Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1)
1)
Which of the following variables represents the salvage value?
A)
S
B)
D
C)
F
D)
P
Answer:
C
Explanation:
2)
2)
Which of the following cannot be depreciated?
A)
Land improvements
B)
Land
C)
Personal property
D)
Buildings
Answer:
B
Explanation:
3)
3)
When preparing a cost segregation study, where would decorative light fixture be classified?
A)
Buildings
B)
Land improvements
C)
Personal property
D)
Land
Answer:
C
Explanation:
4)
4)
For tax purposes, which of the following depreciation methods may be used for a property with a
15–year recovery period?
A)
150% declining balance switching to straight line
B)
200% declining balance switching to straight line
C)
Sum of the years
D)
A and B
Answer:
A
Explanation:
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5)
5)
Under the Modified Accelerated Cost Recovery System (MACRS), how much depreciation would
be taken in the first year for an asset placed in service during the second quarter using the
midquarter convention?
A)
0.625
B)
0.375
C)
0.875
D)
0.500
Answer:
A
Explanation:
6)
6)
Using the straight–line depreciation method, the annual depreciation amount ________ as the
asset gets older.
A)
is constant
B)
decreases
C)
varies from year–to–year
D)
increases
Answer:
A
Explanation:
7)
7)
How much would be depreciated in the second year for an asset that is depreciated using the
200% declining–balance method using the half–year convention and a recovery period of five
years?
A)
20.00%
B)
5.76%
C)
32.00%
D)
11.52%
Answer:
C
Explanation:
8)
8)
For tax purposes, what recovery period would be used for office furniture?
A)
Five years
B)
Three years
C)
Seven years
D)
Ten years
Answer:
C
Explanation:
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9)
9)
For tax purposes, which of the following depreciation methods may be used for a property with a
five–year recovery period?
A)
150% declining balance switching to straight line
B)
200% declining balance switching to straight line
C)
Sum of the years
D)
A and B
Answer:
D
Explanation:
10)
10)
For tax purposes, what recovery period would be used for computer equipment?
A)
Seven years
B)
Three years
C)
Five years
D)
Ten years
Answer:
C
Explanation:
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11)
What are the required parts of a cost segregation study?
Answer:
Cost segregation study should (1) classify the assets into one of the four property classes, (2) explain
the rational for the class assignment, and (3) substantiate the cost basis of each asset.
12)
What is the salvage value?
Answer:
The salvage value is the estimated resale value of the asset at some time in the future when it is sold.
13)
What salvage value is used for tax purposes?
Answer:
For tax purposes, the salvage value is assumed to be zero.
14)
What act allows businesses to take bonus depreciation on qualified property placed in service after September
27, 2017?
Answer:
The Tax Cuts and Jobs Act.
15)
Over how many years would non–residential real estate be depreciated?
Answer:
Nonresidential real estate would have a 39–year recovery period and would be depreciated over 40
years because only a partial year of depreciation may be taken in the first and fortieth years.
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16)
What must be done to get the declining–balance method to have a zero salvage value at the end of the
recovery period?
Answer:
By switching to the straight–line method and depreciating the current year’s book value over the years
left in the recovery period. The switch to straight–line occurs when the depreciation calculated by the
straight–line method exceeds the depreciation calculated by the declining–balance method.
17)
Where would you find information on Section 179 depreciation for the current year?
Answer:
IRS Publication 946, How to Depreciate Property.
18)
When must a company use the midmonth convention?
Answer:
For real estate, the IRS assumes that the real estate was placed in service or disposed of in the middle of
the month it was placed in service or disposed of.
19)
When must a company use the midquarter convention?
Answer:
When the taxpayer places more than 40% of the year’s depreciable assetsexcluding real propertyin
service during the last quarter, the IRS assumes that the individual assets were placed in service or
disposed of in the middle of the quarter that the asset was placed in service or disposed of.
20)
What depreciation rate would be used for the third year on an asset with a seven–year life using the
sum–of–the–years method?
Answer:
The sum of the years is 28 (7 + 6 + 5 + 4 + 3 + 2 + 1). The sum of the years may also be calculated as
follows: 7(7 + 1)/2. The depreciation rate is 5/28 (0.1786), which is calculated as follows: (7 – 3 + 1)/28
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Answer Key
Testname: C5
1)
C
2)
B
3)
C
4)
A
5)
A
6)
A
7)
C
8)
C
9)
D
10)
C
11)
Cost segregation study should (1) classify the assets into one of the four property classes, (2) explain the rational for
the class assignment, and (3) substantiate the cost basis of each asset.
12)
The salvage value is the estimated resale value of the asset at some time in the future when it is sold.
13)
For tax purposes, the salvage value is assumed to be zero.
14)
The Tax Cuts and Jobs Act.
15)
Nonresidential real estate would have a 39–year recovery period and would be depreciated over 40 years because
only a partial year of depreciation may be taken in the first and fortieth years.
16)
By switching to the straight–line method and depreciating the current year’s book value over the years left in the
recovery period. The switch to straight–line occurs when the depreciation calculated by the straight–line method
exceeds the depreciation calculated by the declining–balance method.
17)
IRS Publication 946, How to Depreciate Property.
18)
For real estate, the IRS assumes that the real estate was placed in service or disposed of in the middle of the month it
was placed in service or disposed of.
19)
When the taxpayer places more than 40% of the year’s depreciable assetsexcluding real propertyin service during
the last quarter, the IRS assumes that the individual assets were placed in service or disposed of in the middle of the
quarter that the asset was placed in service or disposed of.
20)
The sum of the years is 28 (7 + 6 + 5 + 4 + 3 + 2 + 1). The sum of the years may also be calculated as follows: 7(7 + 1)/2.
The depreciation rate is 5/28 (0.1786), which is calculated as follows: (7 – 3 + 1)/28
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