Accounting Periods and Methods and Depreciation

MONROE COLLEGE

FEDERAL INCOME TAX 2

ASSIGNMENT 1 - CHAPTER 7

ACCOUNTING PERIODS AND METHODS AND DEPRECIATION

TRUE/FALSE

1. “Annualizing” is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

2. Most partnerships, S corporations, and personal service corporations owned by individuals choose a September 30 year-end so that they may defer 3 months of income.

3. The hybrid method of accounting involves the use of both the accrual and cash methods of accounting.

4. In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.

5. Generally, cash basis taxpayers must account for payments of prepaid interest using the accrual method.

6. Under the cash basis of accounting, expenses are generally deducted in the year they are paid.

7. All S corporations must use the accrual basis of accounting.

8. Maintenance costs for capital assets are deducted in the year the amount is paid or incurred.

9. Depreciation refers to the physical deterioration or loss of value of an asset.

10. Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.

11. If land declines in value, it may be depreciated for tax purposes.

12. Depreciation is the process of allocating the cost of assets to expense over a period of years.

13. Residential real estate purchased during 2013 is assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

14. Automobiles placed in service in 2013 generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).

15. If an asset’s actual useful life is longer than the assigned recovery period, the MACRS tables cannot be used.

16. Under MACRS, the same method of depreciation (accelerated or straight-line) must be used for all property in a given class placed in service...