Income Tax Accounting

CHAPTER 7

ACCOUNTING PERIODS AND METHODS AND DEPRECIATION

Name: _____________________________

True or False Questions

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

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

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

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

10. Residential real estate purchased during 2012 is assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.

11. Automobiles placed in service in 2012 generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System.

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

13. Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to

the half-year convention.

14. Taxpayers may expense the cost of depreciable personal property placed in...