14. Which of the following intangibles is defined as a Section 197 intangible asset?
a. An interest in land
b. A partnership interest
c. An interest in a corporation
d. A covenant not to compete acquired as part of a business
e. A separately acquired sound recording
15. Pekoe sold stock to Rose for $13,000, its fair market value. The stock cost Pekoe $16,000 5 years ago. Also, Pekoe sold Earl (an unrelated party) stock for $6,500 that cost $7,500 3 years ago. Rose and Pekoe are brother and sister. What is Pekoe’s recognized loss?
a. $6,500
b. $4,000
c. $3,000
d. $1,000
e. $0
16. B Corporation, an accrual basis taxpayer, is owned 75 percent by Bonnie, a cash basis taxpayer. On December 31, 20X1, the corporation accrues interest of $4,000 on a loan from Bonnie and also accrues a $15,000 bonus to Bonnie. The bonus is paid to Bonnie on March 1, 20X2; the interest is not paid until 20X3. How much can B Corporation deduct on its 20X1 tax return?
a. $0
b. $4,000
c. $15,000
d. $19,000
e. $12,000
17. Using the same facts as in Question 16, how much can B Corporation deduct on its 20X2 tax return?
a. $0
b. $4,000
c. $15,000
d. $19,000
e. $12,000
18. BJT Corporation is owned 40 percent by Bill, 35 percent by Jack, and 25 percent by Teresa. Bill and Jack are father and son. What is Jack’s total direct and indirect ownership under Section 267?
a. 65 percent
b. 40 percent
c. 75 percent
d. 35 percent
e. None of the above

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