Chapter 8

Chapter 8 - Acct 3400 Taxation of Individuals Chapter 8...

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Acct 3400 Taxation of Individuals Chapter 8 Practice Questions Question 1: Harry runs his own business and purchased a new computer system for $3,000 on Feb. 1, 2009. Assuming the system is 5-year property, and that Harry does not elect to take any bonus depreciation or the Section 179 expense, what would be the depreciation expense deductions for the years 2009 and 2010? Explanation: In order for property to be depreciable, it must be used in a trade or business, or for the production of income, and must be subject to exhaustion, wear and tear, or obsolescence. Under this standard, the computer would likely qualify as depreciable property. The property was not purchased in the last quarter of the year, therefore, not more than 40% of it was placed in service in the last quarter of the year and therefore, the half-year convention applies as opposed to the mid-quarter convention. Given that it is five-year class property, applying the MACRS schedule for Personal Property, the 2009 depreciation expense would be $600 ($3,000 x .20). The 2010 depreciation expense would be $960 ($3,000 x . 32). Question 2: Mike made the following purchases for his carpet-cleaning business in 2009 (assume all are five-year property): Jan. 15 Trailer $10,000 May 26 Copy Machine $5,000 Nov. 8 Van $30,000 Assuming Mike does not elect any bonus depreciation and does not elect to
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Chapter 8 - Acct 3400 Taxation of Individuals Chapter 8...

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