【正文】 erty used in a trade or business is subject to cost recovery. Neither of the assets in a. or b. is subject to a decline in value from use. Therefore, neither is eligible for cost recovery. PTS: 1 DIF: 1 REF: p. 84 OBJ: 1 NAT: AICPA FNReporting | AACSB Analytic MSC: 5 min 3. On June 1 of the current year, Tab converted a machine to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery? a. $70,000. b. $90,000. c. $120,000. d. $140,000. e. None of the above. ANS: B The basis is $90,000, the lower of the adjusted basis ($120,000) or fair market value ($90,000) at the date of conversion. PTS: 1 DIF: 1 REF: p. 85 | Example 3 OBJ: 1 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 814 2020 Comprehensive Volume/Test Bank purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are as follows: Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $ 8,000 Year 2 9,600 12,800 Year 3 5,760 7,680 If Tara sells the machine after three years for $15,000, how much gain should she recognize? a. $3,480. b. $6,360. c. $9,240. d. $11,480. e. None of the above. ANS: D Cost $40,000 Less the greater of cost recovery allowed or allowable ($16,000 + $12,800 + $7,680) (36,480) Adjusted basis $ 3,520 The recognized gain is $11,480 ($15,000 – $3,520). PTS: 1 DIF: 1 REF: Example 2 OBJ: 1 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 5. Hazel purchased a new business asset (fiveyear property) on November 30, 2020, at a cost of $100,000. This was the only asset acquired by Hazel during 2020. On January 7, 2020, Hazel placed the asset in service. She did not elect to expense any of the asset cost under 167。 179, nor did he elect straightline cost recovery. Barry sold the asset on July 17, 2020. Determine the cost recovery deduction for 2020. a. $9,566. b. $9,975. c. $10,331. d. $16,530. e. None of the above. ANS: C The midquarter convention applies in this case [$60,000 ? .2755 ? $10,331]. Additional firstyear depreciation was not taken in 2020 because the business asset was used rather than being new. PTS: 1 DIF: 1 REF: p. 85 to 810 | Table OBJ: 2 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 10. Bonnie purchased a new business asset (fiveyear property) on March 10, 2020, at a cost of $20,000. She also purchased a new business asset (sevenyear property) on November 20, 2020, at a cost of $13,000. Bonnie did not elect to expense either of the assets under 167。 274. ANS: T PTS: 1 DIF: 1 REF: p. 820 OBJ: 4 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 37. If a taxpayer uses regular MACRS for all property, an alternative minimum tax adjustment is made with respect to the depreciation on all property. ANS: F No adjustment is required on 15 and 20year class property because they use 150% decliningbalance depreciation. PTS: 1 DIF: 1 REF: p. 820 to 822 OBJ: 2 | 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min Depreciation, Cost Recovery, Amortization, and Depletion 811 150% decliningbalance depreciation is used to pute earnings and profits. ANS: F ADS straightline depreciation is used to pute earnings and profits. PTS: 1 DIF: 1 REF: p. 820 OBJ: 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 39. Under the alternative depreciation system (ADS), only the halfyear convention is applicable for personalty. ANS: F The midquarter convention also is applicable for personalty. PTS: 1 DIF: 1 REF: p. 820 | p. 821 OBJ: 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 40. A taxpayer may elect to use the alternative depreciation system (ADS) for puting taxable ine. ANS: T PTS: 1 DIF: 1 REF: p. 820 | p. 821 OBJ: 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 41. An election to use straightline under ADS is made on a classbyclass basis for property other than eligible real estate. ANS: T PTS: 1 DIF: 1 REF: p. 822 OBJ: 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 42. For real property, the ADS convention is the midmonth convention. ANS: T PTS: 1 DIF: 1 REF: p. 821 OBJ: 5 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 43. The cost of a covenant not to plete for five years incurred in connection with the acquisition of a business is amortized over 15 years. ANS: T PTS: 1 DIF: 1 REF: p. 822 OBJ: 7 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 44. Goodwill associated with the acquisition of a business cannot be amortized. ANS: F Such goodwill is a 167。 280F apply only to automobiles which meet the definition of a passenger automobile (., do not apply to a taxi). PTS: 1 DIF: 1 REF: p. 816 OBJ: 4 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 2 min 29. The 167。 179 property placed in service in excess of $800,000 in the carryforward year or (2) the business ine limitation in the carryforward year. PTS: 1 DIF: 1 REF: p. 814 OBJ: 3 NAT: AICPA FNMeasurement | AACSB Analytic MSC: 5 min 24. Any 167。 179 expensing, and midquarter convention 7 Cost recovery: farm property Modified 7 8 Cost recovery: leasehold improvement property Modified 8 9 Listed property and 167。81 CHAPTER 8 DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION Instructor: The test items in both the print Test Bank and ExamView testcreation software are numbered by question type within each chapter. Thus, users of ExamView can more easily preview their se