t57qxDqz

11. Property which is classified as personalty may be depreciated.
2a. True
3b. False
4ANSWER:   True
5POINTS:   1
6DIFFICULTY:   Easy
7QUESTION TYPE:   True / False
8HAS VARIABLES:   False
9LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
10NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
11STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
12KEYWORDS:   Bloom's: Knowledge
13OTHER:   Time: 2 min.
14DATE CREATED:   11/15/2017 1:09 PM
15DATE MODIFIED:   7/24/2018 8:59 PM
162. Antiques may be eligible for cost recovery if they are used in a trade or business.
17a. True
18b. False
19ANSWER:   False
20POINTS:   1
21DIFFICULTY:   Easy
22QUESTION TYPE:   True / False
23HAS VARIABLES:   False
24LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
25NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
26STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
27KEYWORDS:   Bloom's: Knowledge
28OTHER:   Time: 2 min.
29DATE CREATED:   11/15/2017 1:09 PM
30DATE MODIFIED:   7/24/2018 8:59 PM
31Copyright Cengage Learning. Powered by Cognero. Page 1
32Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
333. The basis of cost recovery property must be reduced by at least the cost recovery allowable.
34a. True
35b. False
36ANSWER:   True
37RATIONALE:   The basis of cost recovery property must be reduced by the cost recovery allowed
38but not less than the cost recovery allowable.
39POINTS:   1
40DIFFICULTY:   Easy
41QUESTION TYPE:   True / False
42HAS VARIABLES:   False
43LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
44NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
45STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
46KEYWORDS:   Bloom's: Knowledge
47OTHER:   Time: 2 min.
48DATE CREATED:   11/15/2017 1:09 PM
49DATE MODIFIED:   7/24/2018 8:59 PM
504. The key date for calculating cost recovery is the date the asset is placed in service.
51a. True
52b. False
53ANSWER:   True
54RATIONALE:   The key date for calculating cost recovery is the date the asset is placed in service,
55not the purchase date.
56POINTS:   1
57DIFFICULTY:   Easy
58QUESTION TYPE:   True / False
59HAS VARIABLES:   False
60LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
61NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
62STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
63KEYWORDS:   Bloom's: Knowledge
64OTHER:   Time: 2 min.
65DATE CREATED:   11/15/2017 1:09 PM
66DATE MODIFIED:   7/24/2018 8:59 PM
67Copyright Cengage Learning. Powered by Cognero. Page 2
68Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
695. Land improvements are generally not eligible for cost recovery.
70a. True
71b. False
72ANSWER:   False
73RATIONALE:   Land improvements are 15-year class property.
74POINTS:   1
75DIFFICULTY:   Easy
76QUESTION TYPE:   True / False
77HAS VARIABLES:   False
78LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
79NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
80STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
81KEYWORDS:   Bloom's: Knowledge
82OTHER:   Time: 2 min.
83DATE CREATED:   11/15/2017 1:09 PM
84DATE MODIFIED:   7/24/2018 8:59 PM
856. The cost recovery basis for property converted from personal use to business use may be the fair market value of
86the property at the time of the conversion.
87a. True
88b. False
89ANSWER:   True
90RATIONALE:   This would occur for the loss basis if the fair market value is less than the adjusted
91basis of the property.
92POINTS:   1
93DIFFICULTY:   Easy
94QUESTION TYPE:   True / False
95HAS VARIABLES:   False
96LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
97NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
98STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
99KEYWORDS:   Bloom's: Knowledge
100OTHER:   Time: 2 min.
101DATE CREATED:   11/15/2017 1:09 PM
102DATE MODIFIED:   7/24/2018 8:59 PM
103Copyright Cengage Learning. Powered by Cognero. Page 3
104Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
1057. The maximum cost recovery method for all personal property under MACRS is 150% declining balance.
106a. True
107b. False
108ANSWER:   False
109RATIONALE:   MACRS uses both 200% and 150% declining balance depending on the class of the
110property.
111POINTS:   1
112DIFFICULTY:   Easy
113QUESTION TYPE:   True / False
114HAS VARIABLES:   False
115LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
116NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
117STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
118AICPA: FN-Measurement
119KEYWORDS:   Bloom's: Knowledge
120OTHER:   Time: 2 min.
121DATE CREATED:   11/15/2017 1:09 PM
122DATE MODIFIED:   7/24/2018 8:59 PM
1238. The cost recovery period for 3-year class property is 4 years.
124a. True
125b. False
126ANSWER:   True
127POINTS:   1
128DIFFICULTY:   Easy
129QUESTION TYPE:   True / False
130HAS VARIABLES:   False
131LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
132NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
133STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
134AICPA: FN-Measurement
135KEYWORDS:   Bloom's: Knowledge
136OTHER:   Time: 2 min.
137DATE CREATED:   11/15/2017 1:09 PM
138DATE MODIFIED:   7/24/2018 8:59 PM
139Copyright Cengage Learning. Powered by Cognero. Page 4
140Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
1419. All personal property placed in service in 2018 and used in a trade or business qualifies for additional first-year
142depreciation.
143a. True
144b. False
145ANSWER:   True
146RATIONALE:   Prior to 2018, only new property placed in service qualified for additional first-year
147depreciation.
148POINTS:   1
149DIFFICULTY:   Easy
150QUESTION TYPE:   True / False
151HAS VARIABLES:   False
152LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
153NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
154STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
155AICPA: FN-Measurement
156KEYWORDS:   Bloom's: Knowledge
157OTHER:   Time: 2 min.
158DATE CREATED:   11/15/2017 1:09 PM
159DATE MODIFIED:   7/24/2018 8:59 PM
16010. If more than 40% of the value of property, other than real property, is placed in service during the last quarter, all of
161the property placed in service in the second quarter will be allowed 7.5 months of cost recovery.
162a. True
163b. False
164ANSWER:   True
165POINTS:   1
166DIFFICULTY:   Easy
167QUESTION TYPE:   True / False
168HAS VARIABLES:   False
169LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
170NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
171STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
172AICPA: FN-Measurement
173KEYWORDS:   Bloom's: Knowledge
174OTHER:   Time: 2 min.
175DATE CREATED:   11/15/2017 1:09 PM
176DATE MODIFIED:   7/24/2018 8:59 PM
177Copyright Cengage Learning. Powered by Cognero. Page 5
178Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
17911. Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point
180of the quarter in which it is placed in service.
181a. True
182b. False
183ANSWER:   False
184RATIONALE:   All property sold is treated as being sold at the mid-point of the quarter in which it is
185sold.
186POINTS:   1
187DIFFICULTY:   Easy
188QUESTION TYPE:   True / False
189HAS VARIABLES:   False
190LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
191NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
192STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
193AICPA: FN-Measurement
194KEYWORDS:   Bloom's: Knowledge
195OTHER:   Time: 2 min.
196DATE CREATED:   11/15/2017 1:09 PM
197DATE MODIFIED:   7/24/2018 8:59 PM
19812. The factor for determining the cost recovery for eligible real estate under MACRS, in the year of disposition, is
199taken from the month of the disposition.
200a. True
201b. False
202ANSWER:   False
203RATIONALE:   The factor is taken from the month the real estate is placed in service.
204POINTS:   1
205DIFFICULTY:   Easy
206QUESTION TYPE:   True / False
207HAS VARIABLES:   False
208LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
209NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
210STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
211AICPA: FN-Measurement
212KEYWORDS:   Bloom's: Knowledge
213OTHER:   Time: 2 min.
214DATE CREATED:   11/15/2017 1:09 PM
215DATE MODIFIED:   7/24/2018 8:59 PM
216Copyright Cengage Learning. Powered by Cognero. Page 6
217Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
21813. Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient
219dwelling units.
220a. True
221b. False
222ANSWER:   False
223RATIONALE:   The test is 80% or more of gross rental revenues.
224POINTS:   1
225DIFFICULTY:   Easy
226QUESTION TYPE:   True / False
227HAS VARIABLES:   False
228LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
229NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
230STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
231AICPA: FN-Measurement
232KEYWORDS:   Bloom's: Knowledge
233OTHER:   Time: 2 min.
234DATE CREATED:   11/15/2017 1:09 PM
235DATE MODIFIED:   7/24/2018 8:59 PM
23614. Motel buildings have a cost recovery period of 27.5 years.
237a. True
238b. False
239ANSWER:   False
240RATIONALE:   Motel buildings are classified as nonresidential real estate with a recovery period of
24139 years.
242POINTS:   1
243DIFFICULTY:   Easy
244QUESTION TYPE:   True / False
245HAS VARIABLES:   False
246LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
247NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
248STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
249AICPA: FN-Measurement
250KEYWORDS:   Bloom's: Knowledge
251OTHER:   Time: 2 min.
252DATE CREATED:   11/15/2017 1:09 PM
253DATE MODIFIED:   7/24/2018 8:59 PM
254Copyright Cengage Learning. Powered by Cognero. Page 7
255Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
25615. Taxpayers may elect to use the straight-line method under MACRS for personalty.
257a. True
258b. False
259ANSWER:   True
260POINTS:   1
261DIFFICULTY:   Easy
262QUESTION TYPE:   True / False
263HAS VARIABLES:   False
264LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
265NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
266STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
267AICPA: FN-Measurement
268KEYWORDS:   Bloom's: Knowledge
269OTHER:   Time: 2 min.
270DATE CREATED:   11/15/2017 1:09 PM
271DATE MODIFIED:   7/24/2018 8:59 PM
27216. Under the MACRS straight-line election for personalty, only the half-year convention is applicable.
273a. True
274b. False
275ANSWER:   False
276RATIONALE:   The mid-quarter convention is applicable under the MACRS straight-line election for
277personalty.
278POINTS:   1
279DIFFICULTY:   Easy
280QUESTION TYPE:   True / False
281HAS VARIABLES:   False
282LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
283NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
284STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
285AICPA: FN-Measurement
286KEYWORDS:   Bloom's: Knowledge
287OTHER:   Time: 2 min.
288DATE CREATED:   11/15/2017 1:09 PM
289DATE MODIFIED:   7/24/2018 8:59 PM
290Copyright Cengage Learning. Powered by Cognero. Page 8
291Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
29217. For personal property placed in service in 2018, the § 179 maximum deduction is limited to $1,000,000.
293a. True
294b. False
295ANSWER:   True
296POINTS:   1
297DIFFICULTY:   Easy
298QUESTION TYPE:   True / False
299HAS VARIABLES:   False
300LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
301NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
302STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
303AICPA: FN-Measurement
304KEYWORDS:   Bloom's: Knowledge
305OTHER:   Time: 2 min.
306DATE CREATED:   11/15/2017 1:09 PM
307DATE MODIFIED:   7/24/2018 8:59 PM
30818. The § 179 deduction can exceed $1,000,000 in 2018 if the taxpayer had a § 179 amount which exceeded the taxable
309income limitation in the prior year.
310a. True
311b. False
312ANSWER:   False
313RATIONALE:   The § 179 amount eligible for expensing in a carryforward year is limited to the
314lesser of (1) the statutory dollar amount ($1,000,000 in 2018 and $510,000 in 2017)
315reduced by the cost of § 179 property placed in service in excess of the appropriate
316acquisition limit in the carryforward year ($2,500,000 in 2018 and $2,030,000 in
3172017), or (2) the business income limitation in the carryforward year.
318POINTS:   1
319DIFFICULTY:   Easy
320QUESTION TYPE:   True / False
321HAS VARIABLES:   False
322LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
323NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
324STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
325AICPA: FN-Measurement
326KEYWORDS:   Bloom's: Comprehension
327OTHER:   Time: 5 min.
328DATE CREATED:   11/15/2017 1:09 PM
329DATE MODIFIED:   7/24/2018 8:59 PM
330Copyright Cengage Learning. Powered by Cognero. Page 9
331Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
33219. Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward
333year.
334a. True
335b. False
336ANSWER:   True
337POINTS:   1
338DIFFICULTY:   Easy
339QUESTION TYPE:   True / False
340HAS VARIABLES:   False
341LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
342NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
343STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
344AICPA: FN-Measurement
345KEYWORDS:   Bloom's: Knowledge
346OTHER:   Time: 2 min.
347DATE CREATED:   11/15/2017 1:09 PM
348DATE MODIFIED:   7/24/2018 8:59 PM
34920. Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.
350a. True
351b. False
352ANSWER:   True
353RATIONALE:   MACRS depreciation is a deduction in computing taxable income for purposes of the
354§ 179 limitations.
355POINTS:   1
356DIFFICULTY:   Easy
357QUESTION TYPE:   True / False
358HAS VARIABLES:   False
359LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
360NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
361STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
362AICPA: FN-Measurement
363KEYWORDS:   Bloom's: Knowledge
364OTHER:   Time: 2 min.
365DATE CREATED:   11/15/2017 1:09 PM
366DATE MODIFIED:   7/24/2018 8:59 PM
367Copyright Cengage Learning. Powered by Cognero. Page 10
368Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
36921. The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000, even if $20,000
370cannot be expensed in the current year because of the taxable income limitation.
371a. True
372b. False
373ANSWER:   True
374POINTS:   1
375DIFFICULTY:   Easy
376QUESTION TYPE:   True / False
377HAS VARIABLES:   False
378LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
379NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
380STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
381AICPA: FN-Measurement
382KEYWORDS:   Bloom's: Comprehension
383OTHER:   Time: 2 min.
384DATE CREATED:   11/15/2017 1:09 PM
385DATE MODIFIED:   7/24/2018 8:59 PM
38622. Property used for the production of income is not eligible for § 179 expensing.
387a. True
388b. False
389ANSWER:   True
390POINTS:   1
391DIFFICULTY:   Easy
392QUESTION TYPE:   True / False
393HAS VARIABLES:   False
394LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
395NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
396STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
397AICPA: FN-Measurement
398KEYWORDS:   Bloom's: Knowledge
399OTHER:   Time: 2 min.
400DATE CREATED:   11/15/2017 1:09 PM
401DATE MODIFIED:   7/24/2018 8:59 PM
402Copyright Cengage Learning. Powered by Cognero. Page 11
403Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
40423. The luxury auto cost recovery limits applies to all automobiles.
405a. True
406b. False
407ANSWER:   False
408RATIONALE:   The statutory cost recovery limits under § 280F apply only to automobiles which
409meet the definition of a passenger automobile (e.g., do not apply to a taxi).
410POINTS:   1
411DIFFICULTY:   Easy
412QUESTION TYPE:   True / False
413HAS VARIABLES:   False
414LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
415NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
416STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
417AICPA: FN-Measurement
418KEYWORDS:   Bloom's: Knowledge
419OTHER:   Time: 2 min.
420DATE CREATED:   11/15/2017 1:09 PM
421DATE MODIFIED:   7/24/2018 8:59 PM
42224. The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is
423used as a taxi.
424a. True
425b. False
426ANSWER:   False
427RATIONALE:   The § 179 limit applies if the sports utility vehicle is used in a trade or business.
428POINTS:   1
429DIFFICULTY:   Easy
430QUESTION TYPE:   True / False
431HAS VARIABLES:   False
432LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
433EOTX.SWFT.LO: 5-08 - LO: 5-08
434NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
435STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
436AICPA: FN-Measurement
437KEYWORDS:   Bloom's: Knowledge
438OTHER:   Time: 2 min.
439DATE CREATED:   11/15/2017 1:09 PM
440DATE MODIFIED:   7/24/2018 8:59 PM
441Copyright Cengage Learning. Powered by Cognero. Page 12
442Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
44325. Once the more-than-50% business usage test is passed for listed property, it still matters if the business usage for the
444property drops to 50% or less during the recovery period.
445a. True
446b. False
447ANSWER:   True
448RATIONALE:   If the business usage declines to 50% or less, the straight-line method must be used
449and the property is subject to cost recovery recapture.
450POINTS:   1
451DIFFICULTY:   Easy
452QUESTION TYPE:   True / False
453HAS VARIABLES:   False
454LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
455NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
456STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
457AICPA: FN-Measurement
458KEYWORDS:   Bloom's: Knowledge
459OTHER:   Time: 2 min.
460DATE CREATED:   11/15/2017 1:09 PM
461DATE MODIFIED:   7/24/2018 8:59 PM
46226. For a new car that is used predominantly in business, the "luxury auto" limit depends on whether the taxpayer takes
463MACRS or straight-line depreciation.
464a. True
465b. False
466ANSWER:   False
467RATIONALE:   The statutory cost recovery limits apply regardless of whether MACRS or straightline
468depreciation is used.
469POINTS:   1
470DIFFICULTY:   Easy
471QUESTION TYPE:   True / False
472HAS VARIABLES:   False
473LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
474NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
475STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
476AICPA: FN-Measurement
477KEYWORDS:   Bloom's: Knowledge
478OTHER:   Time: 2 min.
479DATE CREATED:   11/15/2017 1:09 PM
480DATE MODIFIED:   7/24/2018 8:59 PM
481Copyright Cengage Learning. Powered by Cognero. Page 13
482Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
48327. If an automobile is placed in service in 2018, the limitation for cost recovery in 2020 will be based on the cost
484recovery limits for the year 2018.
485a. True
486b. False
487ANSWER:   True
488RATIONALE:   The cost recovery limits will be based on the limits in place when the automobile is
489placed in service.
490POINTS:   1
491DIFFICULTY:   Easy
492QUESTION TYPE:   True / False
493HAS VARIABLES:   False
494LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
495NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
496STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
497AICPA: FN-Measurement
498KEYWORDS:   Bloom's: Knowledge
499OTHER:   Time: 2 min.
500DATE CREATED:   11/15/2017 1:09 PM
501DATE MODIFIED:   7/24/2018 8:59 PM
50228. The  "luxury auto" cost recovery limits change if mid-quarter cost recovery is used.
503a. True
504b. False
505ANSWER:   False
506RATIONALE:   The § 280F limits apply to all passenger automobiles, regardless of the MACRS
507convention used.
508POINTS:   1
509DIFFICULTY:   Easy
510QUESTION TYPE:   True / False
511HAS VARIABLES:   False
512LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
513NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
514STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
515AICPA: FN-Measurement
516KEYWORDS:   Bloom's: Knowledge
517OTHER:   Time: 2 min.
518DATE CREATED:   11/15/2017 1:09 PM
519DATE MODIFIED:   7/24/2018 8:59 PM
520Copyright Cengage Learning. Powered by Cognero. Page 14
521Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
52229. The inclusion amount for a leased automobile is adjusted by a business usage percentage.
523a. True
524b. False
525ANSWER:   True
526RATIONALE:   The inclusion amount for a leased automobile is adjusted for business use.
527POINTS:   1
528DIFFICULTY:   Easy
529QUESTION TYPE:   True / False
530HAS VARIABLES:   False
531LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
532NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
533STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
534AICPA: FN-Measurement
535KEYWORDS:   Bloom's: Knowledge
536OTHER:   Time: 2 min.
537DATE CREATED:   11/15/2017 1:09 PM
538DATE MODIFIED:   7/24/2018 8:59 PM
53930. A used $35,000 automobile that is used 100% for business is placed in service in 2018.  If the automobile fails the
54050% business usage test in the second year, no cost recovery will be recaptured.
541a. True
542b. False
543ANSWER:   False
544RATIONALE:   The total cost recovery deduction for the first year would be $7,000 ($35,000 x 20%)
545which is less than $10,000 (§ 280F limit). The cost recovery in the first year using
546straight-line would be $3,500 ($35,000 x 10%) which is less than $10,000 (§ 280F
547limit) . As a result, there is cost recovery recapture of $3,500.
548POINTS:   1
549DIFFICULTY:   Easy
550QUESTION TYPE:   True / False
551HAS VARIABLES:   False
552LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
553NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
554STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
555AICPA: FN-Measurement
556KEYWORDS:   Bloom's: Comprehension
557OTHER:   Time: 5 min.
558DATE CREATED:   11/15/2017 1:09 PM
559DATE MODIFIED:   7/24/2018 8:59 PM
560Copyright Cengage Learning. Powered by Cognero. Page 15
561Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
56231. All listed property is subject to the substantiation requirements of § 274.
563a. True
564b. False
565ANSWER:   True
566POINTS:   1
567DIFFICULTY:   Easy
568QUESTION TYPE:   True / False
569HAS VARIABLES:   False
570LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
571NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
572STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
573AICPA: FN-Measurement
574KEYWORDS:   Bloom's: Knowledge
575OTHER:   Time: 2 min.
576DATE CREATED:   11/15/2017 1:09 PM
577DATE MODIFIED:   7/24/2018 8:59 PM
57832. MACRS depreciation is used to compute earnings and profits.
579a. True
580b. False
581ANSWER:   False
582RATIONALE:   ADS straight-line depreciation is used to compute earnings and profits.
583POINTS:   1
584DIFFICULTY:   Easy
585QUESTION TYPE:   True / False
586HAS VARIABLES:   False
587LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
588NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
589STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
590AICPA: FN-Measurement
591KEYWORDS:   Bloom's: Knowledge
592OTHER:   Time: 2 min.
593DATE CREATED:   11/15/2017 1:09 PM
594DATE MODIFIED:   7/24/2018 8:59 PM
595Copyright Cengage Learning. Powered by Cognero. Page 16
596Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
59733. Under the alternative depreciation system (ADS), the half-year convention must be used for personalty.
598a. True
599b. False
600ANSWER:   False
601RATIONALE:   The half-year and mid-quarter conventions apply.
602POINTS:   1
603DIFFICULTY:   Easy
604QUESTION TYPE:   True / False
605HAS VARIABLES:   False
606LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
607NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
608STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
609AICPA: FN-Measurement
610KEYWORDS:   Bloom's: Knowledge
611OTHER:   Time: 2 min.
612DATE CREATED:   11/15/2017 1:09 PM
613DATE MODIFIED:   7/24/2018 8:59 PM
61434. A taxpayer must use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.
615a. True
616b. False
617ANSWER:   True
618POINTS:   1
619DIFFICULTY:   Easy
620QUESTION TYPE:   True / False
621HAS VARIABLES:   False
622LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
623NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
624STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
625AICPA: FN-Measurement
626KEYWORDS:   Bloom's: Knowledge
627OTHER:   Time: 2 min.
628DATE CREATED:   11/15/2017 1:09 PM
629DATE MODIFIED:   7/24/2018 8:59 PM
630Copyright Cengage Learning. Powered by Cognero. Page 17
631Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
63235. An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real
633estate.
634a. True
635b. False
636ANSWER:   False
637RATIONALE:   The election is made on a class-by-class basis for property other than eligible real
638property.
639POINTS:   1
640DIFFICULTY:   Easy
641QUESTION TYPE:   True / False
642HAS VARIABLES:   False
643LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
644NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
645STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
646AICPA: FN-Measurement
647KEYWORDS:   Bloom's: Knowledge
648OTHER:   Time: 2 min.
649DATE CREATED:   11/15/2017 1:09 PM
650DATE MODIFIED:   7/24/2018 8:59 PM
65136. For real property, the ADS convention is the mid-month convention.
652a. True
653b. False
654ANSWER:   True
655POINTS:   1
656DIFFICULTY:   Easy
657QUESTION TYPE:   True / False
658HAS VARIABLES:   False
659LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
660NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
661STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
662AICPA: FN-Measurement
663KEYWORDS:   Bloom's: Knowledge
664OTHER:   Time: 2 min.
665DATE CREATED:   11/15/2017 1:09 PM
666DATE MODIFIED:   7/24/2018 8:59 PM
667Copyright Cengage Learning. Powered by Cognero. Page 18
668Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
66937. The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is
670amortized over 10 years.
671a. True
672b. False
673ANSWER:   False
674RATIONALE:   A covenant not to compete is amortized over a statutory 15 years.
675POINTS:   1
676DIFFICULTY:   Easy
677QUESTION TYPE:   True / False
678HAS VARIABLES:   False
679LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
680NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
681STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
682AICPA: FN-Measurement
683KEYWORDS:   Bloom's: Knowledge
684OTHER:   Time: 2 min.
685DATE CREATED:   11/15/2017 1:09 PM
686DATE MODIFIED:   7/24/2018 8:59 PM
68738. Goodwill associated with the acquisition of a business cannot be amortized.
688a. True
689b. False
690ANSWER:   False
691RATIONALE:   Such goodwill is a § 197 intangible and is amortized over a 15-year period.
692POINTS:   1
693DIFFICULTY:   Easy
694QUESTION TYPE:   True / False
695HAS VARIABLES:   False
696LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
697NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
698STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
699AICPA: FN-Measurement
700KEYWORDS:   Bloom's: Knowledge
701OTHER:   Time: 2 min.
702DATE CREATED:   11/15/2017 1:09 PM
703DATE MODIFIED:   7/24/2018 8:59 PM
704Copyright Cengage Learning. Powered by Cognero. Page 19
705Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
70639. A purchased trademark is a § 197 intangible.
707a. True
708b. False
709ANSWER:   True
710POINTS:   1
711DIFFICULTY:   Easy
712QUESTION TYPE:   True / False
713HAS VARIABLES:   False
714LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
715NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
716STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
717AICPA: FN-Measurement
718KEYWORDS:   Bloom's: Knowledge
719OTHER:   Time: 2 min.
720DATE CREATED:   11/15/2017 1:09 PM
721DATE MODIFIED:   7/24/2018 8:59 PM
72240. If startup expenses total $53,000, $51,000 of those costs are amortized over 180 months.
723a. True
724b. False
725ANSWER:   True
726RATIONALE:   A portion of the expenses ($2,000) can be deducted immediately (a $5,000 maximum
727less the amount of startup expenses in excess of $50,000; $5,000 less $3,000 equals
728$2,000).  The balance ($51,000) will be amortized over 180 months.
729POINTS:   1
730DIFFICULTY:   Easy
731QUESTION TYPE:   True / False
732HAS VARIABLES:   False
733LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
734NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
735STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
736AICPA: FN-Measurement
737KEYWORDS:   Bloom's: Application
738OTHER:   Time: 2 min.
739DATE CREATED:   11/15/2017 1:09 PM
740DATE MODIFIED:   7/24/2018 8:59 PM
741Copyright Cengage Learning. Powered by Cognero. Page 20
742Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
74341. The amortization period for $58,000 of startup expenses is 180 months.
744a. True
745b. False
746ANSWER:   True
747RATIONALE:   As startup expenses exceed $55,000, no amount can be deducted immediately.
748POINTS:   1
749DIFFICULTY:   Easy
750QUESTION TYPE:   True / False
751HAS VARIABLES:   False
752LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
753NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
754STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
755AICPA: FN-Measurement
756KEYWORDS:   Bloom's: Comprehension
757OTHER:   Time: 2 min.
758DATE CREATED:   11/15/2017 1:09 PM
759DATE MODIFIED:   7/24/2018 8:59 PM
76042. Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.
761a. True
762b. False
763ANSWER:   True
764RATIONALE:   Cost depletion is determined by multiplying the depletion cost per unit by the number
765of units sold (not produced).
766POINTS:   1
767DIFFICULTY:   Easy
768QUESTION TYPE:   True / False
769HAS VARIABLES:   False
770LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-10 - LO: 5-10
771NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
772STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
773AICPA: FN-Measurement
774KEYWORDS:   Bloom's: Comprehension
775OTHER:   Time: 2 min.
776DATE CREATED:   11/15/2017 1:09 PM
777DATE MODIFIED:   7/24/2018 8:59 PM
778Copyright Cengage Learning. Powered by Cognero. Page 21
779Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
78043. Percentage depletion enables the taxpayer to recover more than the cost of an asset in the form of tax deductions.
781a. True
782b. False
783ANSWER:   True
784RATIONALE:   Percentage depletion can be taken even though the basis in the asset has been
785reduced to zero by depletion deductions.
786POINTS:   1
787DIFFICULTY:   Easy
788QUESTION TYPE:   True / False
789HAS VARIABLES:   False
790LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-10 - LO: 5-10
791NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
792STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
793AICPA: FN-Measurement
794KEYWORDS:   Bloom's: Comprehension
795OTHER:   Time: 2 min.
796DATE CREATED:   11/15/2017 1:09 PM
797DATE MODIFIED:   7/24/2018 8:59 PM
79844. Intangible drilling costs must be capitalized and recovered through depletion.
799a. True
800b. False
801ANSWER:   False
802RATIONALE:   The taxpayer may elect to expense the intangible drilling costs.
803POINTS:   1
804DIFFICULTY:   Easy
805QUESTION TYPE:   True / False
806HAS VARIABLES:   False
807LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-10 - LO: 5-10
808NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
809STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
810AICPA: FN-Measurement
811KEYWORDS:   Bloom's: Knowledge
812OTHER:   Time: 2 min.
813DATE CREATED:   11/15/2017 1:09 PM
814DATE MODIFIED:   7/24/2018 8:59 PM
815Copyright Cengage Learning. Powered by Cognero. Page 22
816Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
81745. MACRS does not use salvage value. As a result, if a 7-year MACRS asset is held for 10 years, its adjusted basis
818will be zero.
819a. True
820b. False
821ANSWER:   True
822RATIONALE:   MACRS ignores salvage.
823POINTS:   1
824DIFFICULTY:   Easy
825QUESTION TYPE:   True / False
826HAS VARIABLES:   False
827LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
828NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
829STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
830AICPA: FN-Measurement
831KEYWORDS:   Bloom's: Comprehension
832OTHER:   Time: 2 min.
833DATE CREATED:   12/5/2017 11:22 AM
834DATE MODIFIED:   7/24/2018 8:59 PM
83546. Under MACRS, equipment falling in the 7-year MACRS class will be cost recovered over seven tax years.
836a. True
837b. False
838ANSWER:   False
839RATIONALE:   MACRS uses the half-year convention for property other than real estate. As a
840result, a 7-year asset will be cost recovered over eight tax years.
841POINTS:   1
842DIFFICULTY:   Easy
843QUESTION TYPE:   True / False
844HAS VARIABLES:   False
845LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
846NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
847STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
848AICPA: FN-Measurement
849KEYWORDS:   Bloom's: Comprehension
850OTHER:   Time: 2 min.
851DATE CREATED:   12/5/2017 11:23 AM
852DATE MODIFIED:   7/24/2018 8:59 PM
853Copyright Cengage Learning. Powered by Cognero. Page 23
854Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
85547. If a taxpayer has a business with a net operating loss carryover reducing current year income, the taxpayer may
856want to elect to use straight-line depreciation to slow down the cost recovery.
857a. True
858b. False
859ANSWER:   True
860RATIONALE:   If a taxpayer has a new business with little income or a business with a net operating
861loss carryover, the taxpayer should consider electing to use straight-line depreciation
862to slow down the cost recovery and preserve the deductions for later, higher tax rate
863years.
864POINTS:   1
865DIFFICULTY:   Easy
866QUESTION TYPE:   True / False
867HAS VARIABLES:   False
868LEARNING OBJECTIVES:  EOTX.SWFT.LO: 8-09 - LO: 8-09
869NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
870STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
871AICPA: FN-Measurement
872KEYWORDS:   Bloom's: Comprehension
873OTHER:   Time: 2 min.
874DATE CREATED:   12/5/2017 11:23 AM
875DATE MODIFIED:   7/24/2018 8:59 PM
87648. When a business is being purchased, if possible, the purchaser should bargain for more of the purchase price being
877allocated to goodwill and covenants not to compete, rather than depreciable assets.
878a. True
879b. False
880ANSWER:   False
881RATIONALE:   When a business is being purchased, goodwill and covenants not to compete are both
882subject to a statutory amortization period of 15 years. Under MACRS, most assets
883are cost recovered over 5 or 7 years.
884POINTS:   1
885DIFFICULTY:   Easy
886QUESTION TYPE:   True / False
887HAS VARIABLES:   False
888LEARNING OBJECTIVES:  EOTX.SWFT.LO: 8-09 - LO: 8-09
889NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
890STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
891AICPA: FN-Measurement
892KEYWORDS:   Bloom's: Comprehension
893OTHER:   Time: 2 min.
894DATE CREATED:   12/5/2017 11:24 AM
895DATE MODIFIED:   7/24/2018 8:59 PM
896Copyright Cengage Learning. Powered by Cognero. Page 24
897Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
89849. Under MACRS, the double-declining balance method is used for property other than real estate with a recovery
899period of 15 or 20 years.
900a. True
901b. False
902ANSWER:   False
903RATIONALE:   MACRS specifies the use of the 150%-declining balance method for 15- and 20-
904year MACRS assets. Double-declining balance is used for 3-, 5-, 7-, and 10- year
905assets under MACRS.
906POINTS:   1
907DIFFICULTY:   Easy
908QUESTION TYPE:   True / False
909HAS VARIABLES:   False
910LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
911NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
912STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
913AICPA: FN-Measurement
914KEYWORDS:   Bloom's: Comprehension
915OTHER:   Time: 2 min.
916DATE CREATED:   12/5/2017 11:25 AM
917DATE MODIFIED:   7/24/2018 8:59 PM
91850. Assets that do not decline in value on a predictable basis are not eligible for cost recovery under MACRS.
919a. True
920b. False
921ANSWER:   True
922RATIONALE:   Assets that do not decline in value on a predictable basis or that do not have a
923determinable useful life (e.g., land, stock, and antiques) are not eligible for cost
924recovery.
925POINTS:   1
926DIFFICULTY:   Easy
927QUESTION TYPE:   True / False
928HAS VARIABLES:   False
929LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
930NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
931STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
932AICPA: FN-Measurement
933KEYWORDS:   Bloom's: Comprehension
934OTHER:   Time: 2 min.
935DATE CREATED:   12/5/2017 11:26 AM
936DATE MODIFIED:   7/24/2018 8:59 PM
937Copyright Cengage Learning. Powered by Cognero. Page 25
938Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
93951. Land is generally amortized, rather than being cost recovered under MACRS.
940a. True
941b. False
942ANSWER:   False
943RATIONALE:   As land has an indefinite life, it cannot be cost recovered, depleted, or amortized.
944POINTS:   1
945DIFFICULTY:   Easy
946QUESTION TYPE:   True / False
947HAS VARIABLES:   False
948LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
949NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
950STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
951AICPA: FN-Measurement
952KEYWORDS:   Bloom's: Comprehension
953OTHER:   Time: 2 min.
954DATE CREATED:   12/5/2017 11:27 AM
955DATE MODIFIED:   7/24/2018 8:59 PM
95652. The amount of startup expenditures that can be deducted in the year incurred is the greater of the actual amount of
957such expenses or $5,000.
958a. True
959b. False
960ANSWER:   False
961RATIONALE:   The maximum amount that can be expensed is the lesser of these two amounts, and
962the $5,000 is reduced dollar-for-dollar once startup expenditures exceed $50,000. So
963if startup expenditures equal or exceed $50,000, the expenditures would be amortized
964over 180 months.
965POINTS:   1
966DIFFICULTY:   Easy
967QUESTION TYPE:   True / False
968HAS VARIABLES:   False
969LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
970NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
971STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
972AICPA: FN-Measurement
973KEYWORDS:   Bloom's: Comprehension
974OTHER:   Time: 2 min.
975DATE CREATED:   12/5/2017 11:27 AM
976DATE MODIFIED:   7/24/2018 8:59 PM
977Copyright Cengage Learning. Powered by Cognero. Page 26
978Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
97953. Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during
980the current year. The machine was placed in service in January of the following year. No assets were purchased in
981the following year. Grape Corporation’s cost recovery would begin:
982a. In the current year using a mid-quarter convention.
983b. In the current year using a half-year convention.
984c. In the following year using a mid-quarter convention.
985d. In the following year using a half-year convention.
986e. None of the above.
987ANSWER:   d
988POINTS:   1
989DIFFICULTY:   Easy
990QUESTION TYPE:   Multiple Choice
991HAS VARIABLES:   False
992LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
993NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
994STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
995AICPA: FN-Measurement
996KEYWORDS:   Bloom's: Application
997OTHER:   Time: 5 min.
998DATE CREATED:   11/15/2017 1:09 PM
999DATE MODIFIED:   7/24/2018 8:59 PM
100054. Which of the following assets would be subject to cost recovery?
1001a. A painting by Picasso hanging on a physician’s office wall.
1002b. An antique vase in a doctor’s waiting room.
1003c. Landscaping around the doctor’s office.
1004d. a., b., and c.
1005e. None of the above.
1006ANSWER:   c
1007POINTS:   1
1008DIFFICULTY:   Easy
1009QUESTION TYPE:   Multiple Choice
1010HAS VARIABLES:   False
1011LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1012NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1013STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
1014KEYWORDS:   Bloom's: Comprehension
1015OTHER:   Time: 5 min.
1016DATE CREATED:   11/15/2017 1:09 PM
1017DATE MODIFIED:   7/24/2018 8:59 PM
1018Copyright Cengage Learning. Powered by Cognero. Page 27
1019Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
102055. On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the
1021conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine
1022is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?
1023a. $70,000
1024b. $90,000
1025c. $120,000
1026d. $140,000
1027e. None of the above
1028ANSWER:   b
1029RATIONALE:   The basis is $90,000, the lower of the adjusted basis ($120,000) or fair market value
1030($90,000) at the date of conversion. The mortgage of $50,000 does not affect
1031adjusted basis.
1032POINTS:   1
1033DIFFICULTY:   Easy
1034QUESTION TYPE:   Multiple Choice
1035HAS VARIABLES:   False
1036LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1037NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1038STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1039AICPA: FN-Measurement
1040KEYWORDS:   Bloom's: Application
1041OTHER:   Time: 5 min.
1042DATE CREATED:   11/15/2017 1:09 PM
1043DATE MODIFIED:   7/24/2018 8:59 PM
1044Copyright Cengage Learning. Powered by Cognero. Page 28
1045Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
104656. Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the
1047three years the machine was used are computed as follows.
1048Cost Recovery Allowed Cost Recovery Allowable
1049Year 1 $16,000 $ 8,000
1050Year 2 9,600 12,800
1051Year 3 5,760 7,680
1052If Tara sells the machine after three years for $15,000, how much gain should she recognize?
1053a. $3,480
1054b. $6,360
1055c. $9,240
1056d. $11,480
1057e. None of the above
1058ANSWER:   d
1059RATIONALE:   Cost $40,000
1060Less the greater of cost recovery allowed or allowable
1061($16,000 + $12,800 + $7,680) (36,480)
1062Adjusted basis $   3,520
1063The recognized gain is $11,480 ($15,000 – $3,520).
1064POINTS:   1
1065DIFFICULTY:   Easy
1066QUESTION TYPE:   Multiple Choice
1067HAS VARIABLES:   False
1068LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1069NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1070STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1071AICPA: FN-Measurement
1072KEYWORDS:   Bloom's: Application
1073OTHER:   Time: 5 min.
1074DATE CREATED:   11/15/2017 1:09 PM
1075DATE MODIFIED:   7/24/2018 8:59 PM
1076Copyright Cengage Learning. Powered by Cognero. Page 29
1077Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
107857. Hazel purchased a new business asset (five-year asset) on September 30, 2018, at a cost of $100,000. On October
10794, 2018, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2018. Hazel did not
1080elect § 179 or additional first-year depreciation. On August 20, 2019, Hazel sold the asset. Determine the cost
1081recovery for 2019 for the asset.
1082a. $14,250
1083b. $19,000
1084c. $23,750
1085d. $38,000
1086e. None of the above
1087ANSWER:   c
1088RATIONALE:   The asset was placed in service in October 2018; as a result, the mid-quarter
1089convention is used.  2019 is the second year of cost recovery. ($100,000) × .38 ×
1090(2.5/4) = $23,750.
1091POINTS:   1
1092DIFFICULTY:   Easy
1093QUESTION TYPE:   Multiple Choice
1094HAS VARIABLES:   False
1095LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1096NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1097STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1098AICPA: FN-Measurement
1099KEYWORDS:   Bloom's: Application
1100OTHER:   Time: 5 min.
1101DATE CREATED:   11/15/2017 1:09 PM
1102DATE MODIFIED:   7/24/2018 8:59 PM
1103Copyright Cengage Learning. Powered by Cognero. Page 30
1104Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
110558. Tan Company acquires a new machine (ten-year property) on January 15, 2018, at a cost of $200,000. Tan also
1106acquires another new machine (seven-year property) on November 5, 2018, at a cost of $40,000. No election is
1107made to use the straight-line method. The company does not make the § 179 election and elects to not take
1108additional first-year depreciation. Determine the total deductions in calculating taxable income related to the
1109machines for 2018.
1110a. $24,000
1111b. $25,716
1112c. $102,000
1113d. $132,858
1114e. None of the above
1115ANSWER:   b
1116RATIONALE:   The total cost recovery is computed as follows.
111710-year property
1118MACRS cost recovery ($200,000 × .10) $20,000
11197-year property
1120MACRS cost recovery ($40,000 × .1429)    5,716
1121Total cost recovery $25,716
1122POINTS:   1
1123DIFFICULTY:   Easy
1124QUESTION TYPE:   Multiple Choice
1125HAS VARIABLES:   False
1126LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1127NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1128STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1129AICPA: FN-Measurement
1130KEYWORDS:   Bloom's: Application
1131OTHER:   Time: 5 min.
1132DATE CREATED:   11/15/2017 1:09 PM
1133DATE MODIFIED:   7/24/2018 8:59 PM
1134Copyright Cengage Learning. Powered by Cognero. Page 31
1135Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
113659. James purchased a new business asset (three-year personalty) on July 23, 2018, at a cost of $40,000. James takes
1137additional first-year depreciation but does not elect Section 179 expense on the asset.  Determine the cost recovery
1138deduction for 2018.
1139a. $8,333
1140b. $26,666
1141c. $33,333
1142d. $40,000
1143e. None of the above
1144ANSWER:   d
1145RATIONALE:   Additional first-year depreciation ($40,000 × 100%) $40,000
1146POINTS:   1
1147DIFFICULTY:   Easy
1148QUESTION TYPE:   Multiple Choice
1149HAS VARIABLES:   False
1150LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1151NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1152STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1153AICPA: FN-Measurement
1154KEYWORDS:   Bloom's: Application
1155OTHER:   Time: 5 min.
1156DATE CREATED:   11/15/2017 1:09 PM
1157DATE MODIFIED:   7/24/2018 8:59 PM
1158Copyright Cengage Learning. Powered by Cognero. Page 32
1159Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
116060. Alice purchased office furniture on September 20, 2017, for $100,000. On October 10, 2017, she purchased business
1161computers for $80,000. Alice placed all of the assets in service on January 15, 2018. Alice did not elect to expense
1162any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year
1163depreciation. Determine the cost recovery deduction for the business assets for 2018.
1164a. $6,426
1165b. $14,710
1166c. $25,722
1167d. $30,290
1168e. None of the above
1169ANSWER:   d
1170RATIONALE:   The half-year convention applies.
1171Regular MACRS
1172Furniture (seven-year property)
1173$100,000 × .1429 $14,290
1174Computers (five-year property)
1175$80,000 × .20   16,000
1176Total cost recovery $30,290
1177POINTS:   1
1178DIFFICULTY:   Easy
1179QUESTION TYPE:   Multiple Choice
1180HAS VARIABLES:   False
1181LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1182NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1183STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1184AICPA: FN-Measurement
1185KEYWORDS:   Bloom's: Application
1186OTHER:   Time: 5 min.
1187DATE CREATED:   11/15/2017 1:09 PM
1188DATE MODIFIED:   7/24/2018 8:59 PM
1189Copyright Cengage Learning. Powered by Cognero. Page 33
1190Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
119161. Barry purchased a used business asset (seven-year property) on September 30, 2018, at a cost of $200,000. This is
1192the only asset he purchased during the year. Barry did not elect to expense any of the asset under § 179, did not take
1193additional first-year depreciation, and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2019.
1194Determine the cost recovery deduction for 2019.
1195a. $19,133
1196b. $24,490
1197c. $34,438
1198d. $55,100
1199e. None of the above
1200ANSWER:   b
1201RATIONALE:   The half-year convention applies in this case [$200,000 × .2449 × 1/2 = $24,490].
1202POINTS:   1
1203DIFFICULTY:   Easy
1204QUESTION TYPE:   Multiple Choice
1205HAS VARIABLES:   False
1206LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1207NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1208STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1209AICPA: FN-Measurement
1210KEYWORDS:   Bloom's: Application
1211OTHER:   Time: 5 min.
1212DATE CREATED:   11/15/2017 1:09 PM
1213DATE MODIFIED:   7/24/2018 8:59 PM
1214Copyright Cengage Learning. Powered by Cognero. Page 34
1215Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
121662. Bonnie purchased a new business asset (five-year property) on March 10, 2018, at a cost of $30,000. She also
1217purchased a new business asset (seven-year property) on November 20, 2018, at a cost of $13,000. Bonnie did not
1218elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery. Bonnie takes
1219additional first-year depreciation. Determine the cost recovery deduction for 2018 for these assets.
1220a. $7,858
1221b. $9,586
1222c. $21,915
1223d. $43,000
1224e. None of the above
1225ANSWER:   d
1226RATIONALE:   The half-year convention applies in this case. 
1227Five-year
1228property:
1229Additional first-year depreciation
1230($30,000 × 100%) $30,000
1231Seven-year
1232property:
1233Additional first-year depreciation
1234($13,000 × 100%) 13,000
1235Total cost
1236recovery
1237$43,000
1238POINTS:   1
1239DIFFICULTY:   Easy
1240QUESTION TYPE:   Multiple Choice
1241HAS VARIABLES:   False
1242LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1243NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1244STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1245AICPA: FN-Measurement
1246KEYWORDS:   Bloom's: Application
1247OTHER:   Time: 5 min.
1248DATE CREATED:   11/15/2017 1:09 PM
1249DATE MODIFIED:   7/24/2018 8:59 PM
1250Copyright Cengage Learning. Powered by Cognero. Page 35
1251Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
125263. Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2018, the building was sold.
1253Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.
1254a. $0
1255b. $1,587
1256c. $2,645
1257d. $12,696
1258e. None of the above
1259ANSWER:   c
1260RATIONALE:   .03174 × $400,000 × 2.5/12 = $2,645. Non-residential real estate placed in service
1261after December 31, 1986 and before May 13, 1993 (31.5-year life).
1262POINTS:   1
1263DIFFICULTY:   Easy
1264QUESTION TYPE:   Multiple Choice
1265HAS VARIABLES:   False
1266LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1267NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1268STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1269AICPA: FN-Measurement
1270KEYWORDS:   Bloom's: Application
1271OTHER:   Time: 5 min.
1272DATE CREATED:   11/15/2017 1:09 PM
1273DATE MODIFIED:   7/24/2018 8:59 PM
1274Copyright Cengage Learning. Powered by Cognero. Page 36
1275Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
127664. Cora purchased a hotel building on May 17, 2018, for $3,000,000. Determine the cost recovery deduction for 2019.
1277a. $48,150
1278b. $59,520
1279c. $69,000
1280d. $76,920
1281e. None of the above
1282ANSWER:   d
1283RATIONALE:   The hotel building is nonresidential realty. .02564 × $3,000,000 = $76,920.
1284POINTS:   1
1285DIFFICULTY:   Easy
1286QUESTION TYPE:   Multiple Choice
1287HAS VARIABLES:   False
1288LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1289NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1290STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1291AICPA: FN-Measurement
1292KEYWORDS:   Bloom's: Application
1293OTHER:   Time: 5 min.
1294DATE CREATED:   11/15/2017 1:09 PM
1295DATE MODIFIED:   7/24/2018 8:59 PM
1296Copyright Cengage Learning. Powered by Cognero. Page 37
1297Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
129865. Carlos purchased an apartment building on November 16, 2018, for $3,000,000. Determine the cost recovery for
12992018.
1300a. $9,630
1301b. $11,910
1302c. $13,950
1303d. $22,740
1304e. None of the above
1305ANSWER:   e
1306RATIONALE:   $3,000,000 × .00455 = $13,650.
1307POINTS:   1
1308DIFFICULTY:   Easy
1309QUESTION TYPE:   Multiple Choice
1310HAS VARIABLES:   False
1311LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1312NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1313STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1314AICPA: FN-Measurement
1315KEYWORDS:   Bloom's: Application
1316OTHER:   Time: 5 min.
1317DATE CREATED:   11/15/2017 1:09 PM
1318DATE MODIFIED:   7/24/2018 8:59 PM
1319Copyright Cengage Learning. Powered by Cognero. Page 38
1320Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
132166. Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2,
13222018. Determine the cost recovery deduction for the year of the sale.
1323a. $16,025
1324b. $19,838
1325c. $26,458
1326d. $158,750
1327e. None of the above
1328ANSWER:   b
1329RATIONALE:   .03174 × $5,000,000 × 1.5/12 = $19,838.  Non-residential real estate placed in
1330service before May 3, 1993 (31.5-year life).
1331POINTS:   1
1332DIFFICULTY:   Easy
1333QUESTION TYPE:   Multiple Choice
1334HAS VARIABLES:   False
1335LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1336NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1337STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1338AICPA: FN-Measurement
1339KEYWORDS:   Bloom's: Application
1340OTHER:   Time: 5 min.
1341DATE CREATED:   11/15/2017 1:09 PM
1342DATE MODIFIED:   7/24/2018 8:59 PM
1343Copyright Cengage Learning. Powered by Cognero. Page 39
1344Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
134567. On May 30, 2017, Jane purchased a factory building to use for her business.  In August 2018, Jane paid $300,000 for
1346improvements to the building.  Determine Jane’s total deduction with respect to the building improvements for 2018.
1347a. $2,889
1348b. $4,173
1349c. $4,815
1350d. $25,000
1351e. None of the above
1352ANSWER:   a
1353RATIONALE:  
1354MACRS cost recovery ($300,000 × .00963); 39-year real
1355property; month 8 $2,889
1356POINTS:   1
1357DIFFICULTY:   Easy
1358QUESTION TYPE:   Multiple Choice
1359HAS VARIABLES:   False
1360LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1361NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1362STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1363AICPA: FN-Measurement
1364KEYWORDS:   Bloom's: Application
1365OTHER:   Time: 5 min.
1366DATE CREATED:   11/15/2017 1:09 PM
1367DATE MODIFIED:   7/24/2018 8:59 PM
1368Copyright Cengage Learning. Powered by Cognero. Page 40
1369Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
137068. White Company acquires a new machine (seven-year property) on January 10, 2018, at a cost of $620,000. White
1371makes the election to expense the maximum amount under § 179, and wants to take any additional first-year
1372depreciation allowed. No election is made to use the straight-line method. Determine the total deductions in
1373calculating taxable income related to the machine for 2018 assuming White has taxable income of $800,000.
1374a. $88,598
1375b. $301,159
1376c. $568,574
1377d. $620,000
1378e. None of the above
1379ANSWER:   d
1380RATIONALE:   § 179 expense $620,000
1381POINTS:   1
1382DIFFICULTY:   Moderate
1383QUESTION TYPE:   Multiple Choice
1384HAS VARIABLES:   False
1385LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1386NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1387STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1388AICPA: FN-Measurement
1389KEYWORDS:   Bloom's: Application
1390OTHER:   Time: 10 min.
1391DATE CREATED:   11/15/2017 1:09 PM
1392DATE MODIFIED:   7/24/2018 8:59 PM
1393Copyright Cengage Learning. Powered by Cognero. Page 41
1394Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
139569. In 2017, Gail had a § 179 deduction carryover of $30,000. In 2018, she elected § 179 for an asset acquired at a cost
1396of $115,000. Gail’s § 179 business income limitation for 2018 is $140,000. Determine Gail’s § 179 deduction for 2018.
1397a. $25,000
1398b. $115,000
1399c. $130,000
1400d. $140,000
1401e. None of the above
1402ANSWER:   d
1403RATIONALE:   $145,000; $30,000 + $115,000 limited to $140,000.
1404POINTS:   1
1405DIFFICULTY:   Easy
1406QUESTION TYPE:   Multiple Choice
1407HAS VARIABLES:   False
1408LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1409NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1410STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1411AICPA: FN-Measurement
1412KEYWORDS:   Bloom's: Application
1413OTHER:   Time: 5 min.
1414DATE CREATED:   11/15/2017 1:09 PM
1415DATE MODIFIED:   7/24/2018 8:59 PM
1416Copyright Cengage Learning. Powered by Cognero. Page 42
1417Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
141870. The only asset Bill purchased during 2018 was a new seven-year class asset. The asset, which was listed property,
1419was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of
1420income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under § 179
1421whenever it is applicable. The net income from the business before the § 179 deduction is $100,000. Determine Bill’s
1422maximum deduction with respect to the property for 2018.
1423a. $1,428
1424b. $2,499
1425c. $26,749
1426d. $33,375
1427e. None of the above
1428ANSWER:   b
1429RATIONALE:   The listed property does not pass the predominantly business usage test. Therefore,
1430neither § 179 expensing nor additional first-year depreciation can be taken. In
1431addition, only straight-line cost recovery can be used.
1432Maximum deduction ($50,000 × .0714 × 70%) $2,499
1433POINTS:   1
1434DIFFICULTY:   Easy
1435QUESTION TYPE:   Multiple Choice
1436HAS VARIABLES:   False
1437LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1438EOTX.SWFT.LO: 5-08 - LO: 5-08
1439NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1440STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1441AICPA: FN-Measurement
1442KEYWORDS:   Bloom's: Application
1443OTHER:   Time: 5 min.
1444DATE CREATED:   11/15/2017 1:09 PM
1445DATE MODIFIED:   7/24/2018 8:59 PM
1446Copyright Cengage Learning. Powered by Cognero. Page 43
1447Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
144871. Augie purchased one new asset during the year (five-year property) on November 10, 2018, at a cost of $660,000.
1449She would like to use the § 179 election and will also take additional first-year depreciation. The income from the
1450business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the maximum cost
1451recovery deduction available on this asset for 2018.
1452a. $30,500
1453b. $580,200
1454c. $600,000
1455d. $660,000
1456e. None of the above
1457ANSWER:   d
1458RATIONALE:   Although mid-quarter convention would apply to the MACRS calculation, Augie can
1459elect to use bonus depreciation on the asset (and neither the mid-quarter convention
1460nor the § 179 income limitation will apply).
1461POINTS:   1
1462DIFFICULTY:   Moderate
1463QUESTION TYPE:   Multiple Choice
1464HAS VARIABLES:   False
1465LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1466NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1467STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1468AICPA: FN-Measurement
1469KEYWORDS:   Bloom's: Application
1470OTHER:   Time: 10 min.
1471DATE CREATED:   11/15/2017 1:09 PM
1472DATE MODIFIED:   7/24/2018 8:59 PM
1473Copyright Cengage Learning. Powered by Cognero. Page 44
1474Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
147572. Hans purchased a new passenger automobile on August 17, 2018, for $30,000. During the year the car was used
147640% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2018.
1477a. $500
1478b. $1,000
1479c. $1,200
1480d. $1,333
1481e. None of the above
1482ANSWER:   c
1483RATIONALE:   The car, which is listed property, does not pass the predominantly business usage
1484test. Therefore, neither § 179 expensing nor additional first-year depreciation can be
1485taken. 
1486$30,000 × .100 = $3,000 (not over $10,000 limit*). $3,000 × 40% = $1,200. 
1487*These depreciation limits are indexed annually.
1488POINTS:   1
1489DIFFICULTY:   Easy
1490QUESTION TYPE:   Multiple Choice
1491HAS VARIABLES:   False
1492LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1493NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1494STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1495AICPA: FN-Measurement
1496KEYWORDS:   Bloom's: Application
1497OTHER:   Time: 5 min.
1498DATE CREATED:   11/15/2017 1:09 PM
1499DATE MODIFIED:   7/24/2018 8:59 PM
1500Copyright Cengage Learning. Powered by Cognero. Page 45
1501Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
150273. On June 1, 2018, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and
150330% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional
1504first-year depreciation. Determine the cost recovery deduction for 2019.
1505a. $3,290
1506b. $3,570
1507c. $4,704
1508d. $10,000
1509e. None of the above
1510ANSWER:   c
1511RATIONALE:   $21,000 × 32% = $6,720 (limited to $10,000*).
1512$6,720 × 70% = $4,704.
1513*These depreciation limits are indexed annually.
1514POINTS:   1
1515DIFFICULTY:   Easy
1516QUESTION TYPE:   Multiple Choice
1517HAS VARIABLES:   False
1518LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1519NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1520STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1521AICPA: FN-Measurement
1522KEYWORDS:   Bloom's: Application
1523OTHER:   Time: 5 min.
1524DATE CREATED:   11/15/2017 1:09 PM
1525DATE MODIFIED:   7/24/2018 8:59 PM
1526Copyright Cengage Learning. Powered by Cognero. Page 46
1527Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
152874. On June 1, 2018, James places in service a new automobile that cost $40,000. The car is used 60% for business and
152940% for personal use. (Assume this percentage is maintained for the life of the car.)  James does not take additional
1530first-year depreciation. Determine the cost recovery deduction for 2018.
1531a. $1,776
1532b. $1,896
1533c. $4,800
1534d. $6,000
1535e. None of the above
1536ANSWER:   c
1537RATIONALE:   MACRS cost recovery ($40,000 × .20) × .60 $ 4,800
1538Limited to ($10,000 × .60) $6,000
1539POINTS:   1
1540DIFFICULTY:   Easy
1541QUESTION TYPE:   Multiple Choice
1542HAS VARIABLES:   False
1543LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1544NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1545STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1546AICPA: FN-Measurement
1547KEYWORDS:   Bloom's: Application
1548OTHER:   Time: 5 min.
1549DATE CREATED:   11/15/2017 1:09 PM
1550DATE MODIFIED:   7/24/2018 8:59 PM Copyright Cengage Learning. Powered by Cognero. Page 47
1551Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
155275. On May 2, 2018, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle
1553weight of 6,300 lbs. The vehicle is used 60% for business and 40% for personal use. Determine Karen's total cost
1554recovery for 2018. Karen wants to use both §179 and additional first-year depreciation.
1555a. $7,200
1556b. $25,000
1557c. $27,200
1558d. $36,000
1559e. None of the above
1560ANSWER:   d
1561RATIONALE:   Cost for business use: $36,000 (60% × $60,000)
1562§ 179 expense $25,000
1563 Additional first-year depreciation
1564      [($36,000 - $25,000) x 100%] 11,000 
1565MACRS cost recovery [($36,000 – $25,000 – $11,000) × .20]    -0-
1566Total $36,000
1567POINTS:   1
1568DIFFICULTY:   Easy
1569QUESTION TYPE:   Multiple Choice
1570HAS VARIABLES:   False
1571LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1572NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1573STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1574AICPA: FN-Measurement
1575KEYWORDS:   Bloom's: Application
1576OTHER:   Time: 5 min.
1577DATE CREATED:   11/15/2017 1:09 PM
1578DATE MODIFIED:   7/24/2018 8:59 PM
1579Copyright Cengage Learning. Powered by Cognero. Page 48
1580Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
158176. On July 17, 2018, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and
158220% for personal use. In 2019, he used the automobile 40% for business and 60% for personal use. Determine the
1583cost recovery recapture for 2019.
1584a. $0
1585b. $528
1586c. $2,000
1587d. $2,500
1588e. None of the above
1589ANSWER:   c
1590RATIONALE:   Cost recovery recapture in 2019:
1591MACRS ($25,000 × .20) = $5,000 (limited to $10,000*);    
1592              $5,000 × 80% $4,000
1593Straight-line ($25,000 × .10) = $2,500 (limited to                
1594            $10,000*); $2,500 × 80% (2,000)
1595Cost recovery recapture in 2019 $2,000
1596* These depreciation limits are indexed annually.
1597POINTS:   1
1598DIFFICULTY:   Easy
1599QUESTION TYPE:   Multiple Choice
1600HAS VARIABLES:   False
1601LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1602NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1603STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1604AICPA: FN-Measurement
1605KEYWORDS:   Bloom's: Application
1606OTHER:   Time: 5 min.
1607DATE CREATED:   11/15/2017 1:09 PM
1608DATE MODIFIED:   7/24/2018 8:59 PM
1609Copyright Cengage Learning. Powered by Cognero. Page 49
1610Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
161177. On July 10, 2018, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.
1612The SUV is used 100% for business. Determine Ariff’s maximum deduction for 2018, assuming Ariff’s § 179
1613business income is $110,000. Ariff does not take additional first-year depreciation.
1614a. $2,960
1615b. $25,000
1616c. $34,000
1617d. $70,000
1618e. None of the above
1619ANSWER:   c
1620RATIONALE:   Since the SUV weighs over 6,000 pounds, it is not subject to the statutory dollar
1621limits on luxury automobiles.
1622§ 179 expensing (limited to $25,000 for such SUVs) $25,000
1623Regular MACRS [($70,000 – $25,000) × .20]    9,000
1624Total $34,000
1625POINTS:   1
1626DIFFICULTY:   Easy
1627QUESTION TYPE:   Multiple Choice
1628HAS VARIABLES:   False
1629LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1630EOTX.SWFT.LO: 5-08 - LO: 5-08
1631NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1632STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1633AICPA: FN-Measurement
1634KEYWORDS:   Bloom's: Application
1635OTHER:   Time: 5 min.
1636DATE CREATED:   11/15/2017 1:09 PM
1637DATE MODIFIED:   7/24/2018 8:59 PM
1638Copyright Cengage Learning. Powered by Cognero. Page 50
1639Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
164078. On June 1, 2018, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming
1641the dollar amount from the IRS table for such leases is $241, determine Norm’s gross income inclusion amount.
1642a. $0
1643b. $241
1644c. $907
1645d. $1,687
1646e. None of the above
1647ANSWER:   a
1648RATIONALE:   A taxi is not a passenger automobile. Thus, it is not subject to the lease inclusion
1649amount provision.
1650POINTS:   1
1651DIFFICULTY:   Easy
1652QUESTION TYPE:   Multiple Choice
1653HAS VARIABLES:   False
1654LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1655NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1656STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1657AICPA: FN-Measurement
1658KEYWORDS:   Bloom's: Application
1659OTHER:   Time: 5 min.
1660DATE CREATED:   11/15/2017 1:09 PM
1661DATE MODIFIED:   7/24/2018 8:59 PM
1662Copyright Cengage Learning. Powered by Cognero. Page 51
1663Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
166479. On March 1, 2018, Lana leases and places in service a passenger automobile. The lease will run for five years and
1665the payments are $500 per month. During 2018, she uses her car 60% for business and 40% for personal activities.
1666Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana’s gross income attributable to
1667the lease.
1668a. $0
1669b. $35
1670c. $59
1671d. $70
1672e. None of the above
1673ANSWER:   b
1674RATIONALE:   $70 × 305/365 × 60% = $35.
1675POINTS:   1
1676DIFFICULTY:   Easy
1677QUESTION TYPE:   Multiple Choice
1678HAS VARIABLES:   False
1679LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
1680NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1681STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1682AICPA: FN-Measurement
1683KEYWORDS:   Bloom's: Application
1684OTHER:   Time: 5 min.
1685DATE CREATED:   11/15/2017 1:09 PM
1686DATE MODIFIED:   7/24/2018 8:59 PM
1687Copyright Cengage Learning. Powered by Cognero. Page 52
1688Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
168980. Bhaskar purchased a new factory building and land on September 10, 2018, for $3,700,000. ($500,000 of the
1690purchase price was allocated to the land.)  He elected the alternative depreciation system (ADS). Determine the
1691cost recovery deduction for 2019.
1692a. $23,328
1693b. $80,000
1694c. $82,048
1695d. $92,500
1696e. None of the above
1697ANSWER:   b
1698RATIONALE:   .025 × $3,200,000 = $80,000.
1699POINTS:   1
1700DIFFICULTY:   Easy
1701QUESTION TYPE:   Multiple Choice
1702HAS VARIABLES:   False
1703LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1704NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1705STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1706AICPA: FN-Measurement
1707KEYWORDS:   Bloom's: Application
1708OTHER:   Time: 5 min.
1709DATE CREATED:   11/15/2017 1:09 PM
1710DATE MODIFIED:   7/24/2018 8:59 PM
1711Copyright Cengage Learning. Powered by Cognero. Page 53
1712Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
171381. George purchases used seven-year class property at a cost of $200,000 on April 20, 2018. Determine George’s cost
1714recovery deduction for 2018 for alternative minimum tax purposes, assuming George does not elect § 179 and does
1715not take additional first-year depreciation.
1716a. $2,500
1717b. $10,000
1718c. $14,280
1719d. $28,580
1720e. None of the above
1721ANSWER:   e
1722RATIONALE:   .1071 × $200,000 = $21,420.
1723POINTS:   1
1724DIFFICULTY:   Easy
1725QUESTION TYPE:   Multiple Choice
1726HAS VARIABLES:   False
1727LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1728NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1729STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1730AICPA: FN-Measurement
1731KEYWORDS:   Bloom's: Application
1732OTHER:   Time: 5 min.
1733DATE CREATED:   11/15/2017 1:09 PM
1734DATE MODIFIED:   7/24/2018 8:59 PM
1735Copyright Cengage Learning. Powered by Cognero. Page 54
1736Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
173782. Pat purchased a used five-year class asset on March 15, 2018, for $60,000. He did not elect § 179 expensing.
1738Determine the cost recovery deduction for 2018 for earnings and profits purposes.
1739a. $2,000
1740b. $3,000
1741c. $6,000
1742d. $12,000
1743e. None of the above
1744ANSWER:   c
1745RATIONALE:   .10 × $60,000 = $6,000.
1746POINTS:   1
1747DIFFICULTY:   Easy
1748QUESTION TYPE:   Multiple Choice
1749HAS VARIABLES:   False
1750LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1751NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1752STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1753AICPA: FN-Measurement
1754KEYWORDS:   Bloom's: Application
1755OTHER:   Time: 5 min.
1756DATE CREATED:   11/15/2017 1:09 PM
1757DATE MODIFIED:   7/24/2018 8:59 PM
1758Copyright Cengage Learning. Powered by Cognero. Page 55
1759Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
176083. During the past two years, through extensive advertising and improved customer relations, Orange Corporation
1761estimated that it had developed customer goodwill worth $500,000. For the current year, determine the amount of
1762goodwill Orange Corporation may amortize.
1763a. $16,667
1764b. $26,667
1765c. $33,333
1766d. $100,000
1767e. None of the above
1768ANSWER:   e
1769RATIONALE:   $0. Self-created goodwill is not a § 197 intangible and thus cannot be amortized.
1770POINTS:   1
1771DIFFICULTY:   Easy
1772QUESTION TYPE:   Multiple Choice
1773HAS VARIABLES:   False
1774LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
1775NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1776STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1777AICPA: FN-Measurement
1778KEYWORDS:   Bloom's: Application
1779OTHER:   Time: 5 min.
1780DATE CREATED:   11/15/2017 1:09 PM
1781DATE MODIFIED:   7/24/2018 8:59 PM
1782Copyright Cengage Learning. Powered by Cognero. Page 56
1783Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
178484. On June 1, 2018, Red Corporation purchased an existing business. With respect to the acquired assets of the
1785business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the
1786total amount that Red may amortize for 2018 for the patent.
1787a. $0
1788b. $1,667
1789c. $11,667
1790d. $35,000
1791e. None of the above
1792ANSWER:   c
1793RATIONALE:   $300,000 × (7 months/180 months) = $11,667. The statutory amortization period for §
1794197 intangibles is 15 years.
1795POINTS:   1
1796DIFFICULTY:   Easy
1797QUESTION TYPE:   Multiple Choice
1798HAS VARIABLES:   False
1799LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
1800NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1801STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1802AICPA: FN-Measurement
1803KEYWORDS:   Bloom's: Application
1804OTHER:   Time: 5 min.
1805DATE CREATED:   11/15/2017 1:09 PM
1806DATE MODIFIED:   7/24/2018 8:59 PM
1807Copyright Cengage Learning. Powered by Cognero. Page 57
1808Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
180985. Orange Corporation begins business on April 2, 2018. The corporation reports startup expenditures of $64,000 all
1810incurred last year. Determine the total amount that Orange can elect to deduct in 2018.
1811a. $0
1812b. $3,200
1813c. $4,267
1814d. $7,950
1815e. None of the above
1816ANSWER:   b
1817RATIONALE:   Deductible amount [$5,000 – ($64,000 – $50,000)] $ –0–
1818Amortizable amount [($64,000 – $0)/180 × 9 months]   3,200
1819Total deduction $3,200
1820POINTS:   1
1821DIFFICULTY:   Easy
1822QUESTION TYPE:   Multiple Choice
1823HAS VARIABLES:   False
1824LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
1825NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1826STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1827AICPA: FN-Measurement
1828KEYWORDS:   Bloom's: Application
1829OTHER:   Time: 5 min.
1830DATE CREATED:   11/15/2017 1:09 PM
1831DATE MODIFIED:   7/24/2018 8:59 PM
1832Copyright Cengage Learning. Powered by Cognero. Page 58
1833Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
183486. On January 15, 2018, Vern purchased the rights to a mineral interest for $3,500,000. At that time it was estimated
1835that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for
1836$800,000. Vern incurred expenses during 2018 of $500,000. The percentage depletion rate is 22%. Determine Vern’s
1837depletion deduction for 2018.
1838a. $150,000
1839b. $175,000
1840c. $176,000
1841d. $200,000
1842e. $250,000
1843ANSWER:   b
1844RATIONALE:   $3,500,000/500,000 = $7 per unit
184525,000 units sold × $7 = $175,000 cost depletion
184622% × $800,000 = $176,000 percentage depletion
1847Percentage limit ($800,000 – $500,000) × 50% = $150,000
1848Thus, the deduction is $175,000.
1849POINTS:   1
1850DIFFICULTY:   Moderate
1851QUESTION TYPE:   Multiple Choice
1852HAS VARIABLES:   False
1853LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-10 - LO: 5-10
1854NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
1855STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1856AICPA: FN-Measurement
1857KEYWORDS:   Bloom's: Application
1858OTHER:   Time: 10 min.
1859DATE CREATED:   11/15/2017 1:09 PM
1860DATE MODIFIED:   7/24/2018 8:59 PM
1861Copyright Cengage Learning. Powered by Cognero. Page 59
1862Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
186387. Which of the following is not a characteristic of MACRS for property other than real estate?
1864a. MACRS uses shorter asset lives.
1865b. MACRS increases taxable income in the early years of the asset’s life.
1866c. MACRS accelerates cost recovery.
1867d. MACRS ignores salvage value.
1868ANSWER:   b
1869RATIONALE:   Accelerated depreciation (either 200% or 150% declining balance) is used for
1870MACRS. As a result, cost recovery is accelerated to early years of an asset’s life.
1871This reduces taxable income (rather than increasing taxable income).
1872POINTS:   1
1873DIFFICULTY:   Easy
1874QUESTION TYPE:   Multiple Choice
1875HAS VARIABLES:   False
1876LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1877NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
1878STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1879AICPA: FN-Measurement
1880KEYWORDS:   Bloom's: Comprehension
1881OTHER:   Time: 5 min.
1882DATE CREATED:   12/5/2017 11:28 AM
1883DATE MODIFIED:   7/24/2018 8:59 PM
1884Copyright Cengage Learning. Powered by Cognero. Page 60
1885Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
188688. Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?
1887a. Cost of asset.
1888b. Property recovery class.
1889c. Half-year convention.
1890d. Salvage (or residual) value.
1891e. None of the above.
1892ANSWER:   d
1893RATIONALE:   Salvage value is ignored under MACRS.
1894POINTS:   1
1895DIFFICULTY:   Easy
1896QUESTION TYPE:   Multiple Choice
1897HAS VARIABLES:   False
1898LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1899NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
1900STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1901AICPA: FN-Measurement
1902KEYWORDS:   Bloom's: Comprehension
1903OTHER:   Time: 5 min.
1904DATE CREATED:   12/5/2017 11:30 AM
1905DATE MODIFIED:   7/24/2018 8:59 PM
1906Copyright Cengage Learning. Powered by Cognero. Page 61
1907Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
190889. Which of the following depreciation conventions are not used under MACRS?
1909a. Full-month.
1910b. Mid-month.
1911c. Half-year.
1912d. Mid-quarter.
1913e. All of the above are used under MACRS.
1914ANSWER:   a
1915RATIONALE:   The full-month convention is not used under MACRS. It is, however, used for
1916amortization (but this is a different tax provision).
1917POINTS:   1
1918DIFFICULTY:   Easy
1919QUESTION TYPE:   Multiple Choice
1920HAS VARIABLES:   False
1921LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1922NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
1923STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1924AICPA: FN-Measurement
1925KEYWORDS:   Bloom's: Comprehension
1926OTHER:   Time: 5 min.
1927DATE CREATED:   12/5/2017 11:31 AM
1928DATE MODIFIED:   7/24/2018 8:59 PM
1929Copyright Cengage Learning. Powered by Cognero. Page 62
1930Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
193190. A major objective of MACRS is to:
1932a. reduce the amount of the cost recovery deduction on businesses tax returns.
1933b. assure that the amount of cost recovery for tax purposes will be the same as book depreciation.
1934c. help companies achieve a faster write-off of their capital assets.
1935d. require companies to use the actual economic lives of assets in calculating cost recovery for tax purposes.
1936e. All of the above are major objectives.
1937ANSWER:   c
1938RATIONALE:   MACRS does help companies achieve a faster write-off of their capital assets.
1939MACRS does not reduce the amount of cost recovery deductions; MACRS
1940generally has shorter lives and, for property other than real estate, uses accelerated
1941methods, so MACRS cost recovery will not be the same as book depreciation;
1942economic lives are not used for MACRS cost recovery (although they are used to
1943place assets in MACRS classes).
1944POINTS:   1
1945DIFFICULTY:   Easy
1946QUESTION TYPE:   Multiple Choice
1947HAS VARIABLES:   False
1948LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
1949NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
1950STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1951AICPA: FN-Measurement
1952KEYWORDS:   Bloom's: Comprehension
1953OTHER:   Time: 5 min.
1954DATE CREATED:   12/5/2017 11:33 AM
1955DATE MODIFIED:   7/24/2018 8:59 PM
1956Copyright Cengage Learning. Powered by Cognero. Page 63
1957Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
195891. On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the
1959patent was $207,000 and Byrne is a calendar-year taxpayer. In the current tax year, how much of the patent’s cost
1960may Byrne amortize?
1961a. $1,150.
1962b. $4,600.
1963c. $9,200.
1964d. $13,800.
1965e. None of the above.
1966ANSWER:   c
1967RATIONALE:   The patent cost can be amortized on a straight-line basis over 180 months. In the
1968year of acquisition, eight months of amortization can be deducted. So, $9,200 can be
1969amortized; ($207,000 ÷ 180 months) × 8 months.
1970POINTS:   1
1971DIFFICULTY:   Easy
1972QUESTION TYPE:   Multiple Choice
1973HAS VARIABLES:   False
1974LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
1975NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
1976STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
1977AICPA: FN-Measurement
1978KEYWORDS:   Bloom's: Comprehension
1979OTHER:   Time: 5 min.
1980DATE CREATED:   12/5/2017 11:34 AM
1981DATE MODIFIED:   7/24/2018 8:59 PM
1982Copyright Cengage Learning. Powered by Cognero. Page 64
1983Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
198492. Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2018 at a cost of $100,000. On
1985November 18, 2018, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000. Indigo
1986does not make a § 179 expense election and chooses not to take additional first-year depreciation. What is Indigo’s
1987total MACRS deduction for 2018?
1988a. $27,145.
1989b. $30,000.
1990c. $36,785.
1991d. $150,000.
1992e. None of the above.
1993ANSWER:   a
1994RATIONALE:   Rationale: Normal MACRS applies; the mid-quarter convention does not apply as only
199533.33% of assets were placed in service during the last quarter of the year).
19965-year MACRS  $100,000 × .2000  $20,000
19977-year MACRS  $50,000 × .1429      7,145
1998       Total  $27,145
19995
2000POINTS:   1
2001DIFFICULTY:   Easy
2002QUESTION TYPE:   Multiple Choice
2003HAS VARIABLES:   False
2004LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2005NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
2006STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2007AICPA: FN-Measurement
2008KEYWORDS:   Bloom's: Comprehension
2009OTHER:   Time: 5 min.
2010DATE CREATED:   12/5/2017 11:36 AM
2011DATE MODIFIED:   7/24/2018 8:59 PM
2012Copyright Cengage Learning. Powered by Cognero. Page 65
2013Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
201493. Maple Company purchases new equipment (7-year MACRS property) on January 10, 2018, at a cost of $430,000.
2015Maple also purchases new machines (5-year MACRS property) on July 19, 2018 at a cost of $290,000. Maple wants
2016to maximize its MACRS deductions; assume no taxable income limitations apply. What is Maple’s total MACRS
2017deduction for 2018?
2018a. $119,447.
2019b. $560,000.
2020c. $617,148.
2021d. $720,000.
2022ANSWER:   d
2023RATIONALE:   In 2018, the maximum § 179 deduction is $1,000,000.  Additional first-year (bonus)
2024depreciation could also be claimed.  As a result, the maximum MACRS deduction
2025for 2018 is $720,000 ($430,000 + $290,000).
2026POINTS:   1
2027DIFFICULTY:   Easy
2028QUESTION TYPE:   Multiple Choice
2029HAS VARIABLES:   False
2030LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2031NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
2032STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2033AICPA: FN-Measurement
2034KEYWORDS:   Bloom's: Comprehension
2035OTHER:   Time: 5 min.
2036DATE CREATED:   12/5/2017 11:40 AM
2037DATE MODIFIED:   7/24/2018 8:59 PM
2038Copyright Cengage Learning. Powered by Cognero. Page 66
2039Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
204094. Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2018 for $900,000. What
2041is the maximum cost recovery deduction it may take for 2018?
2042a. $18,297.
2043b. $22,617.
2044c. $25,911.
2045d. $31,365.
2046ANSWER:   c
2047RATIONALE:   An apartment building is residential real property. The mid-month convention applies.
2048So 2018 cost recovery is $25,911; $900,000 × .02879.
2049POINTS:   1
2050DIFFICULTY:   Easy
2051QUESTION TYPE:   Multiple Choice
2052HAS VARIABLES:   False
2053LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2054NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
2055STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2056AICPA: FN-Measurement
2057KEYWORDS:   Bloom's: Comprehension
2058OTHER:   Time: 5 min.
2059DATE CREATED:   12/5/2017 11:47 AM
2060DATE MODIFIED:   7/24/2018 8:59 PM
2061Copyright Cengage Learning. Powered by Cognero. Page 67
2062Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
206395. On January 1, 2018, SymboNet Company completed its acquisition of NetOpen. As part of the acquisition, $2 million
2064was allocated to goodwill. What is SymboNet’s amortization deduction related to the goodwill for 2018?
2065a. $0.
2066b. $100,000.
2067c. $133,333.
2068d. $200,000.
2069ANSWER:   c
2070RATIONALE:   The purchased goodwill can be amortized under § 197 over 15 years (180 months)
2071beginning with the month of acquisition. For 2018, SymboNet can amortize $133,333
2072[($2 million ÷ 180 months) × 12 months].
2073POINTS:   1
2074DIFFICULTY:   Easy
2075QUESTION TYPE:   Multiple Choice
2076HAS VARIABLES:   False
2077LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
2078NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
2079STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2080AICPA: FN-Measurement
2081KEYWORDS:   Bloom's: Comprehension
2082OTHER:   Time: 5 min.
2083DATE CREATED:   12/5/2017 11:49 AM
2084DATE MODIFIED:   7/24/2018 8:59 PM
2085Copyright Cengage Learning. Powered by Cognero. Page 68
2086Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
208796. On January 15, 2018, Dillon purchased the rights to a mineral interest for $3,500,000. At that time it was estimated
2088that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for
2089$800,000. Dillon incurred expenses during 2018 of $500,000. The percentage depletion rate is 22%. Determine
2090Dillon’s depletion deduction for 2018.
2091a. $150,000.
2092b. $175,000.
2093c. $176,000.
2094d. $200,000.
2095ANSWER:   b
2096RATIONALE:  
2097Cost depletion:            $3,500,000 ÷ 500,000 = $7 per unit
2098                                     25,000 units sold × $7 per unit = $175,000 cost depletion
2099Percentage depletion: $800,000 × 22% = $176,000
2100                                    Limit: ($800,000 − $500,000) × 50% = $150,000
2101Greater of cost or percentage depletion = $175,000
2102POINTS:   1
2103DIFFICULTY:   Easy
2104QUESTION TYPE:   Multiple Choice
2105HAS VARIABLES:   False
2106LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-10 - LO: 5-10
2107NATIONAL STANDARDS:   United States - BUSPROG: Comprehension
2108STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2109AICPA: FN-Measurement
2110KEYWORDS:   Bloom's: Comprehension
2111OTHER:   Time: 5 min.
2112DATE CREATED:   12/5/2017 11:50 AM
2113DATE MODIFIED:   7/24/2018 8:59 PM
2114Copyright Cengage Learning. Powered by Cognero. Page 69
2115Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
211697. Tom purchased and placed in service used office furniture on January 3, 2018, for $40,000. Tom’s accountant
2117depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The
2118accountant also used the same depreciation amounts when filing Tom’s income tax returns. On January 10, 2023,
2119Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.
2120ANSWER:   The cost of the asset must be reduced by the greater of the cost recovery allowed or
2121allowable in calculating the tax basis.
2122Cost $40,000
21232018 allowable ($40,000 × .1429) (5,716)
21242019 allowable ($40,000 × .2449) (9,796)
21252020 allowable ($40,000 × .1749) (6,996)
21262021 allowable ($40,000 × .1249) (4,996)
21272022 allowed ($40,000 × .0893) (3,572)
21282023 allowable ($40,000 × .0892 × 1/2) (1,784)
2129Tax basis $ 7,140
2130POINTS:   1
2131DIFFICULTY:   Moderate
2132QUESTION TYPE:   Subjective Short Answer
2133HAS VARIABLES:   False
2134LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2135NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2136STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2137AICPA: FN-Measurement
2138KEYWORDS:   Bloom's: Application
2139OTHER:   Time: 5 min.
2140DATE CREATED:   11/15/2017 1:09 PM
2141DATE MODIFIED:   7/24/2018 8:59 PM
2142Copyright Cengage Learning. Powered by Cognero. Page 70
2143Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
214498. Jenna acquires a new seven-year class asset on September 20, 2018, for $80,000. She placed the asset in service on
2145October 5, 2018. She does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. She
2146takes additional first-year depreciation. She sells the asset on August 25, 2019. This is the only asset she acquires in
21472018. Determine Jenna’s cost recovery in 2018 and 2019.
2148ANSWER:   Although the mid-quarter convention applies, Jenna can use bonus depreciation (and
2149escape the mid-quarter convention rules).
21502018
2151Additional first-year depreciation ($80,000 × 100%) $80,000
2152MACRS cost recovery    -0-
2153Total for 2018 $80,000
21542019
2155MACRS cost recovery $      -0-
2156POINTS:   1
2157DIFFICULTY:   Easy
2158QUESTION TYPE:   Subjective Short Answer
2159HAS VARIABLES:   False
2160LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2161NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2162STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2163AICPA: FN-Measurement
2164KEYWORDS:   Bloom's: Application
2165OTHER:   Time: 5 min.
2166DATE CREATED:   11/15/2017 1:09 PM
2167DATE MODIFIED:   7/24/2018 8:59 PM
2168Copyright Cengage Learning. Powered by Cognero. Page 71
2169Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
217099. Rod paid $1,950,000 for a new warehouse on April 14, 2018. He sold the warehouse on September 29, 2023.
2171Determine the cost recovery deduction for 2018 and 2023.
2172ANSWER:   2018: $1,950,000 × .01819 = $35,471.
21732023: $1,950,000 × .02564 × 8.5/12 = $35,415.
2174POINTS:   1
2175DIFFICULTY:   Easy
2176QUESTION TYPE:   Subjective Short Answer
2177HAS VARIABLES:   False
2178LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2179NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2180STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2181AICPA: FN-Measurement
2182KEYWORDS:   Bloom's: Application
2183OTHER:   Time: 10 min.
2184DATE CREATED:   11/15/2017 1:09 PM
2185DATE MODIFIED:   7/24/2018 8:59 PM
2186100. On March 3, 2018, Sally purchased and placed in service a building costing $12,000,000. The building has 10 floors.
2187The bottom three floors are rented out to businesses. The top seven floors are residential apartments. The gross
2188rents from the businesses are $60,000 and the gross rents from the apartments are $110,000. Determine Sally’s cost
2189recovery for the building in 2018.
2190ANSWER:   The gross rents from the apartments are not 80% or more of the total gross rents
2191and hence, the whole building cannot be treated as residential rental real estate.
2192Residential [(70% × $12,000,000) × .02879] $241,836
2193Nonresidential [(30% × $12,000,000) × .02033]    73,188
2194Total cost recovery $315,024
2195POINTS:   1
2196DIFFICULTY:   Easy
2197QUESTION TYPE:   Subjective Short Answer
2198HAS VARIABLES:   False
2199LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2200NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2201STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2202AICPA: FN-Measurement
2203KEYWORDS:   Bloom's: Application
2204OTHER:   Time: 5 min.
2205DATE CREATED:   11/15/2017 1:09 PM
2206DATE MODIFIED:   7/24/2018 8:59 PM
2207Copyright Cengage Learning. Powered by Cognero. Page 72
2208Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2209101. Sid bought a new $1,320,000 seven-year class asset on August 2, 2018. On December 2, 2018, he purchased
2210$800,000 of used five-year class assets. If Sid elects § 179 and does not take additional first-year depreciation, what
2211is the maximum cost recovery deduction for these purchases for 2018?
2212ANSWER:  
2213§ 179 expense $1,000,000
2214Taking § 179 expense on 7-year property
22157-year property
2216§ 179 expense $1,000,000
2217MACRS cost recovery ($320,000 ´ .1429) 45,728
22185-year property 
2219MACRS cost recovery ($800,000 ´ .20) 160,000
2220Total deduction $1,205,728
2221Taking § 179 expense on 5-year property
22227-year property
2223§ 179 expense ($1,000,000 - $800,000 expensed 5-year property) $ 200,000
2224MACRS cost recovery ($1,120,000 ´ .1429) 160,048
22255-year property 
2226§ 179 expense 800,000
2227Total deduction   $1,160,048
2228Using § 179 on the 7-year asset produces the greater total deduction in 2018.
2229POINTS:   1
2230DIFFICULTY:   Moderate
2231QUESTION TYPE:   Subjective Short Answer
2232HAS VARIABLES:   False
2233LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2234NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2235STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2236AICPA: FN-Measurement
2237KEYWORDS:   Bloom's: Application
2238OTHER:   Time: 10 min.
2239DATE CREATED:   11/15/2017 1:09 PM
2240DATE MODIFIED:   7/24/2018 8:59 PM
2241Copyright Cengage Learning. Powered by Cognero. Page 73
2242Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2243102. Polly purchased a new hotel on July 20, 2018, for $6,000,000. On January 20, 2025, the building was sold. Determine
2244the cost recovery deduction for the year of the sale.
2245ANSWER:   $6,000,000 × .02564 × .5/12 = $6,410.
2246POINTS:   1
2247DIFFICULTY:   Easy
2248QUESTION TYPE:   Subjective Short Answer
2249HAS VARIABLES:   False
2250LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2251NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2252STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2253AICPA: FN-Measurement
2254KEYWORDS:   Bloom's: Application
2255OTHER:   Time: 5 min.
2256DATE CREATED:   11/15/2017 1:09 PM
2257DATE MODIFIED:   7/24/2018 8:59 PM
2258103. Rustin bought 7-year class property on May 15, 2018, for $1,228,000. Rustin elects § 179 and straight-line cost
2259recovery, but not additional first-year depreciation.. Rustin's taxable income would not create a limitation for
2260purposes of the § 179 deduction. Determine the maximum cost recovery deduction Rustin can claim for 2018.
2261ANSWER:   § 179 expense election $1,000,000
2262Cost recovery [($1,228,000 – $1,000,000) × .0714 (Exhibit
22638.5)]     16,279
2264Total deduction $1,016,279
2265POINTS:   1
2266DIFFICULTY:   Easy
2267QUESTION TYPE:   Subjective Short Answer
2268HAS VARIABLES:   False
2269LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2270NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2271STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2272AICPA: FN-Measurement
2273KEYWORDS:   Bloom's: Application
2274OTHER:   Time: 5 min.
2275DATE CREATED:   11/15/2017 1:09 PM
2276DATE MODIFIED:   7/24/2018 8:59 PM
2277Copyright Cengage Learning. Powered by Cognero. Page 74
2278Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2279104. Audra acquires the following new five-year class property in 2018:
2280Asset Acquisition Date Cost
2281A January 10 $    106,000
2282B July 5      70,000
2283C November 15   1,950,000
2284Total $ 2,126,000
2285Audra elects § 179 treatment for Asset C.  Audra’s taxable income from her business would not create a limitation
2286for purposes of the § 179 deduction. Audra does not claim any available additional first-year depreciation deduction.
2287Determine her total cost recovery deduction (including the § 179 deduction) for the year.
2288ANSWER:   Audra's § 179 deduction is $1,000,000 (she has placed no more than $2,500,000 of
2289assets in service during the year).  Even with electing § 179 on Asset C, Audra has
2290placed more than 40% of assets in service during the last quarter of the year.
2291 $950,000/$1,126,000=84.4%. Therefore, Audra must use the mid-quarter
2292convention.
2293Asset A
2294MACRS cost recovery ($106,000 ´ .35) 37,100
2295Asset B
2296MACRS cost recovery ($70,000 ´ .15) 10,500
2297Asset C
2298§ 179 expense 1,000,000
2299MACRS cost recovery ($950,000 ´ .05) 47,500
2300Total deduction $1,095,100
2301POINTS:   1
2302DIFFICULTY:   Easy
2303QUESTION TYPE:   Subjective Short Answer
2304HAS VARIABLES:   False
2305LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2306NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2307STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2308AICPA: FN-Measurement
2309KEYWORDS:   Bloom's: Application
2310OTHER:   Time: 5 min.
2311DATE CREATED:   11/15/2017 1:09 PM
2312DATE MODIFIED:   7/24/2018 8:59 PM
2313Copyright Cengage Learning. Powered by Cognero. Page 75
2314Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2315105. On April 5, 2018, Orange Corporation purchased, and placed in service, seven-year class assets costing $1,030,000
2316and five-year class assets costing $140,000. Orange elects to expense the maximum amount under § 179. Orange
2317does not take additional first-year depreciation. Assume taxable income is not a limitation. Determine Orange
2318Corporation’s maximum cost recovery with respect to the assets for 2018.
2319ANSWER:   § 179 limit $1,000,000
2320Seven-year assets § 179 expense $1,000,000
2321Regular MACRS [($1,030,000 –
2322$1,000,000) × .1429]      4,287
2323Five-year assets Regular MACRS ($140,000 × .20)      28,000
2324Total cost recovery                                  $1,032,287
2325POINTS:   1
2326DIFFICULTY:   Easy
2327QUESTION TYPE:   Subjective Short Answer
2328HAS VARIABLES:   False
2329LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2330NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2331STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2332AICPA: FN-Measurement
2333KEYWORDS:   Bloom's: Application
2334OTHER:   Time: 5 min.
2335DATE CREATED:   11/15/2017 1:09 PM
2336DATE MODIFIED:   7/24/2018 8:59 PM
2337106. Martin is a sole proprietor of a sandwich business. On March 4, 2018, Martin purchased and placed in service new
2338seven-year class assets costing $580,000. Martin’s business reports taxable income for the year, before any
2339deductions associated with the purchased assets, of $160,000. Martin also received $30,000 of interest income for
2340the year, which is not related to the business. Martin wants his adjusted gross income for the year to be as low as
2341possible. With this objective in mind, determine how Martin should recover the cost of the acquired assets.
2342ANSWER:  
2343Electing § 179
2344§ 179 expense (limited to $1,000,000) $580,000
2345Business income before MACRS deductions $160,000
2346Additional first-year depreciation
2347[($580,000 – $1,000,000) ´ 100%] (-0-)
2348MACRS cost recovery [(580,000 - $580,000) ´ .1429)] (-0-)
2349Business income limitation $160,000
2350Copyright Cengage Learning. Powered by Cognero. Page 76
2351Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2352§ 179 limit $160,000
2353Business income $ –0–
2354Interest income 30,000
2355Adjusted gross income $ 30,000
2356Not electing § 179
2357Business income before MACRS deductions $160,000
2358Additional first-year depreciation ($580,000 ´ 100%) (580,000)
2359MACRS cost recovery ($-0- ´ .1429) (-0-)
2360Business income ($420,000)
2361Interest income 30,000
2362Adjusted gross income ($390,000)
2363Not electing § 179 will produce the lowest adjusted gross income, because the § 179
2364expense cannot create a business loss.
2365POINTS:   1
2366DIFFICULTY:   Moderate
2367QUESTION TYPE:   Subjective Short Answer
2368HAS VARIABLES:   False
2369LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2370NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2371STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2372AICPA: FN-Measurement
2373KEYWORDS:   Bloom's: Application
2374OTHER:   Time: 5 min.
2375DATE CREATED:   11/15/2017 1:09 PM
2376DATE MODIFIED:   7/24/2018 8:59 PM
2377Copyright Cengage Learning. Powered by Cognero. Page 77
2378Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2379107. On August 20, 2018, May placed in service a building for her business. On November 28, 2018, May paid $80,000
2380for improvements to the building.  What is May’s cost recovery deduction for the building improvements in 2018?
2381ANSWER:  
2382MACRS cost recovery [39-year real property; month 11
2383($80,000 × .00321)] $  257
2384POINTS:   1
2385DIFFICULTY:   Moderate
2386QUESTION TYPE:   Subjective Short Answer
2387HAS VARIABLES:   False
2388LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2389NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2390STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2391AICPA: FN-Measurement
2392KEYWORDS:   Bloom's: Application
2393OTHER:   Time: 10 min.
2394DATE CREATED:   11/15/2017 1:09 PM
2395DATE MODIFIED:   7/24/2018 8:59 PM
2396108. On July 15, 2018, Mavis paid $275,000 for improvements on a commercial building she owns. Determine the
2397maximum total cost recovery from the improvements in 2018.
2398ANSWER:  
2399Regular MACRS [39-year real property; month 7
2400($275,000 × .01177)] $ 3,237
2401POINTS:   1
2402DIFFICULTY:   Easy
2403QUESTION TYPE:   Subjective Short Answer
2404HAS VARIABLES:   False
2405LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2406NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2407STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2408AICPA: FN-Measurement
2409KEYWORDS:   Bloom's: Application
2410OTHER:   Time: 5 min.
2411DATE CREATED:   11/15/2017 1:09 PM
2412DATE MODIFIED:   7/24/2018 8:59 PM
2413Copyright Cengage Learning. Powered by Cognero. Page 78
2414Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2415109. Nora purchased a new automobile on July 20, 2017, for $29,000. The car was used 60% for business and 40% for
2416personal use. In 2018, the car was used 30% for business and 70% for personal use. Nora elects not to take
2417additional first-year depreciation. Determine the cost recovery recapture and the cost recovery deduction for 2018.
2418ANSWER:   Cost recovery in 2017
2419MACRS ($29,000 × .20) = $5,800 (limited to $3,160*); $3,160
2420× 60% $1,896
2421Straight-line ($29,000 × .10) = $2,900 (limited to $3,160*);
2422$2,900 × 60% (1,740)
2423Cost recovery recapture in 2018  $  156
2424Cost recovery in 2018
2425Straight-line ($29,000 × .20) = $5,800 (limited to $5,100*);
2426$5,100 × .30 $1,530
2427*These depreciation limits are indexed annually.
2428POINTS:   1
2429DIFFICULTY:   Moderate
2430QUESTION TYPE:   Subjective Short Answer
2431HAS VARIABLES:   False
2432LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2433EOTX.SWFT.LO: 5-08 - LO: 5-08
2434NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2435STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2436AICPA: FN-Measurement
2437KEYWORDS:   Bloom's: Application
2438OTHER:   Time: 10 min.
2439DATE CREATED:   11/15/2017 1:09 PM
2440DATE MODIFIED:   7/24/2018 8:59 PM
2441Copyright Cengage Learning. Powered by Cognero. Page 79
2442Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2443110. Norm purchases a new sports utility vehicle (SUV) on October 12, 2018, for $60,000. The SUV has a gross vehicle
2444weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm
2445during 2018. Compute the maximum deduction with respect to the SUV for 2018. Norm does not take additional
2446first-year depreciation.
2447ANSWER:   The SUV is not classified as a passenger automobile because of its GVW exceeding
24486,000 lbs. Therefore, it is not subject to the cost recovery limits of § 280F.
2449Section 179 expense $25,000
2450MACRS cost recovery [($60,000 - $25,000) × .05]    1,750
2451 Note:  The mid-quarter convention applies
2452Total deduction $26,750
2453POINTS:   1
2454DIFFICULTY:   Easy
2455QUESTION TYPE:   Subjective Short Answer
2456HAS VARIABLES:   False
2457LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2458EOTX.SWFT.LO: 5-08 - LO: 5-08
2459NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2460STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2461AICPA: FN-Measurement
2462KEYWORDS:   Bloom's: Application
2463OTHER:   Time: 10 min.
2464DATE CREATED:   11/15/2017 1:09 PM
2465DATE MODIFIED:   7/24/2018 8:59 PM
2466Copyright Cengage Learning. Powered by Cognero. Page 80
2467Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2468111. On June 1, 2018, Gabriella purchased a computer and peripheral equipment (five-year property) for $25,000. She
2469used the assets 40% for business, 50% for the production of income, and 10% for personal use. These are the only
2470assets Gabriella purchased during the current year. Determine her total cost recovery deduction for the current year.
2471ANSWER:   Starting in 2018, a computer and peripheral equipment are not listed property. As a
2472result, Gabriella can elect § 179 expensing, or bonus depreciation on the 90%
2473business and production of income use.  So Gabrielle can deduct $22,500 ($25,000 x
247490%).
2475POINTS:   1
2476DIFFICULTY:   Easy
2477QUESTION TYPE:   Subjective Short Answer
2478HAS VARIABLES:   False
2479LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
2480NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2481STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2482AICPA: FN-Measurement
2483KEYWORDS:   Bloom's: Application
2484OTHER:   Time: 5 min.
2485DATE CREATED:   11/15/2017 1:09 PM
2486DATE MODIFIED:   7/24/2018 8:59 PM
2487Copyright Cengage Learning. Powered by Cognero. Page 81
2488Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2489112. In 2018, Marci is considering starting a new business. Marci incurs the following costs associated with this venture.
2490     
2491   Advertising $ 5,000
2492   Travel 10,000
2493   Market surveys 8,000
2494   Professional services 30,000
2495   Interest expense 2,000
2496   Taxes 1,000
2497Marci started the new business on January 5, 2019. Determine the deduction for Marci’s startup costs for 2018.
2498ANSWER:   Marci is not allowed to deduct any startup costs in 2018 because the business was
2499not started until 2019.
2500POINTS:   1
2501DIFFICULTY:   Easy
2502QUESTION TYPE:   Subjective Short Answer
2503HAS VARIABLES:   False
2504LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
2505NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2506STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2507AICPA: FN-Measurement
2508KEYWORDS:   Bloom's: Application
2509OTHER:   Time: 5 min.
2510DATE CREATED:   11/15/2017 1:09 PM
2511DATE MODIFIED:   7/24/2018 8:59 PM
2512Copyright Cengage Learning. Powered by Cognero. Page 82
2513Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2514113. Lindsey purchased a uranium interest for $10,000,000 on January 3, 2018, when recoverable reserves were
2515estimated at 200,000 units. A total of 10,000 units were extracted in 2018 and 7,000 units were sold in 2018. Gross
2516income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.
2517Determine her depletion deduction for 2018.
2518ANSWER:   Cost depletion
2519Percentage depletion
2520Lesser of:
252122% × $2,800,000 = $616,000
252250% × $1,000,000 = $500,000
2523Therefore the depletion deduction would be $500,000.
2524POINTS:   1
2525DIFFICULTY:   Moderate
2526QUESTION TYPE:   Subjective Short Answer
2527HAS VARIABLES:   False
2528LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-10 - LO: 5-10
2529NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2530STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2531AICPA: FN-Measurement
2532KEYWORDS:   Bloom's: Application
2533OTHER:   Time: 10 min.
2534DATE CREATED:   11/15/2017 1:09 PM
2535DATE MODIFIED:   7/24/2018 8:59 PM
2536Copyright Cengage Learning. Powered by Cognero. Page 83
2537Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2538114. Discuss the difference between the half-year convention and the mid-quarter convention.
2539ANSWER:   The half-year convention assumes property is placed in service at mid-year and thus
2540provides for a half-year’s cost recovery for that year. The mid-quarter convention
2541assumes property placed in service during the year is placed in service at the middle
2542of the quarter in which it is actually placed in service.
2543POINTS:   1
2544DIFFICULTY:   Easy
2545QUESTION TYPE:   Essay
2546HAS VARIABLES:   False
2547LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2548NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2549STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2550AICPA: FN-Measurement
2551KEYWORDS:   Bloom's: Comprehension
2552OTHER:   Time: 5 min.
2553DATE CREATED:   11/15/2017 1:09 PM
2554DATE MODIFIED:   7/24/2018 9:00 PM
2555115. Discuss the criteria used to determine whether a building is residential or nonresidential realty. Also explain the tax
2556consequences resulting from this determination if the property is placed in service in 2018.
2557ANSWER:   Residential realty is property for which 80% or more of the gross rental revenues
2558are from nontransient dwelling units. Residential realty has a recovery period of 27.5
2559years. Nonresidential realty has a recovery period of 39 years.
2560POINTS:   1
2561DIFFICULTY:   Easy
2562QUESTION TYPE:   Essay
2563HAS VARIABLES:   False
2564LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2565NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2566STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2567KEYWORDS:   Bloom's: Comprehension
2568OTHER:   Time: 5 min.
2569DATE CREATED:   11/15/2017 1:09 PM
2570DATE MODIFIED:   7/24/2018 9:00 PM
2571Copyright Cengage Learning. Powered by Cognero. Page 84
2572Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2573116. Discuss the tax consequences of listed property being used for the production of income compared to being used in a
2574trade or business.
2575ANSWER:   Section 179 expensing cannot be taken on property used for the production of
2576income. However, additional first-year depreciation can be taken.
2577POINTS:   1
2578DIFFICULTY:   Easy
2579QUESTION TYPE:   Essay
2580HAS VARIABLES:   False
2581LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2582EOTX.SWFT.LO: 5-08 - LO: 5-08
2583NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2584STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2585AICPA: FN-Measurement
2586KEYWORDS:   Bloom's: Comprehension
2587OTHER:   Time: 5 min.
2588DATE CREATED:   11/15/2017 1:09 PM
2589DATE MODIFIED:   7/24/2018 9:00 PM
2590117. Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.
2591ANSWER:   If an automobile is not classified as a passenger automobile, it is not subject to the
2592statutory dollar cost recovery limits under § 280F. In addition to a larger cost
2593recovery deduction each year, it also results in the total recovery of the cost over a
2594six-year period. While the automobile is still listed property, if it passes the morethan-50%
2595business use test, MACRS cost recovery can be used as well as an
2596election under § 179. However, the § 179 limit for SUVs is $25,000 rather than
2597$1,000,000 in 2018 ($510,000 in 2017).  The automobile also is eligible for additional
2598first-year depreciation.
2599POINTS:   1
2600DIFFICULTY:   Easy
2601QUESTION TYPE:   Essay
2602HAS VARIABLES:   False
2603LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-07 - LO: 5-07
2604EOTX.SWFT.LO: 5-08 - LO: 5-08
2605NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2606STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2607AICPA: FN-Measurement
2608KEYWORDS:   Bloom's: Comprehension
2609OTHER:   Time: 10 min.
2610DATE CREATED:   11/15/2017 1:09 PM
2611DATE MODIFIED:   7/24/2018 9:00 PM
2612Copyright Cengage Learning. Powered by Cognero. Page 85
2613Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2614118. Discuss the reason for the inclusion amount with respect to leased automobiles.
2615ANSWER:   The purpose of the inclusion amount is to prevent taxpayers from circumventing the
2616cost recovery dollar limitations by leasing, instead of purchasing, an automobile.
2617POINTS:   1
2618DIFFICULTY:   Easy
2619QUESTION TYPE:   Essay
2620HAS VARIABLES:   False
2621LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-08 - LO: 5-08
2622NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2623STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2624AICPA: FN-Measurement
2625KEYWORDS:   Bloom's: Comprehension
2626OTHER:   Time: 5 min.
2627DATE CREATED:   11/15/2017 1:09 PM
2628DATE MODIFIED:   7/24/2018 9:00 PM
2629Copyright Cengage Learning. Powered by Cognero. Page 86
2630Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2631119. Discuss the requirements in order for startup expenditures to be amortized under § 195.
2632ANSWER:   The expenditures must meet two requirements.  First, the expenditures must be paid
2633or incurred in connection with:
2634∙  Creating an active trade or business;
2635∙
2636 Investigating the creation or acquisition of an active trade or business;
2637or
2638∙
2639Anticipating an activity becoming a business.
2640Second, the expenses must reflect those that could be deducted in an existing trade
2641or business in the same field.
2642POINTS:   1
2643DIFFICULTY:   Easy
2644QUESTION TYPE:   Essay
2645HAS VARIABLES:   False
2646LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
2647NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2648STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2649AICPA: FN-Measurement
2650KEYWORDS:   Bloom's: Comprehension
2651OTHER:   Time: 10 min.
2652DATE CREATED:   11/15/2017 1:09 PM
2653DATE MODIFIED:   7/24/2018 9:00 PM
2654Copyright Cengage Learning. Powered by Cognero. Page 87
2655Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2656120. Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.
2657ANSWER:   Goodwill is a capital asset and any gain or loss recognized on the sale of the goodwill
2658will be capital gain or loss. A covenant not to compete is a business asset and any
2659gain or loss will be ordinary gain or loss.
2660POINTS:   1
2661DIFFICULTY:   Easy
2662QUESTION TYPE:   Essay
2663HAS VARIABLES:   False
2664LEARNING OBJECTIVES:  EOTX.SWFT.LO: 5-09 - LO: 5-09
2665NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2666STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2667AICPA: FN-Measurement
2668KEYWORDS:   Bloom's: Comprehension
2669OTHER:   Time: 5 min.
2670DATE CREATED:   11/15/2017 1:09 PM
2671DATE MODIFIED:   7/24/2018 9:00 PM
2672Copyright Cengage Learning. Powered by Cognero. Page 88
2673Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
2674
2675True / False
26761. One indicator of independent contractor (rather than employee) status is when the individual performing the services
2677is paid based on time spent (rather than on tasks performed).
2678a. True
2679b. False
2680ANSWER:   False
2681RATIONALE:   What is described is a criterion for employee classification.
2682POINTS:   1
2683DIFFICULTY:   Easy
2684QUESTION TYPE:   True / False
2685HAS VARIABLES:   False
2686LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2687NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2688STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2689AICPA: FN-Measurement
2690KEYWORDS:   Bloom's: Comprehension
2691OTHER:   Time: 2 min.
2692DATE CREATED:   11/15/2017 1:09 PM
2693DATE MODIFIED:   7/24/2018 9:58 PM
26942. In some cases it may be appropriate for a taxpayer to deduct work-related expenses as both a sole proprietor and an
2695employee.
2696a. True
2697b. False
2698ANSWER:   False
2699RATIONALE:   Although a taxpayer may be both an employee and self-employed, only those
2700expenses incurred as a proprietor may be deducted.
2701POINTS:   1
2702DIFFICULTY:   Easy
2703QUESTION TYPE:   True / False
2704HAS VARIABLES:   False
2705LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2706NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2707STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2708KEYWORDS:   Bloom's: Comprehension
2709OTHER:   Time: 2 min.
2710DATE CREATED:   11/15/2017 1:09 PM
2711DATE MODIFIED:   7/24/2018 9:58 PM
2712Copyright Cengage Learning. Powered by Cognero. Page 1
2713Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
27143. Janet works at Green Company’s call center. If Janet’s compensation is based on the number of calls she handles,
2715she is an independent contractor.
2716a. True
2717b. False
2718ANSWER:   False
2719RATIONALE:   Although payment based on tasks performed (rather than time spent) is a
2720characteristic of independent contractor status, it is not the only criterion. Other
2721factors (e.g., right of discharge, furnishing place of work) need to be considered
2722before employee versus independent contractor classification can be resolved with
2723any degree of certainty.
2724POINTS:   1
2725DIFFICULTY:   Easy
2726QUESTION TYPE:   True / False
2727HAS VARIABLES:   False
2728LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2729NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2730STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2731KEYWORDS:   Bloom's: Comprehension
2732OTHER:   Time: 2 min.
2733DATE CREATED:   12/5/2017 12:18 PM
2734DATE MODIFIED:   7/24/2018 9:58 PM
27354. The IRS will issue advanced rulings as to whether a worker’s status is that of an employee or an independent
2736contractor.
2737a. True
2738b. False
2739ANSWER:   True
2740RATIONALE:   A ruling from the IRS can be obtained by filing Form SS–8.
2741POINTS:   1
2742DIFFICULTY:   Easy
2743QUESTION TYPE:   True / False
2744HAS VARIABLES:   False
2745LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2746NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2747STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2748KEYWORDS:   Bloom's: Knowledge
2749OTHER:   Time: 2 min.
2750DATE CREATED:   11/15/2017 1:09 PM
2751DATE MODIFIED:   7/24/2018 9:58 PM
2752Copyright Cengage Learning. Powered by Cognero. Page 2
2753Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
27545. Jake performs services for Maude. If Maude provides a helper and tools, this is indicative of independent contractor
2755(rather than employee) status.
2756a. True
2757b. False
2758ANSWER:   False
2759RATIONALE:   Because Jake does not provide his own helper and tools, this indicates that he is
2760probably not an independent contractor.
2761POINTS:   1
2762DIFFICULTY:   Easy
2763QUESTION TYPE:   True / False
2764HAS VARIABLES:   False
2765LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2766NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2767STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2768KEYWORDS:   Bloom's: Comprehension
2769OTHER:   Time: 2 min.
2770DATE CREATED:   11/15/2017 1:09 PM
2771DATE MODIFIED:   7/24/2018 9:58 PM
27726. A statutory employee is not a common law employee but is subject to Social Security tax.
2773a. True
2774b. False
2775ANSWER:   True
2776RATIONALE:   A statutory employee is subject to Social Security tax.
2777POINTS:   1
2778DIFFICULTY:   Easy
2779QUESTION TYPE:   True / False
2780HAS VARIABLES:   False
2781LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-01 - LO: 9-01
2782NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2783STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2784KEYWORDS:   Bloom's: Knowledge
2785OTHER:   Time: 2 min.
2786DATE CREATED:   11/15/2017 1:09 PM
2787DATE MODIFIED:   7/24/2018 7:07 PM
2788Copyright Cengage Learning. Powered by Cognero. Page 3
2789Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
27907. For tax purposes, a statutory employee is treated the same as a common law employee.
2791a. True
2792b. False
2793ANSWER:   False
2794RATIONALE:   Among other differences, statutory employees claim their expenses as deductions
2795for AGI on Schedule C.
2796POINTS:   1
2797DIFFICULTY:   Easy
2798QUESTION TYPE:   True / False
2799HAS VARIABLES:   False
2800LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-01 - LO: 9-01
2801NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2802STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2803KEYWORDS:   Bloom's: Knowledge
2804OTHER:   Time: 2 min.
2805DATE CREATED:   11/15/2017 1:09 PM
2806DATE MODIFIED:   7/24/2018 7:07 PM
28078. If an individual is subject to the direction or control of another only to the extent of the end result but not as to the
2808means of accomplishment, an employer-employee relationship does not exist.
2809a. True
2810b. False
2811ANSWER:   True
2812POINTS:   1
2813DIFFICULTY:   Easy
2814QUESTION TYPE:   True / False
2815HAS VARIABLES:   False
2816LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2817NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2818STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2819KEYWORDS:   Bloom's: Comprehension
2820OTHER:   Time: 2 min.
2821DATE CREATED:   11/15/2017 1:09 PM
2822DATE MODIFIED:   7/24/2018 9:58 PM
2823Copyright Cengage Learning. Powered by Cognero. Page 4
2824Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
28259. The work-related expenses of an independent contractor are treated as itemized deductions.
2826a. True
2827b. False
2828ANSWER:   False
2829RATIONALE:   The expenses are deductions for AGI.
2830POINTS:   1
2831DIFFICULTY:   Easy
2832QUESTION TYPE:   True / False
2833HAS VARIABLES:   False
2834LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
2835NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2836STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2837KEYWORDS:   Bloom's: Knowledge
2838OTHER:   Time: 2 min.
2839DATE CREATED:   11/15/2017 1:09 PM
2840DATE MODIFIED:   7/24/2018 9:58 PM
284110. A taxpayer who maintains an office in the home to conduct his only business will not have nondeductible commuting
2842expense.
2843a. True
2844b. False
2845ANSWER:   True
2846POINTS:   1
2847DIFFICULTY:   Easy
2848QUESTION TYPE:   True / False
2849HAS VARIABLES:   False
2850LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2851NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2852STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
2853KEYWORDS:   Bloom's: Comprehension
2854OTHER:   Time: 2 min.
2855DATE CREATED:   11/15/2017 1:09 PM
2856DATE MODIFIED:   7/24/2018 9:58 PM
2857Copyright Cengage Learning. Powered by Cognero. Page 5
2858Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
285911. After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS.
2860a. True
2861b. False
2862ANSWER:   False
2863RATIONALE:   In the past and because of rising fuel costs, the IRS has raised the rates in midyear.
2864POINTS:   1
2865DIFFICULTY:   Easy
2866QUESTION TYPE:   True / False
2867HAS VARIABLES:   False
2868LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2869NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2870STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2871AICPA: FN-Measurement
2872KEYWORDS:   Bloom's: Knowledge
2873OTHER:   Time: 2 min.
2874DATE CREATED:   11/15/2017 1:09 PM
2875DATE MODIFIED:   7/24/2018 9:58 PM
287612. A self-employed taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the
2877business portion of automobile club dues.
2878a. True
2879b. False
2880ANSWER:   False
2881RATIONALE:   Only under the actual expense method is such cost deductible.
2882POINTS:   1
2883DIFFICULTY:   Easy
2884QUESTION TYPE:   True / False
2885HAS VARIABLES:   False
2886LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2887NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2888STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2889AICPA: FN-Measurement
2890KEYWORDS:   Bloom's: Comprehension
2891OTHER:   Time: 2 min.
2892DATE CREATED:   12/5/2017 12:21 PM
2893DATE MODIFIED:   7/24/2018 9:58 PM
2894Copyright Cengage Learning. Powered by Cognero. Page 6
2895Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
289613. Carol is self-employed and uses her automobile solely in her business. If she uses the actual expense method to
2897compute expenses, she can include any interest paid on the loan taken out to purchase the car.
2898a. True
2899b. False
2900ANSWER:   True
2901RATIONALE:   Interest on car loans is not deductible if the taxpayer is an employee, but it can
2902qualify as a business expense if the taxpayer is self-employed.
2903POINTS:   1
2904DIFFICULTY:   Easy
2905QUESTION TYPE:   True / False
2906HAS VARIABLES:   False
2907LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2908NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2909STATE STANDARDS:   United States - AK - AICPA: FN- Measurement
2910KEYWORDS:   Bloom's: Comprehension
2911OTHER:   Time: 2 min.
2912DATE CREATED:   12/5/2017 12:20 PM
2913DATE MODIFIED:   7/24/2018 9:58 PM
291414. In choosing between the actual expense method and the automatic mileage method, a taxpayer should consider the
2915cost of insurance on the automobile.
2916a. True
2917b. False
2918ANSWER:   True
2919RATIONALE:   If taxpayer lives and works in a metropolitan area and a significant commute is
2920involved, car insurance premiums could be quite costly.
2921POINTS:   1
2922DIFFICULTY:   Easy
2923QUESTION TYPE:   True / False
2924HAS VARIABLES:   False
2925LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2926NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2927STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2928AICPA: FN-Measurement
2929KEYWORDS:   Bloom's: Knowledge
2930OTHER:   Time: 2 min.
2931DATE CREATED:   11/15/2017 1:09 PM
2932DATE MODIFIED:   7/24/2018 9:58 PM
2933Copyright Cengage Learning. Powered by Cognero. Page 7
2934Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
293515. A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion
2936of tolls and parking.
2937a. True
2938b. False
2939ANSWER:   True
2940RATIONALE:   Such costs are deductible under both methods.
2941POINTS:   1
2942DIFFICULTY:   Easy
2943QUESTION TYPE:   True / False
2944HAS VARIABLES:   False
2945LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2946NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2947STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2948AICPA: FN-Measurement
2949KEYWORDS:   Bloom's: Knowledge
2950OTHER:   Time: 2 min.
2951DATE CREATED:   11/15/2017 1:09 PM
2952DATE MODIFIED:   7/24/2018 9:58 PM
295316. A deduction for parking and other traffic violations incurred during business use of the automobile is allowed under
2954the actual cost method but not the automatic mileage method.
2955a. True
2956b. False
2957ANSWER:   False
2958RATIONALE:   No such deduction is allowed under either method.
2959POINTS:   1
2960DIFFICULTY:   Easy
2961QUESTION TYPE:   True / False
2962HAS VARIABLES:   False
2963LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2964NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2965STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2966AICPA: FN-Measurement
2967KEYWORDS:   Bloom's: Knowledge
2968OTHER:   Time: 2 min.
2969DATE CREATED:   11/15/2017 1:09 PM
2970DATE MODIFIED:   7/24/2018 9:58 PM
2971Copyright Cengage Learning. Powered by Cognero. Page 8
2972Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
297317. A taxpayer who uses the automatic mileage method for the business use of an automobile can change to the actual
2974cost method in a later year.
2975a. True
2976b. False
2977ANSWER:   True
2978RATIONALE:   An adjustment to the basis of the automobile will have to be made for the
2979depreciation deemed taken under the automatic mileage method.
2980POINTS:   1
2981DIFFICULTY:   Easy
2982QUESTION TYPE:   True / False
2983HAS VARIABLES:   False
2984LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
2985NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
2986STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
2987AICPA: FN-Measurement
2988KEYWORDS:   Bloom's: Knowledge
2989OTHER:   Time: 2 min.
2990DATE CREATED:   11/15/2017 1:09 PM
2991DATE MODIFIED:   7/24/2018 9:58 PM
299218. Under the automatic mileage method, depreciation is not taken into account in the mileage rate allowed.
2993a. True
2994b. False
2995ANSWER:   False
2996RATIONALE:   Depreciation is built into the mileage rate allowed under the automatic mileage
2997method.
2998POINTS:   1
2999DIFFICULTY:   Easy
3000QUESTION TYPE:   True / False
3001HAS VARIABLES:   False
3002LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3003NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3004STATE STANDARDS:   United States - AK - AICPA: FN- Measurement
3005KEYWORDS:   Bloom's: Comprehension
3006OTHER:   Time: 2 min.
3007DATE CREATED:   12/5/2017 12:19 PM
3008DATE MODIFIED:   7/24/2018 9:58 PM
3009Copyright Cengage Learning. Powered by Cognero. Page 9
3010Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
301119. Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year.
3012a. True
3013b. False
3014ANSWER:   False
3015RATIONALE:   A change is permitted if MACRS (statutory percentage method) depreciation has
3016not been used or the § 179 election to expense was not made.
3017POINTS:   1
3018DIFFICULTY:   Easy
3019QUESTION TYPE:   True / False
3020HAS VARIABLES:   False
3021LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3022NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3023STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3024AICPA: FN-Measurement
3025KEYWORDS:   Bloom's: Knowledge
3026OTHER:   Time: 2 min.
3027DATE CREATED:   11/15/2017 1:09 PM
3028DATE MODIFIED:   7/24/2018 9:58 PM
302920. For tax purposes, “travel” is a broader classification than “transportation.”
3030a. True
3031b. False
3032ANSWER:   True
3033RATIONALE:   Travel expenses include transportation expenses and meals and lodging while away
3034from home in the pursuit of a trade or business.
3035POINTS:   1
3036DIFFICULTY:   Easy
3037QUESTION TYPE:   True / False
3038HAS VARIABLES:   False
3039LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3040NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3041STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3042AICPA: FN-Measurement
3043KEYWORDS:   Bloom's: Comprehension
3044OTHER:   Time: 2 min.
3045DATE CREATED:   11/15/2017 1:09 PM
3046DATE MODIFIED:   7/24/2018 9:58 PM
3047Copyright Cengage Learning. Powered by Cognero. Page 10
3048Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
304921. Amy lives and works in St. Louis. In the morning she flies to Boston, has a three-hour business meeting, and returns
3050to St. Louis that evening. For tax purposes, Amy was away from home.
3051a. True
3052b. False
3053ANSWER:   False
3054RATIONALE:   The absence must be a period substantially longer than an ordinary day’s work and
3055must require rest.
3056POINTS:   1
3057DIFFICULTY:   Easy
3058QUESTION TYPE:   True / False
3059HAS VARIABLES:   False
3060NATIONAL STANDARDS:  United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3061STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3062KEYWORDS:   Bloom's: Comprehension
3063OTHER:   Time: 2 min.
3064DATE CREATED:   11/15/2017 1:09 PM
3065DATE MODIFIED:   7/24/2018 7:07 PM
306622. James has a job that compels him to go to many different states during the year. It is possible that James was never
3067away from his tax home during the year.
3068a. True
3069b. False
3070ANSWER:   True
3071RATIONALE:   This could be the case of a long-haul truck driver where his tax home goes with him.
3072POINTS:   1
3073DIFFICULTY:   Easy
3074QUESTION TYPE:   True / False
3075HAS VARIABLES:   False
3076LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3077NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3078STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3079KEYWORDS:   Bloom's: Comprehension
3080OTHER:   Time: 2 min.
3081DATE CREATED:   11/15/2017 1:09 PM
3082DATE MODIFIED:   7/24/2018 9:58 PM
3083Copyright Cengage Learning. Powered by Cognero. Page 11
3084Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
308523. Marvin lives with his family in Alabama. He has two jobs: one in Alabama and one in North Carolina. Marvin’s tax
3086home is where he lives (Alabama).
3087a. True
3088b. False
3089ANSWER:   False
3090RATIONALE:   Marvin’s tax home is where his principal job is located. This is determined by
3091considering numerous factors, among which are the level of income earned and the
3092amount of time spent. Thus, it is incorrect to resolve the tax home issue without
3093more facts.
3094POINTS:   1
3095DIFFICULTY:   Easy
3096QUESTION TYPE:   True / False
3097HAS VARIABLES:   False
3098LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3099NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3100STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3101KEYWORDS:   Bloom's: Comprehension
3102OTHER:   Time: 2 min.
3103DATE CREATED:   11/15/2017 1:09 PM
3104DATE MODIFIED:   7/24/2018 9:58 PM
310524. A self-employed taxpayer who lives and works in Kansas City travels to Chicago on an eight-day business trip.
3106While in Chicago, taxpayer uses the hotel valet service to have some laundry done. The valet charge is a
3107nondeductible personal travel expense.
3108a. True
3109b. False
3110ANSWER:   False
3111RATIONALE:   Valet service is part of the travel expense deduction.
3112POINTS:   1
3113DIFFICULTY:   Easy
3114QUESTION TYPE:   True / False
3115HAS VARIABLES:   False
3116LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3117NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3118STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3119AICPA: FN-Measurement
3120KEYWORDS:   Bloom's: Knowledge
3121OTHER:   Time: 2 min.
3122DATE CREATED:   11/15/2017 1:09 PM
3123DATE MODIFIED:   7/24/2018 9:58 PM
3124Copyright Cengage Learning. Powered by Cognero. Page 12
3125Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
312625. The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of
3127employment that exceeds one year.
3128a. True
3129b. False
3130ANSWER:   True
3131POINTS:   1
3132DIFFICULTY:   Easy
3133QUESTION TYPE:   True / False
3134HAS VARIABLES:   False
3135LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3136NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3137STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3138AICPA: FN-Measurement
3139KEYWORDS:   Bloom's: Knowledge
3140OTHER:   Time: 2 min.
3141DATE CREATED:   11/15/2017 1:09 PM
3142DATE MODIFIED:   7/24/2018 9:58 PM
314326. A taxpayer who lives and works in Tulsa travels to Buffalo for five days. If three days are spent on business and
3144two days are spent on visiting relatives, only 60% of the airfare is deductible.
3145a. True
3146b. False
3147ANSWER:   False
3148RATIONALE:   For domestic mixed travel (i.e., both business and personal), no allocation of
3149transportation is required.
3150POINTS:   1
3151DIFFICULTY:   Easy
3152QUESTION TYPE:   True / False
3153HAS VARIABLES:   False
3154LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3155NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3156STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3157AICPA: FN-Measurement
3158KEYWORDS:   Bloom's: Comprehension
3159OTHER:   Time: 2 min.
3160DATE CREATED:   11/15/2017 1:09 PM
3161DATE MODIFIED:   7/24/2018 9:58 PM
3162Copyright Cengage Learning. Powered by Cognero. Page 13
3163Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
316427. A taxpayer who always claims the standard deduction (i.e., does not itemize his or her deductions from AGI) may
3165still be able to receive a tax benefit from any education expenses incurred.
3166a. True
3167b. False
3168ANSWER:   True
3169RATIONALE:   If § 222 applies, a deduction for AGI results. Also, the taxpayer will obtain a
3170deduction for AGI if self-employed and the education is business related. Lastly, a
3171tax benefit can result by means of an exclusion (e.g., certain scholarships, Coverdell
3172accounts, and § 529 plans) or a credit (e.g., HOPE or lifetime learning).
3173POINTS:   1
3174DIFFICULTY:   Easy
3175QUESTION TYPE:   True / False
3176HAS VARIABLES:   False
3177LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3178NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3179STATE STANDARDS:   United States - AK - AICPA: FN-Measurment
3180KEYWORDS:   Bloom's: Comprehension
3181OTHER:   Time: 2 min.
3182DATE CREATED:   12/5/2017 12:22 PM
3183DATE MODIFIED:   7/24/2018 9:58 PM
318428. Bob lives and works in Newark, NJ. He travels to London for a three-day business meeting, after which he spends
3185three days touring Scotland. All of his air fare is deductible.
3186a. True
3187b. False
3188ANSWER:   True
3189RATIONALE:   Bob meets the seven-days-or-less exception.
3190POINTS:   1
3191DIFFICULTY:   Easy
3192QUESTION TYPE:   True / False
3193HAS VARIABLES:   False
3194LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3195NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3196STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3197AICPA: FN-Measurement
3198KEYWORDS:   Bloom's: Comprehension
3199OTHER:   Time: 2 min.
3200DATE CREATED:   11/15/2017 1:09 PM
3201DATE MODIFIED:   7/24/2018 9:58 PM
3202Copyright Cengage Learning. Powered by Cognero. Page 14
3203Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
320429. Eileen lives and works in Mobile. She travels to Rome for an eight-day business meeting, after which she spends two
3205days touring Italy. All of Eileen’s airfare is deductible.
3206a. True
3207b. False
3208ANSWER:   True
3209RATIONALE:   Eileen meets the less-than-25%-personal-time exception.
3210POINTS:   1
3211DIFFICULTY:   Easy
3212QUESTION TYPE:   True / False
3213HAS VARIABLES:   False
3214LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3215NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3216STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3217AICPA: FN-Measurement
3218KEYWORDS:   Bloom's: Comprehension
3219OTHER:   Time: 2 min.
3220DATE CREATED:   11/15/2017 1:09 PM
3221DATE MODIFIED:   7/24/2018 9:58 PM
322230. Beginning in 2018, the moving expense deduction has been eliminated for all taxpayers.
3223a. True
3224b. False
3225ANSWER:   False
3226RATIONALE:   Members of the military are still allowed a moving expense deduction provided the
3227move was related to a base change.
3228POINTS:   1
3229DIFFICULTY:   Easy
3230QUESTION TYPE:   True / False
3231HAS VARIABLES:   False
3232LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3233NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3234STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3235KEYWORDS:   Bloom's: Knowledge
3236OTHER:   Time: 2 min.
3237DATE CREATED:   11/15/2017 1:09 PM
3238DATE MODIFIED:   7/24/2018 9:58 PM
3239Copyright Cengage Learning. Powered by Cognero. Page 15
3240Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
324131. Qualified moving expenses of an employee that are not reimbursed are a deduction for AGI.
3242a. True
3243b. False
3244ANSWER:   False
3245POINTS:   1
3246DIFFICULTY:   Easy
3247QUESTION TYPE:   True / False
3248HAS VARIABLES:   False
3249LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3250NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3251STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3252KEYWORDS:   Bloom's: Knowledge
3253OTHER:   Time: 2 min.
3254DATE CREATED:   11/15/2017 1:09 PM
3255DATE MODIFIED:   7/24/2018 9:58 PM
325632. An education expense deduction may be allowed even if the education results in a promotion or pay raise for the
3257employee.
3258a. True
3259b. False
3260ANSWER:   True
3261RATIONALE:   There is no prohibition as to this result in deducting education expenses.
3262POINTS:   1
3263DIFFICULTY:   Easy
3264QUESTION TYPE:   True / False
3265HAS VARIABLES:   False
3266LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3267NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3268STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3269KEYWORDS:   Bloom's: Knowledge
3270OTHER:   Time: 2 min.
3271DATE CREATED:   11/15/2017 1:09 PM
3272DATE MODIFIED:   7/24/2018 9:58 PM
3273Copyright Cengage Learning. Powered by Cognero. Page 16
3274Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
327533. Lloyd, a practicing CPA, pays tuition to attend law school. Since a law degree involves education leading to a new
3276trade or business, the tuition is not deductible.
3277a. True
3278b. False
3279ANSWER:   False
3280RATIONALE:   A deduction might be available under the § 222 qualified tuition for higher education
3281provision. Here, it does not matter that a new skill is being acquired.
3282POINTS:   1
3283DIFFICULTY:   Easy
3284QUESTION TYPE:   True / False
3285HAS VARIABLES:   False
3286LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3287NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3288STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3289KEYWORDS:   Bloom's: Comprehension
3290OTHER:   Time: 2 min.
3291DATE CREATED:   11/15/2017 1:09 PM
3292DATE MODIFIED:   7/24/2018 9:58 PM
329334. Under the right circumstances, a taxpayer’s meals and lodging expense can qualify as a deductible education
3294expense.
3295a. True
3296b. False
3297ANSWER:   True
3298RATIONALE:   If the education involves the taxpayer being away from home (i.e., in travel status).
3299POINTS:   1
3300DIFFICULTY:   Easy
3301QUESTION TYPE:   True / False
3302HAS VARIABLES:   False
3303LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3304NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3305STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3306KEYWORDS:   Bloom's: Comprehension
3307OTHER:   Time: 2 min.
3308DATE CREATED:   11/15/2017 1:09 PM
3309DATE MODIFIED:   7/24/2018 9:58 PM
3310Copyright Cengage Learning. Powered by Cognero. Page 17
3311Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
331235. Mallard Corporation pays for a trip to Aruba for its two top salespersons. This expense is subject to the overall
3313limitation (50%).
3314a. True
3315b. False
3316ANSWER:   False
3317RATIONALE:   The cost of the trips to Aruba are additional compensation to the employees
3318involved. Consequently, they are not subject to the overall limitation (50%) and are
3319fully deductible by Mallard Corporation. They are also taxed as income to the
3320employees.
3321POINTS:   1
3322DIFFICULTY:   Easy
3323QUESTION TYPE:   True / False
3324HAS VARIABLES:   False
3325LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3326NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3327STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3328AICPA: FN-Measurement
3329KEYWORDS:   Bloom's: Knowledge
3330OTHER:   Time: 2 min.
3331DATE CREATED:   11/15/2017 1:09 PM
3332DATE MODIFIED:   7/24/2018 9:58 PM
333336. Flamingo Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains. The cost of
3334operating the cafeteria is not subject to the overall limitation (50%).
3335a. True
3336b. False
3337ANSWER:   True
3338POINTS:   1
3339DIFFICULTY:   Easy
3340QUESTION TYPE:   True / False
3341HAS VARIABLES:   False
3342LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3343NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3344STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3345AICPA: FN-Measurement
3346KEYWORDS:   Bloom's: Knowledge
3347OTHER:   Time: 2 min.
3348DATE CREATED:   11/15/2017 1:09 PM
3349DATE MODIFIED:   7/24/2018 9:58 PM
3350Copyright Cengage Learning. Powered by Cognero. Page 18
3351Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
335237. In 2018, a taxpayer takes six clients to an NBA playoff game. If all of the tickets (list price of $120 each) are
3353purchased on the Internet for $1,800 ($300 each), only $60 ($120 × 50% overall limitation) per ticket is deductible.
3354a. True
3355b. False
3356ANSWER:   False
3357RATIONALE:   Entertainment expenses are no longer deductible.
3358POINTS:   1
3359DIFFICULTY:   Easy
3360QUESTION TYPE:   True / False
3361HAS VARIABLES:   False
3362LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3363NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3364STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3365AICPA: FN-Measurement
3366KEYWORDS:   Bloom's: Application
3367OTHER:   Time: 5 min.
3368DATE CREATED:   11/15/2017 1:09 PM
3369DATE MODIFIED:   7/24/2018 9:58 PM
337038. Ethan, a bachelor with no immediate family, uses the Pine Shadows Country Club exclusively for his business
3371entertaining. All of Ethan’s annual dues for his club membership are deductible.
3372a. True
3373b. False
3374ANSWER:   False
3375RATIONALE:   Dues to country clubs are not deductible.
3376POINTS:   1
3377DIFFICULTY:   Easy
3378QUESTION TYPE:   True / False
3379HAS VARIABLES:   False
3380LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3381NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3382STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3383KEYWORDS:   Bloom's: Knowledge
3384OTHER:   Time: 2 min.
3385DATE CREATED:   11/15/2017 1:09 PM
3386DATE MODIFIED:   7/24/2018 9:58 PM
3387Copyright Cengage Learning. Powered by Cognero. Page 19
3388Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
338939. Jackson gives his supervisor and her husband each a $30 box of chocolates at Christmas. Jackson may claim only
3390$25 as a deduction.
3391a. True
3392b. False
3393ANSWER:   False
3394RATIONALE:   As gifts to supervisors and spouses are not deductible, Jackson has no deduction.
3395POINTS:   1
3396DIFFICULTY:   Easy
3397QUESTION TYPE:   True / False
3398HAS VARIABLES:   False
3399LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3400NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3401STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3402AICPA: FN-Measurement
3403KEYWORDS:   Bloom's: Comprehension
3404OTHER:   Time: 2 min.
3405DATE CREATED:   11/15/2017 1:09 PM
3406DATE MODIFIED:   7/24/2018 9:58 PM
340740. On their birthdays, Lily sends gift certificates (each valued at $25) to Caden (a key client) and to each of Caden’s
3408two minor children. Lily can deduct only $25 as to these gifts.
3409a. True
3410b. False
3411ANSWER:   True
3412RATIONALE:   These gifts will be aggregated in applying the $25 limit.
3413POINTS:   1
3414DIFFICULTY:   Easy
3415QUESTION TYPE:   True / False
3416HAS VARIABLES:   False
3417LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3418NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3419STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3420AICPA: FN-Measurement
3421KEYWORDS:   Bloom's: Comprehension
3422OTHER:   Time: 2 min.
3423DATE CREATED:   11/15/2017 1:09 PM
3424DATE MODIFIED:   7/24/2018 9:58 PM
3425Copyright Cengage Learning. Powered by Cognero. Page 20
3426Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
342741. In the case of an office in the home deduction, the exclusive business use test does not apply when the home is used
3428as a daycare center.
3429a. True
3430b. False
3431ANSWER:   True
3432RATIONALE:   Mixed use (i.e., business and personal) of the home is permitted in daycare
3433situations.
3434POINTS:   1
3435DIFFICULTY:   Easy
3436QUESTION TYPE:   True / False
3437HAS VARIABLES:   False
3438LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-05 - LO: 9-05
3439NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3440STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3441AICPA: FN-Measurement
3442KEYWORDS:   Bloom's: Knowledge
3443OTHER:   Time: 2 min.
3444DATE CREATED:   11/15/2017 1:09 PM
3445DATE MODIFIED:   7/24/2018 7:07 PM
344642. If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available.
3447a. True
3448b. False
3449ANSWER:   False
3450RATIONALE:   The only difference would be a substitution of rent expense for depreciation.
3451Otherwise, the deduction is equally available.
3452POINTS:   1
3453DIFFICULTY:   Easy
3454QUESTION TYPE:   True / False
3455HAS VARIABLES:   False
3456LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
3457NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3458STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3459KEYWORDS:   Bloom's: Knowledge
3460OTHER:   Time: 2 min.
3461DATE CREATED:   11/15/2017 1:09 PM
3462DATE MODIFIED:   7/24/2018 9:58 PM
3463Copyright Cengage Learning. Powered by Cognero. Page 21
3464Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
346543. A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction.
3466a. True
3467b. False
3468ANSWER:   False
3469RATIONALE:   The office in the home deduction will be allowed if the taxpayer is self-employed.
3470POINTS:   1
3471DIFFICULTY:   Easy
3472QUESTION TYPE:   True / False
3473HAS VARIABLES:   False
3474LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
3475NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3476STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3477KEYWORDS:   Bloom's: Comprehension
3478OTHER:   Time: 2 min.
3479DATE CREATED:   11/15/2017 1:09 PM
3480DATE MODIFIED:   7/24/2018 9:58 PM
348144. Under the regular (actual expense) method, the portion of the office in the home deduction that exceeds the income
3482from the business can be carried over to future years.
3483a. True
3484b. False
3485ANSWER:   True
3486POINTS:   1
3487DIFFICULTY:   Easy
3488QUESTION TYPE:   True / False
3489HAS VARIABLES:   False
3490LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
3491NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3492STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3493AICPA: FN-Measurement
3494KEYWORDS:   Bloom's: Comprehension
3495OTHER:   Time: 2 min.
3496DATE CREATED:   11/15/2017 1:09 PM
3497DATE MODIFIED:   7/24/2018 9:58 PM
3498Copyright Cengage Learning. Powered by Cognero. Page 22
3499Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
350045. For tax year 2018, Taylor used the simplified method of determining her office in the home deduction. For 2019,
3501Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method.
3502a. True
3503b. False
3504ANSWER:   False
3505RATIONALE:   A new choice is available each year. Taylor cannot, however, change the choice she
3506made for 2018.
3507POINTS:   1
3508DIFFICULTY:   Easy
3509QUESTION TYPE:   True / False
3510HAS VARIABLES:   False
3511LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
3512NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3513STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3514AICPA: FN-Measurement
3515KEYWORDS:   Bloom's: Comprehensive
3516OTHER:   Time: 2 min.
3517DATE CREATED:   11/15/2017 1:09 PM
3518DATE MODIFIED:   7/24/2018 9:58 PM
351946. Under the simplified method, the maximum office in the home deduction allowed is the greater of $1,500 or the
3520office square feet × $5.
3521a. True
3522b. False
3523ANSWER:   False
3524RATIONALE:   The deduction is office square feet x $5 but not to exceed $1,500 or the net income
3525from the business.
3526POINTS:   1
3527DIFFICULTY:   Easy
3528QUESTION TYPE:   True / False
3529HAS VARIABLES:   False
3530LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
3531NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3532STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3533AICPA: FN-Measurement
3534KEYWORDS:   Bloom's: Comprehension
3535OTHER:   Time: 2 min.
3536DATE CREATED:   11/15/2017 1:09 PM
3537DATE MODIFIED:   7/24/2018 9:58 PM
3538Copyright Cengage Learning. Powered by Cognero. Page 23
3539Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
354047. Madison is an instructor of fine arts at a local community college. If she spends $600 (not reimbursed) on art
3541supplies for her classes, $250 of this amount can be claimed as a deduction for AGI.
3542a. True
3543b. False
3544ANSWER:   False
3545RATIONALE:   The $250 special rule for school supplies applies only to elementary and secondary
3546school teachers.
3547POINTS:   1
3548DIFFICULTY:   Easy
3549QUESTION TYPE:   True / False
3550HAS VARIABLES:   False
3551LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
3552NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3553STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3554AICPA: FN-Measurement
3555KEYWORDS:   Bloom's: Knowledge
3556OTHER:   Time: 2 min.
3557DATE CREATED:   11/15/2017 1:09 PM
3558DATE MODIFIED:   7/24/2018 9:58 PM
355948. Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan.
3560a. True
3561b. False
3562ANSWER:   True
3563RATIONALE:   In the case of a traditional IRA, however, the income will be taxed when distributed
3564to the participant.
3565POINTS:   1
3566DIFFICULTY:   Easy
3567QUESTION TYPE:   True / False
3568HAS VARIABLES:   False
3569LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-04 - LO: 11-04
3570NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3571STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3572KEYWORDS:   Bloom's: Knowledge
3573OTHER:   Time: 2 min.
3574DATE CREATED:   11/15/2017 1:09 PM
3575DATE MODIFIED:   7/24/2018 9:58 PM
3576Copyright Cengage Learning. Powered by Cognero. Page 24
3577Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
357849. When contributions are made to a traditional IRA, they are deductible by the participant. Later distributions from the
3579IRA upon retirement are fully taxed.
3580a. True
3581b. False
3582ANSWER:   True
3583RATIONALE:   Contributions are deductible, while distributions are taxable.
3584POINTS:   1
3585DIFFICULTY:   Easy
3586QUESTION TYPE:   True / False
3587HAS VARIABLES:   False
3588LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-04 - LO: 11-04
3589NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3590STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3591KEYWORDS:   Bloom's: Knowledge
3592OTHER:   Time: 2 min.
3593DATE CREATED:   11/15/2017 1:09 PM
3594DATE MODIFIED:   7/24/2018 9:58 PM
359550. By itself, credit card receipts will not constitute adequate substantiation for travel expenses.
3596a. True
3597b. False
3598ANSWER:   True
3599RATIONALE:   The credit card receipts establish the date, place, and amount of the expenditure.
3600Because neither the business relationship nor the business purpose is established, the
3601substantiation is incomplete.
3602POINTS:   1
3603DIFFICULTY:   Easy
3604QUESTION TYPE:   True / False
3605HAS VARIABLES:   False
3606LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-04 - LO: 11-04
3607NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3608STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3609AICPA: FN-Measurement
3610KEYWORDS:   Bloom's: Knowledge
3611OTHER:   Time: 2 min.
3612DATE CREATED:   11/15/2017 1:09 PM
3613DATE MODIFIED:   7/24/2018 9:58 PM
3614Copyright Cengage Learning. Powered by Cognero. Page 25
3615Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
361651. The Federal per diem rates that can be used for “deemed substantiated” purposes are the same for all locations in
3617the country.
3618a. True
3619b. False
3620ANSWER:   False
3621RATIONALE:   The Federal per diem rates are different for different locations in the United States.
3622POINTS:   1
3623DIFFICULTY:   Easy
3624QUESTION TYPE:   True / False
3625HAS VARIABLES:   False
3626LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-09 - LO: 9-09
3627NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3628STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3629AICPA: FN-Measurement
3630KEYWORDS:   Bloom's: Knowledge
3631OTHER:   Time: 2 min.
3632DATE CREATED:   11/15/2017 1:09 PM
3633DATE MODIFIED:   7/24/2018 7:07 PM
363452. For self-employed taxpayers, travel expenses are deductions for AGI.
3635a. True
3636b. False
3637ANSWER:   True
3638RATIONALE:   For self-employed taxpayers, travel expenses are deductions for adjusted gross
3639income.
3640POINTS:   1
3641DIFFICULTY:   Easy
3642QUESTION TYPE:   True / False
3643HAS VARIABLES:   False
3644LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-04 - LO: 11-04
3645NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3646STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3647KEYWORDS:   Bloom's: Knowledge
3648OTHER:   Time: 2 min.
3649DATE CREATED:   11/15/2017 1:09 PM
3650DATE MODIFIED:   7/24/2018 9:58 PM
3651Copyright Cengage Learning. Powered by Cognero. Page 26
3652Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
365353. Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% overall
3654limitation on meal expenses  to their employer.
3655a. True
3656b. False
3657ANSWER:   True
3658POINTS:   1
3659DIFFICULTY:   Easy
3660QUESTION TYPE:   True / False
3661HAS VARIABLES:   False
3662LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-04 - LO: 11-04
3663NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3664STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3665AICPA: FN-Measurement
3666KEYWORDS:   Bloom's: Knowledge
3667OTHER:   Time: 2 min.
3668DATE CREATED:   11/15/2017 1:09 PM
3669DATE MODIFIED:   7/24/2018 9:58 PM
367054. Every year, Teal Corporation gives each employee a turkey and a bottle of wine at the December holiday season.
3671These gifts are subject to the 50% limitation.
3672a. True
3673b. False
3674ANSWER:   False
3675RATIONALE:   The 50% limitation does not apply where the de minimis fringe benefit rule is met
3676(see Chapter 5).
3677POINTS:   1
3678DIFFICULTY:   Easy
3679QUESTION TYPE:   True / False
3680HAS VARIABLES:   False
3681LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3682NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3683STATE STANDARDS:   United States - AK - AICPA: FN- Measurement
3684KEYWORDS:   Bloom's: Comprehension
3685OTHER:   Time: 2 min.
3686DATE CREATED:   12/5/2017 12:24 PM
3687DATE MODIFIED:   7/24/2018 9:58 PM
3688Copyright Cengage Learning. Powered by Cognero. Page 27
3689Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
369055. A taxpayer who claims the standard deduction may be able to claim an office in the home deduction.
3691a. True
3692b. False
3693ANSWER:   True
3694RATIONALE:   The office in the home deduction will be allowed if the taxpayer is self-employed.
3695POINTS:   1
3696DIFFICULTY:   Easy
3697QUESTION TYPE:   True / False
3698HAS VARIABLES:   False
3699LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
3700NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3701STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3702KEYWORDS:   Bloom's: Comprehension
3703OTHER:   Time: 2 min.
3704DATE CREATED:   12/5/2017 12:33 PM
3705DATE MODIFIED:   7/24/2018 9:58 PM
370656. A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.
3707a. True
3708b. False
3709ANSWER:   False
3710RATIONALE:   For deductible contributions, the adjusted basis is zero. For nondeductible
3711contributions, the basis for a traditional IRA is equal to the amount of the
3712contributions.
3713POINTS:   1
3714DIFFICULTY:   Easy
3715QUESTION TYPE:   True / False
3716HAS VARIABLES:   False
3717LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3718NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3719STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3720AICPA: FN-Measurement
3721KEYWORDS:   Bloom's: Knowledge
3722OTHER:   Time: 2 min.
3723DATE CREATED:   11/15/2017 1:15 PM
3724DATE MODIFIED:   7/24/2018 7:07 PM
3725Copyright Cengage Learning. Powered by Cognero. Page 28
3726Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
372757. If a married taxpayer is an active participant in another qualified retirement plan, the traditional IRA deduction
3728phaseout begins at $101,000 of AGI for a joint return in 2018.
3729a. True
3730b. False
3731ANSWER:   True
3732POINTS:   1
3733DIFFICULTY:   Easy
3734QUESTION TYPE:   True / False
3735HAS VARIABLES:   False
3736LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3737NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3738STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3739AICPA: FN-Measurement
3740KEYWORDS:   Bloom's: Knowledge
3741OTHER:   Time: 2 min.
3742DATE CREATED:   11/15/2017 1:15 PM
3743DATE MODIFIED:   7/24/2018 7:07 PM
374458. If an individual is ineligible to make a deductible contribution to a traditional IRA, nondeductible contributions of
3745any amount can be made to a traditional IRA.
3746a. True
3747b. False
3748ANSWER:   False
3749RATIONALE:   Nondeductible contributions up to the statutory limit of $5,500 in 2018 (assuming not
3750eligible for catch up provision) can be made.
3751POINTS:   1
3752DIFFICULTY:   Easy
3753QUESTION TYPE:   True / False
3754HAS VARIABLES:   False
3755LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3756NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3757STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3758AICPA: FN-Measurement
3759KEYWORDS:   Bloom's: Knowledge
3760OTHER:   Time: 2 min.
3761DATE CREATED:   11/15/2017 1:15 PM
3762DATE MODIFIED:   7/24/2018 7:07 PM
3763Copyright Cengage Learning. Powered by Cognero. Page 29
3764Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
376559. The maximum annual contribution to a Roth IRA for an unmarried taxpayer who is age 35 is the smaller of $5,500 or
3766the individual’s compensation for the year in 2018.
3767a. True
3768b. False
3769ANSWER:   True
3770RATIONALE:   The normal statutory limits apply to the Roth IRA as well as to a traditional IRA.
3771POINTS:   1
3772DIFFICULTY:   Easy
3773QUESTION TYPE:   True / False
3774HAS VARIABLES:   False
3775LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3776NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3777STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3778AICPA: FN-Measurement
3779KEYWORDS:   Bloom's: Knowledge
3780OTHER:   Time: 2 min.
3781DATE CREATED:   11/15/2017 1:15 PM
3782DATE MODIFIED:   7/24/2018 7:07 PM
378360. Contributions to a Roth IRA can be made up to the due date (excluding extensions) of the taxpayer’s income tax
3784return.
3785a. True
3786b. False
3787ANSWER:   True
3788RATIONALE:   Contributions to a Roth IRA can be made up to the due date (excluding extensions)
3789of the taxpayer’s income tax return.
3790POINTS:   1
3791DIFFICULTY:   Easy
3792QUESTION TYPE:   True / False
3793HAS VARIABLES:   False
3794LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3795NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3796STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3797AICPA: FN-Measurement
3798KEYWORDS:   Bloom's: Knowledge
3799OTHER:   Time: 2 min.
3800DATE CREATED:   11/15/2017 1:15 PM
3801DATE MODIFIED:   7/24/2018 7:07 PM
3802Copyright Cengage Learning. Powered by Cognero. Page 30
3803Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
380461. An individual, age 40, who is not subject to the phase-out provision may contribute a nondeductible amount to a
3805Roth IRA up to $5,500 per year in 2018.
3806a. True
3807b. False
3808ANSWER:   True
3809RATIONALE:   The $5,500 maximum contribution in 2018 to a Roth IRA is not deductible.
3810Contributions to a Roth IRA are never deductible.
3811POINTS:   1
3812DIFFICULTY:   Easy
3813QUESTION TYPE:   True / False
3814HAS VARIABLES:   False
3815LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3816NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3817STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3818AICPA: FN-Measurement
3819KEYWORDS:   Bloom's: Knowledge
3820OTHER:   Time: 2 min.
3821DATE CREATED:   11/15/2017 1:15 PM
3822DATE MODIFIED:   7/24/2018 7:07 PM
382362. A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year
3824holding period.
3825a. True
3826b. False
3827ANSWER:   True
3828POINTS:   1
3829DIFFICULTY:   Easy
3830QUESTION TYPE:   True / False
3831HAS VARIABLES:   False
3832LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3833NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3834STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3835AICPA: FN-Measurement
3836KEYWORDS:   Bloom's: Knowledge
3837OTHER:   Time: 2 min.
3838DATE CREATED:   11/15/2017 1:15 PM
3839DATE MODIFIED:   7/24/2018 7:07 PM
3840Copyright Cengage Learning. Powered by Cognero. Page 31
3841Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
384263. Distributions from a Roth IRA that are subject to taxation are treated first as from earnings and last as from
3843contributions.
3844a. True
3845b. False
3846ANSWER:   False
3847RATIONALE:   Withdrawals from a Roth IRA that are subject to taxation are treated as from
3848contributions (i.e., tax-free return of capital) first and from earnings last.
3849POINTS:   1
3850DIFFICULTY:   Easy
3851QUESTION TYPE:   True / False
3852HAS VARIABLES:   False
3853LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3854NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3855STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3856AICPA: FN-Measurement
3857KEYWORDS:   Bloom's: Knowledge
3858OTHER:   Time: 2 min.
3859DATE CREATED:   11/15/2017 1:15 PM
3860DATE MODIFIED:   7/24/2018 7:07 PM
386164. On February 1, 2018, Tuan withdrew $15,000 from his IRA #1.  He deposited the funds back into IRA #1 within 60
3862days (a"rollover").  Tuan may do one more nontaxable rollover distribution from either IRA #1 or IRA #2 in April
38632018.
3864a. True
3865b. False
3866ANSWER:   False
3867RATIONALE:   An individual may only do one rollover within any 12-month period regardless of how
3868many IRAs he has. In contrast, an individual may do an unlimited number of trustee
3869to trustee rollovers.
3870POINTS:   1
3871DIFFICULTY:   Easy
3872QUESTION TYPE:   True / False
3873HAS VARIABLES:   False
3874LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3875NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3876STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3877AICPA: FN-Measurement
3878KEYWORDS:   Bloom's: Knowledge
3879OTHER:   Time: 2 min.
3880DATE CREATED:   11/15/2017 1:15 PM
3881DATE MODIFIED:   7/24/2018 7:07 PM
3882Copyright Cengage Learning. Powered by Cognero. Page 32
3883Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
388465. An individual is considered an active participant in an employer-sponsored retirement plan merely because an
3885individual’s spouse is an active participant for any part of a plan year in applying the IRA phase-out provision.
3886a. True
3887b. False
3888ANSWER:   False
3889RATIONALE:   An individual is not considered an active participant in a qualified plan merely
3890because the individual’s spouse is an active participant in such a plan for any part of
3891a plan year. Thus, most non-working spouses still can take a full $5,500 deduction in
38922018 for an IRA contribution regardless of the participation status of the spouse.
3893However, if the couple’s AGI is above $189,000, the phase-out of the deduction
3894begins at $189,000 and ends at $199,000 (phase-out over a $10,000 range).
3895POINTS:   1
3896DIFFICULTY:   Easy
3897QUESTION TYPE:   True / False
3898HAS VARIABLES:   False
3899LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3900NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3901STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3902AICPA: FN-Measurement
3903KEYWORDS:   Bloom's: Knowledge
3904OTHER:   Time: 5 min.
3905DATE CREATED:   11/15/2017 1:15 PM
3906DATE MODIFIED:   7/24/2018 7:07 PM
390766. For the spousal IRA provision to apply, a joint return must be filed.
3908a. True
3909b. False
3910ANSWER:   True
3911POINTS:   1
3912DIFFICULTY:   Easy
3913QUESTION TYPE:   True / False
3914HAS VARIABLES:   False
3915LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
3916NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3917STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
3918AICPA: FN-Measurement
3919KEYWORDS:   Bloom's: Knowledge
3920OTHER:   Time: 2 min.
3921DATE CREATED:   11/15/2017 1:15 PM
3922DATE MODIFIED:   7/24/2018 7:07 PM
3923Copyright Cengage Learning. Powered by Cognero. Page 33
3924Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
3925Multiple Choice
392667. Aiden performs services for Lucas. Which, if any, of the following factors indicate that Aiden is an employee, rather
3927than an independent contractor?
3928a. Aiden provides his own support services (e.g., work assistants).
3929b. Aiden obtained his training (i.e., job skills) from his father.
3930c. Aiden is paid based on hours worked.
3931d. Aiden makes his services available to others.
3932e. None of these.
3933ANSWER:   c
3934RATIONALE:   Choices a., b., and d. reflect independent contractor status.
3935POINTS:   1
3936DIFFICULTY:   Easy
3937QUESTION TYPE:   Multiple Choice
3938HAS VARIABLES:   False
3939LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
3940NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3941STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3942KEYWORDS:   Bloom's: Comprehension
3943OTHER:   Time: 2 min.
3944DATE CREATED:   11/15/2017 1:09 PM
3945DATE MODIFIED:   7/24/2018 9:58 PM
3946Copyright Cengage Learning. Powered by Cognero. Page 34
3947Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
394868. Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent
3949contractor, rather than an employee?
3950a. Ryan sets the work schedule.
3951b. Ryan provides the tools used.
3952c. Jordan follows a specific set of instructions from Ryan to complete tasks.
3953d. Jordan is paid based on tasks performed.
3954e. None of these.
3955ANSWER:   d
3956RATIONALE:   Choices a., b., and c. reflect employee status.
3957POINTS:   1
3958DIFFICULTY:   Easy
3959QUESTION TYPE:   Multiple Choice
3960HAS VARIABLES:   False
3961LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
3962NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3963STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3964KEYWORDS:   Bloom's: Comprehension
3965OTHER:   Time: 2 min.
3966DATE CREATED:   11/15/2017 1:09 PM
3967DATE MODIFIED:   7/24/2018 9:58 PM
396869. Which, if any, of the following factors is not a characteristic of independent contractor status?
3969a. Work-related expenses are reported on Form 2106.
3970b. Receipt of a Form 1099 reporting payments received.
3971c. Workplace fringe benefits are not available.
3972d. Services are performed for more than one party.
3973e. None of these.
3974ANSWER:   a
3975POINTS:   1
3976DIFFICULTY:   Easy
3977QUESTION TYPE:   Multiple Choice
3978HAS VARIABLES:   False
3979LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
3980NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
3981STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
3982KEYWORDS:   Bloom's: Comprehension
3983OTHER:   Time: 2 min.
3984DATE CREATED:   11/15/2017 1:09 PM
3985DATE MODIFIED:   7/24/2018 9:58 PM
3986Copyright Cengage Learning. Powered by Cognero. Page 35
3987Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
398870. Tax advantages of being self-employed (rather than being an employee) include:
3989a. The self-employment tax is lower than the Social Security tax.
3990b. The overall limitation (50%) on meals does not apply.
3991c. An office in the home deduction (for AGI) is available.
3992d. Job-related expenses are deductions for AGI.
3993e. Both c. and d. are advantages.
3994ANSWER:   e
3995RATIONALE:   The self-employment tax is double what the employee pays (choice a.). The overall
3996limitation on meals also applies to self-employed taxpayers (choice b.). Job-related
3997expenses are reported on Schedule C which results in deduction-for-AGI treatment
3998(choice d.). The deduction for office in the home for a self-employed individual is a
3999deduction for AGI.
4000POINTS:   1
4001DIFFICULTY:   Easy
4002QUESTION TYPE:   Multiple Choice
4003HAS VARIABLES:   False
4004LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
4005NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4006STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4007AICPA: FN-Measurement
4008KEYWORDS:   Bloom's: Knowledge
4009OTHER:   Time: 3 min.
4010DATE CREATED:   11/15/2017 1:09 PM
4011DATE MODIFIED:   7/24/2018 9:58 PM
4012Copyright Cengage Learning. Powered by Cognero. Page 36
4013Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
401471. A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the
4015following reasons:
4016a. Avoids the overall limitation (50%)  as to business meals.
4017b. All of the self-employment tax is deductible for income tax purposes.
4018c. Work-related expenses of an independent contractor are deductible for AGI.
4019d. A Schedule C does not have to be filed.
4020e. None of these.
4021ANSWER:   c
4022RATIONALE:   Independent contractors are also subject to the overall limitation (50%)  (choice a.).
4023All of the self-employment tax is not deductible (choice b.). Work-related expenses
4024of an independent contractor are deductions for AGI. The work-related expenses of
4025an employee are not deductible.(choice c.). Work-related expenses will have to be
4026reported on Schedule C (choice d.).
4027POINTS:   1
4028DIFFICULTY:   Easy
4029QUESTION TYPE:   Multiple Choice
4030HAS VARIABLES:   False
4031LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
4032NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4033STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4034KEYWORDS:   Bloom's: Comprehension
4035OTHER:   Time: 2 min.
4036DATE CREATED:   11/15/2017 1:09 PM
4037DATE MODIFIED:   7/24/2018 9:58 PM
4038Copyright Cengage Learning. Powered by Cognero. Page 37
4039Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
404072. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the
4041following reasons:
4042a. To claim unreimbursed work-related expenses as a deduction for AGI.
4043b. To avoid the self-employment tax.
4044c. To avoid the overall limitation (50%)  on unreimbursed business entertainment expenses.
4045d. To avoid the limitations on unreimbursed work-related expenses.
4046e. None of these.
4047ANSWER:   b
4048RATIONALE:   The self-employment tax is twice the Social Security equivalent imposed on
4049employees (choice b.). Most unreimbursed employee expenses are deductions from
4050AGI as miscellaneous itemized deductions; these deductions have been susptended
4051from 2018 through 2025 (choice a. and choice d.). Unreimbursed entertainment
4052expenses will be subject to the overall limitation (50%)  (choice c.).
4053POINTS:   1
4054DIFFICULTY:   Easy
4055QUESTION TYPE:   Multiple Choice
4056HAS VARIABLES:   False
4057LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
4058NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4059STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4060KEYWORDS:   Bloom's: Comprehension
4061OTHER:   Time: 2 min.
4062DATE CREATED:   11/15/2017 1:09 PM
4063DATE MODIFIED:   7/24/2018 9:58 PM
4064Copyright Cengage Learning. Powered by Cognero. Page 38
4065Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
406673. Statutory employees:
4067a. Report their expenses as miscellaneous itemized deductions.
4068b. Include common law employees.
4069c. Are subject to income tax withholdings.
4070d. Claim their expenses as deductions for AGI.
4071e. None of these.
4072ANSWER:   d
4073RATIONALE:   Their expenses are for AGI deductions and reported on Schedule C, not as
4074miscellaneous itemized deductions (choice a.). Although subject to Social Security
4075tax, they are not subject to income tax withholdings (choice c.). Statutory employees
4076are not common law employees (choice b.). Expenses are deductions for AGI
4077(choice d.).
4078POINTS:   1
4079DIFFICULTY:   Easy
4080QUESTION TYPE:   Multiple Choice
4081HAS VARIABLES:   False
4082LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-01 - LO: 9-01
4083NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4084STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4085KEYWORDS:   Bloom's: Knowledge
4086OTHER:   Time: 5 min.
4087DATE CREATED:   11/15/2017 1:09 PM
4088DATE MODIFIED:   7/24/2018 7:07 PM
4089Copyright Cengage Learning. Powered by Cognero. Page 39
4090Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
409174. Which of the following would constitute an employer-employee relationship?
4092a. A plumber who comes to your home to fix a leaking faucet.
4093b. A CPA who prepares a client’s tax return.
4094c. A physician who hires a nurse to help her with patient screening and preliminary tests in the office.
4095d. A gardener who takes care of individual lawns for a monthly fee.
4096e. None of the above would constitute an employer-employee relationship.
4097ANSWER:   c
4098RATIONALE:   A nurse hired by a doctor would be considered an employee.
4099POINTS:   1
4100DIFFICULTY:   Easy
4101QUESTION TYPE:   Multiple Choice
4102HAS VARIABLES:   False
4103LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
4104NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4105STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4106KEYWORDS:   Bloom's: Comprehension
4107OTHER:   Time: 5 min.
4108DATE CREATED:   12/5/2017 12:39 PM
4109DATE MODIFIED:   7/24/2018 9:58 PM
4110Copyright Cengage Learning. Powered by Cognero. Page 40
4111Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
411275. Corey is the city sales manager for “RIBS,” a national fast food franchise. Every working day, Corey drives his car
4113as follows:
4114Miles
4115Home to office 20
4116Office to RIBS No. 1 15
4117RIBS No. 1 to No. 2 18
4118RIBS No. 2 to No. 3 13
4119RIBS No. 3 to home 30
4120Corey renders an adequate accounting to his employer.  As a result, Corey’s reimburseable mileage is:
4121a. 0 miles.
4122b. 50 miles.
4123c. 66 miles.
4124d. 76 miles.
4125e. None of these.
4126ANSWER:   e
4127RATIONALE:   15 miles + 18 miles + 13 miles = 46 miles. The mileage for driving from his home to
4128the office (20 miles) and from the last worksite to home (30 miles) is not deductible.
4129POINTS:   1
4130DIFFICULTY:   Easy
4131QUESTION TYPE:   Multiple Choice
4132HAS VARIABLES:   False
4133LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4134NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4135STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4136AICPA: FN-Measurement
4137KEYWORDS:   Bloom's: Application
4138OTHER:   Time: 5 min.
4139DATE CREATED:   11/15/2017 1:09 PM
4140DATE MODIFIED:   7/24/2018 9:58 PM
4141Copyright Cengage Learning. Powered by Cognero. Page 41
4142Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
414376. Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons
4144living in their residences. During the day he drives his car as follows.
4145Miles
4146Aaron’s home to patient Louise 12
4147Patient Louise to patient Carl 4
4148Patient Carl to patient Betty 6
4149Patient Betty to Aaron’s home 10
4150Aaron’s deductible mileage for each workday is:
4151a. 10 miles.
4152b. 12 miles.
4153c. 20 miles.
4154d. 22 miles.
4155e. 32 miles.
4156ANSWER:   e
4157RATIONALE:   Since Aaron’s office is in his home, he has no nondeductible commuting mileage—all
4158of the mileage is deductible.
4159POINTS:   1
4160DIFFICULTY:   Easy
4161QUESTION TYPE:   Multiple Choice
4162HAS VARIABLES:   False
4163LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4164NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4165STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4166AICPA: FN-Measurement
4167KEYWORDS:   Bloom's: Application
4168OTHER:   Time: 5 min.
4169DATE CREATED:   11/15/2017 1:09 PM
4170DATE MODIFIED:   7/24/2018 9:58 PM
4171Copyright Cengage Learning. Powered by Cognero. Page 42
4172Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
417377. When using the automatic mileage method, which, if any, of the following expenses also can be claimed?
4174a. Engine tune-up.
4175b. Parking.
4176c. Interest on automobile loan.
4177d. MACRS depreciation.
4178e. None of these.
4179ANSWER:   b
4180RATIONALE:   Choices a., c., and d. would be allowed under the actual cost method.
4181POINTS:   1
4182DIFFICULTY:   Easy
4183QUESTION TYPE:   Multiple Choice
4184HAS VARIABLES:   False
4185LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4186NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4187STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4188AICPA: FN-Measurement
4189KEYWORDS:   Bloom's: Knowledge
4190OTHER:   Time: 2 min.
4191DATE CREATED:   11/15/2017 1:09 PM
4192DATE MODIFIED:   7/24/2018 9:58 PM
4193Copyright Cengage Learning. Powered by Cognero. Page 43
4194Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
419578. In which, if any, of the following situations is the automatic mileage available?
4196a. A limousine to be rented by the owner for special occasions (e.g., weddings, high school proms).
4197b. The auto belongs to taxpayer’s mother.
4198c. One of seven cars used to deliver pizzas.
4199d. MACRS statutory percentage method has been claimed on the automobile.
4200e. None of these.
4201ANSWER:   e
4202RATIONALE:   Multiple vehicles (5 or more) cannot qualify (choice c.) nor can vehicles held for hire
4203(choice a.). The car must be owned or leased by the taxpayer (choice b.).
4204POINTS:   1
4205DIFFICULTY:   Easy
4206QUESTION TYPE:   Multiple Choice
4207HAS VARIABLES:   False
4208LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4209NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4210STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4211AICPA: FN-Measurement
4212KEYWORDS:   Bloom's: Comprehension
4213OTHER:   Time: 2 min.
4214DATE CREATED:   11/15/2017 1:09 PM
4215DATE MODIFIED:   7/24/2018 9:58 PM
4216Copyright Cengage Learning. Powered by Cognero. Page 44
4217Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
421879. Under the actual cost method, which, if any, of the following expenses will not be allowed?
4219a. Car registration fees.
4220b. Auto insurance.
4221c. 
4222c. 
4223Interest expense on a car loan (taxpayer is an employee).
4224Interest expense on a car loan (taxpayer is an employee).
4225d. Dues to auto clubs.
4226e. All of these will be allowed.
4227ANSWER:   c
4228RATIONALE:   Interest on a car loan is deductible only by a self-employed taxpayer (not an
4229employee)—choice c.
4230POINTS:   1
4231DIFFICULTY:   Easy
4232QUESTION TYPE:   Multiple Choice
4233HAS VARIABLES:   False
4234LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4235NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4236STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4237AICPA: FN-Measurement
4238KEYWORDS:   Bloom's: Comprehension
4239OTHER:   Time: 2 min.
4240DATE CREATED:   11/15/2017 1:09 PM
4241DATE MODIFIED:   7/24/2018 9:58 PM
4242Copyright Cengage Learning. Powered by Cognero. Page 45
4243Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
424480. Allowing for the overall limitation (50% reduction for meals), which of the following trips, if any, will qualify for the
4245travel expense deduction?
4246a. Dr. Jones, a self-employed general dentist, attends a two-day seminar on developing a dental practice.
4247b. Dr. Brown, a self-employed surgeon, attends a two-day seminar on financial planning.
4248c. Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving
4249his language skills.
4250d. Myrna went on a two-week vacation in Boston. While there, she visited her employer’s home office to have
4251lunch with former co-workers.
4252e. All of these.
4253ANSWER:   a
4254POINTS:   1
4255DIFFICULTY:   Easy
4256QUESTION TYPE:   Multiple Choice
4257HAS VARIABLES:   False
4258LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4259NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4260STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4261KEYWORDS:   Bloom's: Comprehension
4262OTHER:   Time: 5 min.
4263DATE CREATED:   11/15/2017 1:09 PM
4264DATE MODIFIED:   7/24/2018 9:58 PM
4265Copyright Cengage Learning. Powered by Cognero. Page 46
4266Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
426781. During the year, John (a self-employed management consultant)  went from Milwaukee to Alaska on business.
4268Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his
4269expenses for the trip are:
4270Air fare $3,200
4271Lodging 900
4272Meals 800
4273Entertainment 600
4274Presuming no reimbursement, deductible expenses are:
4275a. $3,200.
4276b. $3,900.
4277c. $4,500.
4278d. $5,500.
4279e. None of these.
4280ANSWER:   c
4281RATIONALE:   $3,200 + $900 + $400 [50% x $800] = $4,500. No allocation is required for domestic
4282transportation costs (i.e., the airfare) since the trip is primarily business related.
4283POINTS:   1
4284DIFFICULTY:   Moderate
4285QUESTION TYPE:   Multiple Choice
4286HAS VARIABLES:   False
4287LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4288NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4289STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4290AICPA: FN-Measurement
4291KEYWORDS:   Bloom's: Application
4292OTHER:   Time: 10 min.
4293DATE CREATED:   11/15/2017 1:09 PM
4294DATE MODIFIED:   7/24/2018 9:58 PM
4295Copyright Cengage Learning. Powered by Cognero. Page 47
4296Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
429782. During the year, Sophie (a self-employed marketing consultant)  went from Omaha to Lima (Peru) on business. She
4298spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie’s
4299expenses are:
4300Air fare $3,000
4301Lodging 800
4302Meals 600
4303Entertainment 400
4304Sophie’s deductible expenses are:
4305a. $4,300.
4306b. $2,900.
4307c. $2,800.
4308d. $2,500.
4309e. None of these.
4310ANSWER:   b
4311RATIONALE:   $1,800 [60% (6 days business/10 day trip) × $3,000 (air fare)] + $800 + $300 [50% x
4312$600] = $2,900. The air fare has to be allocated as Sophie did not meet either the
4313seven days (or less) or less than 25% personal use exceptions for foreign travel.
4314POINTS:   1
4315DIFFICULTY:   Moderate
4316QUESTION TYPE:   Multiple Choice
4317HAS VARIABLES:   False
4318LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4319NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4320STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4321AICPA: FN-Measurement
4322KEYWORDS:   Bloom's: Application
4323OTHER:   Time: 10 min.
4324DATE CREATED:   11/15/2017 1:09 PM
4325DATE MODIFIED:   7/24/2018 9:58 PM
4326Copyright Cengage Learning. Powered by Cognero. Page 48
4327Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
432883. During the year, Walt (self-employed) travels from Seattle to Tokyo (Japan) on business. His time was spent as
4329follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as
4330follows (meals and lodging reflect only the business portion): 
4331Air fare $3,000
4332Lodging 2,000
4333Meals 1,000
4334Presuming no reimbursement, Walt’s deductible expenses are:
4335a. $3,500.
4336b. $4,500.
4337c. $5,500.
4338d. $6,000.
4339e. None of these.
4340ANSWER:   c
4341RATIONALE:   $3,000 + $2,000 + (50% × $1,000) = $5,500 . Since the 7-days-or-less exception
4342applies, the full airfare ($3,000) is allowed.
4343POINTS:   1
4344DIFFICULTY:   Moderate
4345QUESTION TYPE:   Multiple Choice
4346HAS VARIABLES:   False
4347LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4348NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4349STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4350AICPA: FN-Measurement
4351KEYWORDS:   Bloom's: Application
4352OTHER:   Time: 10 min.
4353DATE CREATED:   11/15/2017 1:09 PM
4354DATE MODIFIED:   7/24/2018 9:58 PM
4355Copyright Cengage Learning. Powered by Cognero. Page 49
4356Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
435784. Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI
4358approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following
4359nonreimbursed expenses: $4,100 (tuition), $300 (books), $200 (other school supplies), and $200 (transportation to and
4360from campus). As to the MBA program, Rachel has a:
4361a. Deduction for and deduction from AGI of $0.
4362b. Deduction for AGI of $4,000 and deduction from AGI of $0.
4363c. Deduction for AGI of $4,000 and deduction from AGI of $800.
4364d. Deduction for AGI of $4,100 and deduction from AGI of $700.
4365e. None of these.
4366ANSWER:   b
4367RATIONALE:   Section 222 allows up to $4,000 for qualified tuition and related expenses. As Rachel
4368spent $4,100, she can claim only $4,000 as a deduction for AGI. The remaining
4369expenses of $800 ($100 + $300 + $200 + $200) are miscellaneous itemized
4370deductions (deductions from AGI), and are not deductible from 2018 through 2025.
4371POINTS:   1
4372DIFFICULTY:   Moderate
4373QUESTION TYPE:   Multiple Choice
4374HAS VARIABLES:   False
4375LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4376NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4377STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4378AICPA: FN-Measurement
4379KEYWORDS:   Bloom's: Application
4380OTHER:   Time: 10 min.
4381DATE CREATED:   11/15/2017 1:09 PM
4382DATE MODIFIED:   7/24/2018 9:58 PM
4383Copyright Cengage Learning. Powered by Cognero. Page 50
4384Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
438585. The § 222 deduction for tuition and related expenses is available:
4386a. Only if the taxpayer itemizes deductions from AGI.
4387b. To deduct that portion of the tuition in excess of that allowed under the lifetime learning credit.
4388c. To cover the tuition of a son who does not qualify as taxpayer’s dependent.
4389d. Only if job related.
4390e. None of these.
4391ANSWER:   e
4392RATIONALE:   The § 222 deduction is a deduction for AGI (choice a.). The deduction is not
4393available when the lifetime learning credit is used (choice b.). The student involved is
4394not a dependent of the taxpayer (choice c.). The education need not be job related
4395(choice d.).
4396POINTS:   1
4397DIFFICULTY:   Easy
4398QUESTION TYPE:   Multiple Choice
4399HAS VARIABLES:   False
4400LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4401NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4402STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4403AICPA: FN-Measurement
4404KEYWORDS:   Bloom's: Comprehension
4405OTHER:   Time: 2 min.
4406DATE CREATED:   11/15/2017 1:09 PM
4407DATE MODIFIED:   7/24/2018 9:58 PM
4408Copyright Cengage Learning. Powered by Cognero. Page 51
4409Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
441086. The § 222 deduction for tuition and related expenses is available:
4411a. Regardless of the amount of a taxpayer’s MAGI.
4412b. To cover room and board expenses to attend college.
4413c. To a married taxpayer filing a separate return.
4414d. Even if a taxpayer does claim the standard deduction.
4415e. None of these.
4416ANSWER:   d
4417RATIONALE:   No deduction at all is allowed if the taxpayer has AGI in excess of $80,000
4418($160,000 in the case of a joint return) (choice a.). Section 222 does not cover room
4419and board (choice b.). In order to claim a deduction under § 222, a married taxpayer
4420must file a joint return (choice c.). Since § 222 provides for a deduction for AGI, it
4421does not matter if a taxpayer claims the standard deduction.
4422POINTS:   1
4423DIFFICULTY:   Easy
4424QUESTION TYPE:   Multiple Choice
4425HAS VARIABLES:   False
4426LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4427NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4428STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4429AICPA: FN-Measurement
4430KEYWORDS:   Bloom's: Comprehension
4431OTHER:   Time: 5 min.
4432DATE CREATED:   11/15/2017 1:09 PM
4433DATE MODIFIED:   7/24/2018 9:58 PM
4434Copyright Cengage Learning. Powered by Cognero. Page 52
4435Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
443687. Which, if any, of the following is subject to an overall limitation on meals in 2018?
4437a. Meals provided to employees during a business meeting.
4438b. Meals provided at cost to employees by a cafeteria funded by the employer.
4439c. Fourth of July company picnic for employees.
4440d. Meals provided to employees during a training event or retreat at an off-site location.
4441e. All of these.
4442ANSWER:   b
4443RATIONALE:   Subsidized eating facilities are subject to a 50% limitation beginning in 2018 (and no
4444deductions will be allowed beginning in 2026).
4445POINTS:   1
4446DIFFICULTY:   Easy
4447QUESTION TYPE:   Multiple Choice
4448HAS VARIABLES:   False
4449LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4450NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4451STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4452AICPA: FN-Measurement
4453KEYWORDS:   Bloom's: Knowledge
4454OTHER:   Time: 5 min.
4455DATE CREATED:   11/15/2017 1:09 PM
4456DATE MODIFIED:   7/24/2018 9:58 PM
4457Copyright Cengage Learning. Powered by Cognero. Page 53
4458Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
445988. Robert entertains several of his key clients on January 1 of the current year. Expenses paid by Robert are as follows:
4460Cab fare $ 60
4461Cover charge at supper club 200
4462Dinner at club 800
4463Tips to waiter 160
4464Presuming proper substantiation, Robert’s deduction is:
4465a. $610.
4466b. $640.
4467c. $740.
4468d. $1,220.
4469e. None of these.
4470ANSWER:   e
4471RATIONALE:   With the TCJA of 2017, entertainment is no longer deductible.
4472POINTS:   1
4473DIFFICULTY:   Easy
4474QUESTION TYPE:   Multiple Choice
4475HAS VARIABLES:   False
4476LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4477NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4478STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4479AICPA: FN-Measurement
4480KEYWORDS:   Bloom's: Application
4481OTHER:   Time: 5 min.
4482DATE CREATED:   11/15/2017 1:09 PM
4483DATE MODIFIED:   7/24/2018 9:58 PM
4484Copyright Cengage Learning. Powered by Cognero. Page 54
4485Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
448689. Ralph made the following business gifts during the year.
4487To Robert (a key client) at Christmas $50
4488To Angel (Robert’s 8-year old daughter) on her birthday 20
4489To Art (Ralph’s secretary) on his birthday ($3 was for gift wrapping) 30
4490To Paige (Ralph’s boss) at Christmas 40
4491Presuming proper substantiation, Ralph’s deduction is:
4492a. $0.
4493b. $53.
4494c. $73.
4495d. $78.
4496e. $98.
4497ANSWER:   b
4498RATIONALE:   $25 (Robert) + $28 (Art) = $53. The gift to Angel counts as a gift to Robert (whose
4499$25 limit already has been reached). Gifts to superiors (Paige) cannot be deducted.
4500POINTS:   1
4501DIFFICULTY:   Easy
4502QUESTION TYPE:   Multiple Choice
4503HAS VARIABLES:   False
4504LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4505NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4506STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4507AICPA: FN-Measurement
4508KEYWORDS:   Bloom's: Application
4509OTHER:   Time: 5 min.
4510DATE CREATED:   11/15/2017 1:09 PM
4511DATE MODIFIED:   7/24/2018 9:58 PM
4512Copyright Cengage Learning. Powered by Cognero. Page 55
4513Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
451490. Which, if any, of the following is an advantage of using the simplified method for determining the office in the home
4515deduction?
4516a. No depreciation on the personal residence has to be computed.
4517b. The exclusive use requirement does not have to be met.
4518c. Allows the expense to be classified as a deduction for AGI.
4519d. Can also be used for a residence that is rented (not owned) by the taxpayer.
4520e. None of these.
4521ANSWER:   a
4522RATIONALE:   The exclusive use requirement (choice b.) always has to be met for an office in the
4523home deduction to be available. The method chosen for arriving at the deduction has
4524no relevance to how it is classified (i.e., deduction for or from AGI)--choice c. Either
4525the simplified method or the regular method can be used for rented property (choice
4526d.).
4527POINTS:   1
4528DIFFICULTY:   Easy
4529QUESTION TYPE:   Multiple Choice
4530HAS VARIABLES:   False
4531LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4532NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4533STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4534AICPA: FN-Measurement
4535KEYWORDS:   Bloom's: Application
4536OTHER:   Time: 5 min.
4537DATE CREATED:   11/15/2017 1:09 PM
4538DATE MODIFIED:   7/24/2018 9:58 PM
4539Copyright Cengage Learning. Powered by Cognero. Page 56
4540Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
454191. Which of the following expenses, if any, qualify as deductible?
4542a. Contributions to a Coverdell Education Savings Account (CESA).
4543b. Contributions to a qualified tuition program (§ 529 plan).
4544c. Job hunting expense of FBI agent who applies for the job of city manager of Beaumont (TX).
4545d. Contribution to a traditional IRA.
4546e. None of these.
4547ANSWER:   d
4548RATIONALE:   Although the benefits paid out are nontaxable, neither the contribution to CESAs
4549(choice a.) nor § 529 plans (choice b.) are deductible. Since being an FBI agent and
4550a city manager do not appear to be in the same trade or business (law enforcement),
4551the job hunting expense does not qualify (choice c.). Further, even if allowed, the job
4552hunting expenses would be a miscellaneous itemized deduction (and not allowed
4553from 2018 through 2025).
4554POINTS:   1
4555DIFFICULTY:   Easy
4556QUESTION TYPE:   Multiple Choice
4557HAS VARIABLES:   False
4558LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4559NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4560STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4561KEYWORDS:   Bloom's: Comprehension
4562OTHER:   Time: 5 min.
4563DATE CREATED:   11/15/2017 1:09 PM
4564DATE MODIFIED:   7/24/2018 9:58 PM
4565Copyright Cengage Learning. Powered by Cognero. Page 57
4566Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
456792. Which, if any, of the following expenses are deductible?
4568a. Safety shoes purchased by an plumber employed by a company.
4569b. Bottled water purchased by a gig driver for passengers.
4570c. Unreimbursed employee expenses.
4571d. Tax return preparation fee paid by a non-employed retiree.
4572e. None of these.
4573ANSWER:   b
4574RATIONALE:   All employee expenses, unless reimbursed pursuant to an adequate accounting, are
4575not deductible (choices a. and c.). Tax preparation fees, unless related to a business,
4576are not deductible.
4577POINTS:   1
4578DIFFICULTY:   Easy
4579QUESTION TYPE:   Multiple Choice
4580HAS VARIABLES:   False
4581LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
4582NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4583STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4584AICPA: FN-Measurement
4585KEYWORDS:   Bloom's: Knowledge
4586OTHER:   Time: 5 min.
4587DATE CREATED:   11/15/2017 1:09 PM
4588DATE MODIFIED:   7/24/2018 9:58 PM
4589Copyright Cengage Learning. Powered by Cognero. Page 58
4590Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
459193. In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions,
4592which of the following items involve self-employed?
4593a. Schedule C of Form 1040.
4594b. Form W-4.
4595c. Form W-2.
4596d. Schedule A of Form 1040.
4597e. None of these.
4598ANSWER:   a
4599RATIONALE:   Form W-4 is used by employees to assist their employer(s) withhold taxes
4600appropriately (choice b.). Schedule C is used to list the job-related income and
4601expenses of self-employed taxpayers (choice a.). Form W-2 reports the wages
4602earned by employees (choice c.). Income earned by self-employed persons is often
4603shown on Form 1099. The results of Form 2106 (see choice b.) are transferred to
4604Schedule A (choice d.)
4605POINTS:   1
4606DIFFICULTY:   Easy
4607QUESTION TYPE:   Multiple Choice
4608HAS VARIABLES:   False
4609LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
4610NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4611STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4612AICPA: FN-Measurement
4613KEYWORDS:   Bloom's: Knowledge
4614OTHER:   Time: 3 min.
4615DATE CREATED:   11/15/2017 1:09 PM
4616DATE MODIFIED:   7/24/2018 9:58 PM
4617Copyright Cengage Learning. Powered by Cognero. Page 59
4618Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
461994. Which, if any, of the following factors is a characteristic of independent contractor status?
4620a. Services are performed for more than one business.
4621b. Receipt of a Form 1099 reporting payments received.
4622c. Workplace fringe benefits are not available.
4623d. Work-related income and expenses are reported on Schedule C (Form 1040).
4624e. All of the above are characteristic of independent contractor status.
4625ANSWER:   e
4626RATIONALE:   All of these might indicate that an individual is an independent contractor.
4627POINTS:   1
4628DIFFICULTY:   Easy
4629QUESTION TYPE:   Multiple Choice
4630HAS VARIABLES:   False
4631LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
4632NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4633STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4634KEYWORDS:   Bloom's: Comprehension
4635OTHER:   Time: 5 min.
4636DATE CREATED:   12/5/2017 12:38 PM
4637DATE MODIFIED:   7/24/2018 9:58 PM
463895. Under the actual expense method, which, if any, of the following expenses will not be allowed?
4639a. Parking fines incurred during business use of a car.
4640b. Interest expense on a car loan (taxpayer is self-employed).
4641c. Auto insurance.
4642d. Auto club dues.
4643e. None of the above.
4644ANSWER:   a
4645RATIONALE:   Fines and penalties are not deductible.
4646POINTS:   1
4647DIFFICULTY:   Easy
4648QUESTION TYPE:   Multiple Choice
4649HAS VARIABLES:   False
4650NATIONAL STANDARDS:  United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4651STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4652KEYWORDS:   Bloom's: Comprehension
4653OTHER:   Time: 5 min.
4654DATE CREATED:   12/5/2017 12:41 PM
4655DATE MODIFIED:   12/9/2017 11:06 AM
4656Copyright Cengage Learning. Powered by Cognero. Page 60
4657Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
465896. Which of the following expenses, if any, qualify as deductible in 2018?
4659a. Contribution to a Roth IRA.
4660b. Costs involved in maintaining an office in the home by a self-employed insurance adjuster. Taxpayer’s wife
4661also uses the office as a meeting place for her bridge club.
4662c. Cost of moving to first job location. Taxpayer just graduated from college.
4663d. Job hunting expenses of a fishing guide to become an insurance salesman.
4664e. None of the above.
4665ANSWER:   e
4666RATIONALE:   A contribution to a Roth IRA is not deductible. An office in the home deduction is
4667not allowed because the location is not used exclusively for business. Moving
4668expenses are not allowed as a deduction from 2018 through 2025. Job hunting
4669expenses are not allowed because a change from fishing guide to insurance
4670salesman is a different trade or business.
4671POINTS:   1
4672DIFFICULTY:   Easy
4673QUESTION TYPE:   Multiple Choice
4674HAS VARIABLES:   False
4675LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-05 - LO: 9-05
4676CMPV.SWFT.LO: 9-09 - LO: 9-09
4677NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4678STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4679KEYWORDS:   Bloom's: Comprehension
4680OTHER:   Time: 5 min.
4681DATE CREATED:   12/5/2017 12:45 PM
4682DATE MODIFIED:   7/24/2018 7:07 PM
4683Copyright Cengage Learning. Powered by Cognero. Page 61
4684Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
468597. In which of the following plans is this statement true: A deduction is allowed for contributions to the plan, and no
4686income tax consequences result from distributions to the participant at retirement.
4687a. Roth IRAs.
4688b. Traditional IRAs.
4689c. Keogh (H.R. 10) plans.
4690d. Both b. and c., but not a.
4691e. None of the above.
4692ANSWER:   e
4693RATIONALE:   A deduction is allowed for contributions to traditional IRAs and Keogh (H.R. 10)
4694plans (choices b. and c.) but not to Roth IRAs (choice a.). Distributions are free of
4695income tax in the case of Roth IRAs (choice a.) but not for traditional IRAs and
4696Keogh (H.R. 10) plans (choices b. and c.) Thus, the combination of a deduction and
4697tax-free distributions does not exist (choice e.).
4698POINTS:   1
4699DIFFICULTY:   Easy
4700QUESTION TYPE:   Multiple Choice
4701HAS VARIABLES:   False
4702LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
4703NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4704STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4705KEYWORDS:   Bloom's: Comprehension
4706OTHER:   Time: 5 min.
4707DATE CREATED:   12/5/2017 12:47 PM
4708DATE MODIFIED:   7/24/2018 9:58 PM
4709Copyright Cengage Learning. Powered by Cognero. Page 62
4710Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
471198. Which of the following miscellaneous expenses is deductible in 2018?
4712a. Unreimbursed employee business expenses.
4713b. Job hunting expenses.
4714c. Union dues.
4715d. Losses from Ponzi-type investment schemes.
4716e. All of the above expenses are miscellaneous itemized deductions.
4717ANSWER:   d
4718RATIONALE:   Losses from Ponzi-type investment schemes are miscellaneous itemized deductions,
4719but are not subject to the 2%-of-AGI limitation. Items a., b., and c. are all subject to
4720the 2%-of-AGI limitation and not deductible from 2018 through 2025.
4721POINTS:   1
4722DIFFICULTY:   Easy
4723QUESTION TYPE:   Multiple Choice
4724HAS VARIABLES:   False
4725LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-09 - LO: 9-09
4726NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4727STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4728KEYWORDS:   Bloom's: Comprehension
4729OTHER:   Time: 5 min.
4730DATE CREATED:   12/5/2017 12:48 PM
4731DATE MODIFIED:   7/24/2018 7:07 PM
4732Copyright Cengage Learning. Powered by Cognero. Page 63
4733Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
473499. Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing
4735business. Fran runs her tax practice out of a 150 square foot office in her home where she meets clients and works
4736on their tax returns and researches their tax issues. She meets the exclusive use test for this space. The gross
4737income from her tax practice amounts to $7,500 for the year. Business expenses amount to $1,000. Based on square
4738footage, $4,000 of Fran’s mortgage interest and real estate taxes are allocable to the home office. The allocable
4739portion of maintenance, utilities, and depreciation is $4,500. Assuming no other expenses related to the business were
4740incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran?
4741a. $0.
4742b. $2,500.
4743c. $3,500.
4744d. $4,500.
4745e. None of the above.
4746ANSWER:   b
4747RATIONALE:   Home office expenses cannot generate a loss, and expenses are deducted in the
4748following order: (1) business expenses, (2) interest and taxes, (3) operating expenses
4749of home, and (4) depreciation. Net income before items (3) and (4) amounts to
4750$2,500. As a result, the maximum Fran can only deduct $2,500 of the maintenance,
4751utilities, and depreciation. The balance ($2,000; $4,500 − $2,500) carries over to the
4752following year.
4753POINTS:   1
4754DIFFICULTY:   Easy
4755QUESTION TYPE:   Multiple Choice
4756HAS VARIABLES:   False
4757LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
4758NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4759STATE STANDARDS:   United States - AK - AICPA: FN- Measurement
4760KEYWORDS:   Bloom's: Comprehension
4761OTHER:   Time: 5 min.
4762DATE CREATED:   12/5/2017 12:56 PM
4763DATE MODIFIED:   7/24/2018 9:58 PM
4764Copyright Cengage Learning. Powered by Cognero. Page 64
4765Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4766100. Under the deemed substantiation method of accounting for expenses, what is the maximum amount taxpayers are
4767allowed as a deduction without being required to substantiate the amount of the expenses?
4768a. The appropriate Federal per diem amount.
4769b. $75 per day.
4770c. All expenses up to $25 per day.
4771d. The per diem rate established by the state in which they live.
4772e. None of the above.
4773ANSWER:   a
4774RATIONALE:   The Federal per diem rate is the amount deemed substantiated.
4775POINTS:   1
4776DIFFICULTY:   Easy
4777QUESTION TYPE:   Multiple Choice
4778HAS VARIABLES:   False
4779LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-08 - LO: 9-08
4780NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4781STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
4782KEYWORDS:   Bloom's: Comprehension
4783OTHER:   Time: 5 min.
4784DATE CREATED:   12/5/2017 12:58 PM
4785DATE MODIFIED:   7/24/2018 7:07 PM
4786Copyright Cengage Learning. Powered by Cognero. Page 65
4787Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4788101. A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in
47892018?
4790a. $12,000
4791b. $17,000
4792c. $17,500
4793d. $18,500
4794e. None of the above
4795ANSWER:   d
4796RATIONALE:   The indexed amount for 2018 is $18,500. A taxpayer who is age 38 is not eligible for
4797the $6,000 catch-up amount in 2018.
4798POINTS:   1
4799DIFFICULTY:   Easy
4800QUESTION TYPE:   Multiple Choice
4801HAS VARIABLES:   False
4802LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4803CMPV.SWFT.LO: 9-09 - LO: 9-09
4804NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4805STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4806AICPA: FN-Measurement
4807KEYWORDS:   Bloom's: Application
4808OTHER:   Time: 5 min.
4809DATE CREATED:   11/15/2017 1:15 PM
4810DATE MODIFIED:   7/24/2018 7:07 PM
4811Copyright Cengage Learning. Powered by Cognero. Page 66
4812Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4813102. Merrill is a participant in a SIMPLE § 401(k) plan, and he elects to contribute 4% of his $40,000 compensation to the
4814account, while his employer contributes 3%. What amount will vest immediately, if any?
4815a. $0
4816b. $1,200
4817c. $1,600
4818d. $2,800
4819e. None of above
4820ANSWER:   d
4821RATIONALE:   Merrill has elected to contribute $1,600 ($40,000 × 4%) to his SIMPLE § 401(k)
4822plan. His employer will contribute $1,200 ($40,000 × 3%). Both amounts will vest
4823immediately.
4824POINTS:   1
4825DIFFICULTY:   Easy
4826QUESTION TYPE:   Multiple Choice
4827HAS VARIABLES:   False
4828LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4829NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4830STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4831AICPA: FN-Measurement
4832KEYWORDS:   Bloom's: Application
4833OTHER:   Time: 5 min.
4834DATE CREATED:   11/15/2017 1:15 PM
4835DATE MODIFIED:   7/24/2018 7:07 PM
4836Copyright Cengage Learning. Powered by Cognero. Page 67
4837Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4838103. Joyce, age 40, and Sam, age 42, who have been married for seven years, are both active participants in qualified
4839retirement plans. Their total AGI for 2018 is $130,000. Each is employed and earns a salary of $65,000. What are
4840their combined deductible contributions to traditional IRAs?
4841a. $0
4842b. $3,000
4843c. $4,000
4844d. $8,000
4845e. None of the above
4846ANSWER:   a
4847RATIONALE:   Joyce and Sam may contribute a total of $11,000 ($5,500 each) to a traditional IRA,
4848but because their AGI exceeds the phaseout ceiling of $121,000 in 2018, $0 is
4849deductible.
4850POINTS:   1
4851DIFFICULTY:   Easy
4852QUESTION TYPE:   Multiple Choice
4853HAS VARIABLES:   False
4854LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4855NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4856STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4857AICPA: FN-Measurement
4858KEYWORDS:   Bloom's: Application
4859OTHER:   Time: 5 min.
4860DATE CREATED:   11/15/2017 1:15 PM
4861DATE MODIFIED:   7/24/2018 7:07 PM
4862Copyright Cengage Learning. Powered by Cognero. Page 68
4863Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4864104. Dana, age 31 and unmarried, is an active participant in a qualified retirement plan. Her AGI is $124,000. What
4865amount, if any, may Dana contribute to a Roth IRA in 2018?
4866a. $0.
4867b. $3,225.
4868c. $4,033.
4869d. $5,500.
4870e. None of the above
4871ANSWER:   c
4872RATIONALE:   Dana may contribute $4,033 to a Roth IRA in 2018, calculated as follows:
4873$124,000 AGI – $120,000 threshold = $4,000 excess AGI
4874$4,000/$15,000 phaseout range × $5,500 = $1,467 phaseout
4875$5,500 maximum contributions – $1,467 phaseout = $4,033 contribution
4876ceiling
4877POINTS:   1
4878DIFFICULTY:   Easy
4879QUESTION TYPE:   Multiple Choice
4880HAS VARIABLES:   False
4881LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4882NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4883STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4884AICPA: FN-Measurement
4885KEYWORDS:   Bloom's: Application
4886OTHER:   Time: 10 min.
4887DATE CREATED:   11/15/2017 1:15 PM
4888DATE MODIFIED:   7/24/2018 7:07 PM
4889Copyright Cengage Learning. Powered by Cognero. Page 69
4890Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4891105. Sammy, age 31, is unmarried and is not an active participant in a qualified retirement plan. His modified AGI is
4892$55,000 in 2018. The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:
4893a. $2,800.
4894b. $3,500.
4895c. $5,000.
4896d. $5,500.
4897e. None of the above.
4898ANSWER:   d
4899RATIONALE:   Sammy can deduct $5,500 because he is not an active participant in a qualified
4900retirement plan.
4901POINTS:   1
4902DIFFICULTY:   Easy
4903QUESTION TYPE:   Multiple Choice
4904HAS VARIABLES:   False
4905LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4906NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4907STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4908AICPA: FN-Measurement
4909KEYWORDS:   Bloom's: Application
4910OTHER:   Time: 5 min.
4911DATE CREATED:   11/15/2017 1:15 PM
4912DATE MODIFIED:   7/24/2018 7:07 PM
4913Copyright Cengage Learning. Powered by Cognero. Page 70
4914Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4915106. Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years. The account is now
4916worth $376,000. How much of these funds can Frank withdraw tax-free?
4917a. $0
4918b. $131,244
4919c. $244,756
4920d. $376,000
4921e. None of the above
4922ANSWER:   d
4923RATIONALE:   $376,000. Assuming that Frank met the AGI limitations at the time of his
4924contributions, all of the funds may be withdrawn tax-free. He satisfies the five-year
4925holding period requirement for a Roth IRA and is over age 59 1/2 at the time of the
4926distribution.
4927POINTS:   1
4928DIFFICULTY:   Easy
4929QUESTION TYPE:   Multiple Choice
4930HAS VARIABLES:   False
4931LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4932NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4933STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4934AICPA: FN-Measurement
4935KEYWORDS:   Bloom's: Application
4936OTHER:   Time: 5 min.
4937DATE CREATED:   11/15/2017 1:15 PM
4938DATE MODIFIED:   7/24/2018 7:07 PM
4939Copyright Cengage Learning. Powered by Cognero. Page 71
4940Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4941107. Mary establishes a Roth IRA at age 50 and contributes the maximum amount per year to the Roth IRA for 15 years.
4942The account is now worth $199,000, consisting of $75,000 in contributions plus $124,000 in accumulated earnings.
4943How much can Mary withdraw tax-free?
4944a. $0
4945b. $75,000
4946c. $124,000
4947d. $199,000
4948e. None of the above
4949ANSWER:   d
4950RATIONALE:   Assuming that Mary meets the income limitation at the time of the contributions to
4951the Roth IRA, all of the funds may be withdrawn tax-free. She satisfies the fiveyear
4952holding period for a Roth IRA and is over age 59 1/2 at the time of the
4953distribution.
4954POINTS:   1
4955DIFFICULTY:   Easy
4956QUESTION TYPE:   Multiple Choice
4957HAS VARIABLES:   False
4958LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4959NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4960STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4961AICPA: FN-Measurement
4962KEYWORDS:   Bloom's: Application
4963OTHER:   Time: 5 min.
4964DATE CREATED:   11/15/2017 1:15 PM
4965DATE MODIFIED:   7/24/2018 7:07 PM
4966Copyright Cengage Learning. Powered by Cognero. Page 72
4967Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
4968108. Jana has $225,000 of earned income in 2018. Calculate the amount she can contribute to a SEP.
4969a. $22,500
4970b. $24,500
4971c. $55,000
4972d. $56,250
4973e. None of the above
4974ANSWER:   c
4975RATIONALE:   25% × $225,000 statutory limit = $56,250, but limited to $55,000 (in 2018).
4976POINTS:   1
4977DIFFICULTY:   Easy
4978QUESTION TYPE:   Multiple Choice
4979HAS VARIABLES:   False
4980LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
4981NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
4982STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
4983AICPA: FN-Measurement
4984KEYWORDS:   Bloom's: Application
4985OTHER:   Time: 5 min.
4986DATE CREATED:   11/15/2017 1:15 PM
4987DATE MODIFIED:   7/24/2018 7:07 PM
4988109. Which is not an advantage of a § 401(k) plan over a traditional IRA?
4989a. Deduction limitation.
4990b. Early withdrawal option without penalty.
4991c. Loans from the plan.
4992d. Record keeping.
4993e. All of the above are advantages of § 401(k) plan.
4994ANSWER:   d
4995RATIONALE:   Record keeping is more detailed for § 401(k) plan.
4996POINTS:   1
4997DIFFICULTY:   Easy
4998QUESTION TYPE:   Multiple Choice
4999HAS VARIABLES:   False
5000LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
5001CMPV.SWFT.LO: 9-09 - LO: 9-09
5002NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5003STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5004AICPA: FN-Measurement
5005KEYWORDS:   Bloom's: Comprehension
5006OTHER:   Time: 5 min.
5007DATE CREATED:   11/15/2017 1:15 PM
5008DATE MODIFIED:   7/24/2018 7:07 PM
5009Copyright Cengage Learning. Powered by Cognero. Page 73
5010Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5011Matching
5012Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each
5013statement.
5014a. Indicates employee status.
5015b. Indicates independent contractor status.
5016DIFFICULTY:   Easy
5017QUESTION TYPE:   Matching
5018HAS VARIABLES:   False
5019LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
5020NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5021STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5022KEYWORDS:   Bloom's: Comprehension
5023OTHER:   Time: 2 min.
5024DATE CREATED:   11/15/2017 1:10 PM
5025DATE MODIFIED:   7/24/2018 9:58 PM
5026110. The services are performed at Sue’s premises.
5027ANSWER:  b
5028POINTS:   1
5029111. Sue does not work for other parties.
5030ANSWER:  a
5031POINTS:   1
5032112. Lynn determines when the services are to be performed.
5033ANSWER:  a
5034POINTS:   1
5035113. Sue has unreimbursed expenses.
5036ANSWER:  b
5037POINTS:   1
5038114. Sue was trained by Lynn.
5039ANSWER:  a
5040POINTS:   1
5041115. Sue uses her own helpers.
5042ANSWER:  b
5043POINTS:   1
5044116. Sue charges by the hour for her work.
5045ANSWER:  a
5046POINTS:   1
5047Copyright Cengage Learning. Powered by Cognero. Page 74
5048Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5049117. Sue does not file a Schedule SE with her Form 1040.
5050ANSWER:  a
5051POINTS:   1
5052118. Sue files a Schedule SE with her Form 1040.
5053ANSWER:  b
5054POINTS:   1
5055119. Sue uses her own tools.
5056ANSWER:  b
5057POINTS:   1
5058Subjective Short Answer
5059120. Paul is employed as an auditor by a CPA firm. On most days, he commutes by auto from his home to the office.
5060During one month, however, he has an extensive audit assignment closer to home. For this engagement, Paul drives
5061directly from home to the client’s premises and back. Mileage information is summarized below:
5062Home to office 12 miles
5063Office to audit client 15 miles
5064Audit client to home 10 miles
5065If Paul spends 20 days on the audit and provides an adequate accounting to his employer, what is his reimburseable
5066mileage?
5067ANSWER:   400 miles [20 miles (each day) × 20 days].
5068POINTS:   1
5069DIFFICULTY:   Easy
5070QUESTION TYPE:   Subjective Short Answer
5071HAS VARIABLES:   False
5072LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5073NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5074STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5075AICPA: FN-Measurement
5076KEYWORDS:   Bloom's: Application
5077OTHER:   Time: 5 min.
5078DATE CREATED:   11/15/2017 1:09 PM
5079DATE MODIFIED:   7/24/2018 9:58 PM
5080Copyright Cengage Learning. Powered by Cognero. Page 75
5081Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5082121. During 2018, Eva (a self-employed accountant who also works part-time for a CPA firm) used her car as follows:
508312,000 miles (business), 1,400 miles (commuting), and 4,000 miles (personal). In addition, she spent $440 for tolls
5084(business) and $620 for parking (business). If Eva uses the automatic mileage method, what is the amount of her
5085deduction?
5086ANSWER:   $7,600. (12,000 miles × $0.545) + $440 + $620 = $7,600.
5087POINTS:   1
5088DIFFICULTY:   Easy
5089QUESTION TYPE:   Subjective Short Answer
5090HAS VARIABLES:   False
5091LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5092NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5093STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5094AICPA: FN-Measurement
5095KEYWORDS:   Bloom's: Application
5096OTHER:   Time: 5 min.
5097DATE CREATED:   11/15/2017 1:09 PM
5098DATE MODIFIED:   7/24/2018 9:58 PM
5099122. Alfredo, a self-employed patent attorney, flew from his home in Chicago to Miami, had lunch alone at the airport,
5100conducted business in the afternoon, and returned to Chicago in the evening. His expenses were as follows:
5101Airfare $900
5102Airport parking (Chicago) 60
5103Lunch 30
5104Taxis (Miami) 42
5105What is Alfredo’s deductible expense for the trip?
5106ANSWER:   $1,002 ($900 + $60 + $42). As Alfredo was not away from home, his lunch is not
5107deductible.
5108POINTS:   1
5109DIFFICULTY:   Easy
5110QUESTION TYPE:   Subjective Short Answer
5111HAS VARIABLES:   False
5112LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5113NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5114STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5115AICPA: FN-Measurement
5116KEYWORDS:   Bloom's: Application
5117OTHER:   Time: 5 min.
5118DATE CREATED:   11/15/2017 1:09 PM
5119DATE MODIFIED:   7/24/2018 9:58 PM
5120Copyright Cengage Learning. Powered by Cognero. Page 76
5121Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5122123. Rod uses his automobile for both business and personal use and claims the automatic mileage rate for all purposes.
5123During 2018, his mileage was as follows:
5124Miles Driven
5125Personal 4,000
5126Business 8,000
5127Medical 1,800
5128Charitable 1,500
5129Qualifying education (MBA program) 800
5130How much can Rod claim for mileage?
5131ANSWER:   $5,330 [(8,800 miles × $0.545, business and education) + (1,800 miles × $0.18,
5132medical) + (1,500 miles × $0.14, charitable)].
5133POINTS:   1
5134DIFFICULTY:   Easy
5135QUESTION TYPE:   Subjective Short Answer
5136HAS VARIABLES:   False
5137LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5138NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5139STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5140AICPA: FN-Measurement
5141KEYWORDS:   Bloom's: Application
5142OTHER:   Time: 5 min.
5143DATE CREATED:   11/15/2017 1:09 PM
5144DATE MODIFIED:   7/24/2018 9:58 PM
5145Copyright Cengage Learning. Powered by Cognero. Page 77
5146Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5147124. Lily (self-employed) went from her office in Portland to Lisbon, Portugal on business. While there, she spent part of
5148the time on vacation. How much of the air fare of $5,000 can she deduct based on the following assumptions:
5149a. Lily was gone five days (i.e., three business and two personal).
5150b. Lily was gone five weeks (i.e., four business and one personal).
5151c. Lily was gone five weeks (i.e., three business and two personal).
5152ANSWER:   a. $5,000.
5153b. $5,000.
5154c. $3,000. (60% × $5,000).
5155Transportation costs for mixed use (i.e., both business and personal) need not be
5156allocated as long as domestic trips are involved. Such allocation is necessary,
5157however, for foreign trips unless one of two exceptions applies. One exception deals
5158with trips lasting seven days or less and covers part a. (but not part b. or part c.)
5159above. The second exception, less than 25% of the time was for personal use,
5160applies to part b. but not to part c. Thus, in part b. no allocation is necessary, while in
5161part c. the air fare must be allocated.
5162POINTS:   1
5163DIFFICULTY:   Moderate
5164QUESTION TYPE:   Subjective Short Answer
5165HAS VARIABLES:   False
5166LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5167NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5168STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5169AICPA: FN-Measurement
5170KEYWORDS:   Bloom's: Application
5171OTHER:   Time: 10 min.
5172DATE CREATED:   11/15/2017 1:09 PM
5173DATE MODIFIED:   7/24/2018 9:58 PM
5174Copyright Cengage Learning. Powered by Cognero. Page 78
5175Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5176125. Arnold is employed as an assistant manager in the furniture division of a national chain of department stores. He is a
5177recent college graduate with a degree in marketing. During 2018, he enrolls in the evening MBA program of a local
5178university and incurs the following expenses: tuition, $4,200; books and computer supplies, $800; transportation
5179expense to and from the university, $450; and meals while on campus, $400. Arnold is single and his annual AGI is
5180$64,000. As to these expenses, what is Arnold’s deduction for AGI?
5181ANSWER:   $4,000. Although the tuition was $4,200, § 222 imposes a limitation of $4,000.
5182POINTS:   1
5183DIFFICULTY:   Moderate
5184QUESTION TYPE:   Subjective Short Answer
5185HAS VARIABLES:   False
5186LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5187NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5188STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5189AICPA: FN-Measurement
5190KEYWORDS:   Bloom's: Application
5191OTHER:   Time: 10 min.
5192DATE CREATED:   11/15/2017 1:09 PM
5193DATE MODIFIED:   7/24/2018 9:58 PM
5194Copyright Cengage Learning. Powered by Cognero. Page 79
5195Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5196126. Cathy takes five key clients to dinner and incurs the following costs: $320 limousine rental, $920 drinks and dinner,
5197and $200 tips; assume that there were substantive business discussions during dinner. Several days after the
5198function, Cathy mails each client a pen costing $25. In addition, Cathy pays $4 for gift wrapping and mailing each
5199pen. Assuming adequate substantiation and a business justification, what is Cathy’s deduction?
5200ANSWER:   $1,025. $320 + [($920 + $200) × 50%] = $880. Also allowed are the gifts of $145 (5
5201× $29). The cost of gift wrapping and mailing each pen ($4) can be added to the
5202maximum amount of gift allowed ($25). [As of the printing of this question, the IRS
5203had not issued guidance on the TCJA of 2017 on the treatment of client meals.]
5204POINTS:   1
5205DIFFICULTY:   Moderate
5206QUESTION TYPE:   Subjective Short Answer
5207HAS VARIABLES:   False
5208LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5209NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5210STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5211AICPA: FN-Measurement
5212KEYWORDS:   Bloom's: Application
5213OTHER:   Time: 10 min.
5214DATE CREATED:   11/15/2017 1:09 PM
5215DATE MODIFIED:   7/24/2018 9:58 PM
5216Copyright Cengage Learning. Powered by Cognero. Page 80
5217Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5218127. Brian makes gifts as follows:
5219Recipient Cost of Gift
5220Mr. Brown (a client) $27  *
5221Mrs. Brown (Mr. Brown’s wife) 15
5222Ms. Smith (Brian’s receptionist) 30
5223Mr. Jones (Brian’s boss) 40
5224* Includes $2 for gift wrapping
5225Presuming adequate substantiation and no reimbursement, how much may Brian deduct?
5226ANSWER:   $52 ($27 + $25). The deduction for Mr. Brown’s gift can include nominal costs for
5227gift-wrapping and engraving. No deduction is allowed for the gift to Mrs. Brown
5228unless she is in a separate business. Otherwise, she falls under the $25 limit
5229applicable to Mr. Brown. The deduction for Ms. Smith’s gift is limited to $25. No
5230deduction is allowed for Brian’s gift to his boss.
5231POINTS:   1
5232DIFFICULTY:   Easy
5233QUESTION TYPE:   Subjective Short Answer
5234HAS VARIABLES:   False
5235LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5236NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5237STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5238AICPA: FN-Measurement
5239KEYWORDS:   Bloom's: Application
5240OTHER:   Time: 5 min.
5241DATE CREATED:   11/15/2017 1:09 PM
5242DATE MODIFIED:   7/24/2018 9:58 PM
5243128. Rocky has a full-time job as an electrical engineer for the city utility. In his spare time, Rocky repairs electronic
5244gear in the basement of his personal residence. Most of his business comes from friends and referrals from former
5245customers, although occasionally he runs an ad in the local suburbia newspaper. Typically, the items are dropped off
5246at Rocky’s house and later picked up by the owner when notified that the repairs have been made.
5247The floor space of Rocky’s residence is 2,500 square feet, and he estimates that 20% of this is devoted exclusively
5248to the repair business (i.e., 500 square feet). Gross income from the business is $13,000, while expenses (other than
5249home office) are $5,000. Expenses relating to the residence are as follows:
5250Real property taxes $4,500
5251Interest on home mortgage 8,000
5252Operating expenses of residence 3,000
5253Depreciation (based on 20% business use) 1,000
5254What is Rocky’s net income from the repair business
5255Copyright Cengage Learning. Powered by Cognero. Page 81
5256Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5257a.  If he uses the regular (actual expense) method of computing the deduction for office in the home?
5258b. If he uses the simplified method?
5259ANSWER:    a. Business income $13,000
5260Less:  Expenses (5,000)
5261Net business income before office in the home expenses $ 8,000
5262Less:  Real property taxes
5263($4,500 × 20%)
5264(900)
5265          Mortgage interest ($8,000
5266× 20%)
5267(1,600)
5268          Operating
5269expenses($3,000 × 20%)
5270(600)
5271          Depreciation (1,000)
5272Net income from business $ 3,900
5273 b. Net business income before office in the home expense
5274(see part a. above)
5275$ 8,000
5276           Office in the home
5277expense
5278(1,500) * 
5279Net income from business $ 6,500
5280*As no more than 300 square feet can be considered, the
5281maximum allowed is $1,500 (300 square feet x $5).
5282POINTS:   1
5283DIFFICULTY:   Moderate
5284QUESTION TYPE:   Subjective Short Answer
5285HAS VARIABLES:   False
5286LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
5287NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5288STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5289AICPA: FN-Measurement
5290KEYWORDS:   Bloom's: Application
5291OTHER:   Time: 10 min.
5292DATE CREATED:   11/15/2017 1:09 PM
5293DATE MODIFIED:   7/24/2018 9:58 PM
5294Copyright Cengage Learning. Powered by Cognero. Page 82
5295Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5296Essay
5297129. If a business retains someone to provide services, that person may either be an employee or be self-employed (i.e.,
5298independent contractor).
5299a. What are the tax advantages to the business of having the service provider classified as self-employed?
5300b. What are the advantages and disadvantages to the service provider of self-employed status?
5301ANSWER:  
5302a. Self-employed persons do not have to be included in various fringe benefits
5303programs (e.g., group-term life insurance, accident and health plans) and
5304retirement plans. Because they are not covered by FICA and FUTA, these
5305payroll costs are avoided.
5306b. The advantages are that expenses qualify as deductions for AGI.
5307Consequently, deductibility is not affected by the choice of the standard
5308deduction, and the limitation on miscellaneous itemized deductions is avoided. In
5309terms of disadvantages, being self-employed can lead to other state and local
5310taxes (e.g., license fees, franchise taxes, occupation taxes, gross receipts levy).
5311The most significant, however, is the self-employment tax that the taxpayer is
5312subject to.
5313POINTS:   1
5314DIFFICULTY:   Easy
5315QUESTION TYPE:   Essay
5316HAS VARIABLES:   False
5317LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
5318NATIONAL STANDARDS:   United States - BUSPROG: Technology: Technology: - BUSPROG:
5319Technology
5320STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5321AICPA: FN-Measurement
5322KEYWORDS:   Bloom's: Comprehension
5323OTHER:   Time: 10 min.
5324DATE CREATED:   11/15/2017 1:09 PM
5325DATE MODIFIED:   7/24/2018 9:58 PM
5326Copyright Cengage Learning. Powered by Cognero. Page 83
5327Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5328130. In terms of income tax treatment, what is the difference between common law and statutory employees?
5329ANSWER:   Although subject to Social Security tax, statutory employees are not subject to
5330Income tax withholding. Statutory employees may claim all of their unreimbursed
5331expenses as deductions for AGI. For common law employees, such expenses are
5332miscellaneous itemized deductions and are not deductible from 2018 through 2025.
5333POINTS:   1
5334DIFFICULTY:   Easy
5335QUESTION TYPE:   Essay
5336HAS VARIABLES:   False
5337LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-01 - LO: 9-01
5338NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5339STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5340AICPA: FN-Measurement
5341KEYWORDS:   Bloom's: Comprehension
5342OTHER:   Time: 5 min.
5343DATE CREATED:   11/15/2017 1:09 PM
5344DATE MODIFIED:   7/24/2018 7:07 PM
5345131. Myra’s classification of those who work for her as independent contractors is being questioned by the IRS. It is the
5346position of the IRS that these workers are really employees. What type of factors can Myra utilize to justify her
5347classification?
5348ANSWER:   Myra needs to show that she has a reasonable basis for not treating her workers as
5349employees. In this regard, can she prove reliance on any of the following?
5350∙ Judicial precedent, published ruling, or technical advice.
5351∙ A past IRS audit that resulted in no employment tax assessment.
5352∙ A longstanding practice of independent contractor status in the same industry.
5353∙ Has Myra consistently treated these workers as independent contractors?
5354∙ Has she reported their earnings by filing Form 1099-MISC?
5355POINTS:   1
5356DIFFICULTY:   Moderate
5357QUESTION TYPE:   Essay
5358HAS VARIABLES:   False
5359LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
5360NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5361STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5362KEYWORDS:   Bloom's: Comprehension
5363OTHER:   Time: 10 min.
5364DATE CREATED:   11/15/2017 1:09 PM
5365DATE MODIFIED:   7/24/2018 9:58 PM
5366Copyright Cengage Learning. Powered by Cognero. Page 84
5367Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5368132. Taylor performs services for Jonathan on a regular basis. There exists considerable doubt as to whether Taylor is an
5369employee or an independent contractor.
5370a. What can Jonathan do to clarify the matter?
5371b. Suppose Jonathan treats Taylor as an independent contractor but Taylor thinks she is an
5372employee. What is Taylor’s recourse, if any?
5373ANSWER:  
5374a. Jonathan can obtain a ruling from the IRS by filing Form SS–8 (Determination of
5375Worker Status for Purposes of Federal Employment Taxes and Income Tax
5376Withholding).
5377b. Taylor should file a Form 8919 (Uncollected Social Security and Medicare Tax
5378on Wages) with the IRS.
5379POINTS:   1
5380DIFFICULTY:   Easy
5381QUESTION TYPE:   Essay
5382HAS VARIABLES:   False
5383LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
5384NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5385STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5386KEYWORDS:   Bloom's: Comprehension
5387OTHER:   Time: 5 min.
5388DATE CREATED:   11/15/2017 1:09 PM
5389DATE MODIFIED:   7/24/2018 9:58 PM
5390133. Jacob is a landscape architect who works out of his home. He wonders whether or not he will have nondeductible
5391commuting expenses when he drives to the locations of his clients. Please comment.
5392ANSWER:   Jacob has no commuting expenses since his tax home is his residence. Thus, his
5393mileage to and from the premises of his clients should be fully deductible.
5394POINTS:   1
5395DIFFICULTY:   Easy
5396QUESTION TYPE:   Essay
5397HAS VARIABLES:   False
5398LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5399NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5400STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5401KEYWORDS:   Bloom's: Comprehension
5402OTHER:   Time: 5 min.
5403DATE CREATED:   11/15/2017 1:09 PM
5404DATE MODIFIED:   7/24/2018 9:58 PM
5405Copyright Cengage Learning. Powered by Cognero. Page 85
5406Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5407134. Under the automatic mileage method, one rate does not cover every type of expense. For 2018, what are the rates
5408for business use, charitable, and medical?
5409ANSWER:   $0.545 (business use); $0.14 (charitable); and $0.18 (medical).
5410POINTS:   1
5411DIFFICULTY:   Easy
5412QUESTION TYPE:   Essay
5413HAS VARIABLES:   False
5414LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5415NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5416STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5417KEYWORDS:   Bloom's: Knowledge
5418OTHER:   Time: 5 min.
5419DATE CREATED:   11/15/2017 1:09 PM
5420DATE MODIFIED:   7/24/2018 9:58 PM
5421135. Christopher just purchased an automobile for $40,000 which he plans to claim 100% as being for business use. In
5422order to take advantage of MACRS and § 179, he plans to use the actual cost method for determining his deduction
5423in the first year. In subsequent years, he will switch to the automatic mileage method. Comment on Christopher’s
5424proposed approach.
5425ANSWER:   First, limitations are imposed on how much depreciation can be claimed over each
5426year of the five-year write-off period. In most cases, such limitations significantly
5427reduce the depreciation normally allowed. Second, the use of MACRS and/or § 179
5428precludes later converting to the automatic mileage method. Lastly, how many
5429automobiles does Christopher own? If just one, 100% business use could be almost
5430impossible to justify since it negates any personal use.
5431POINTS:   1
5432DIFFICULTY:   Moderate
5433QUESTION TYPE:   Essay
5434HAS VARIABLES:   False
5435LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5436NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5437STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5438KEYWORDS:   Bloom's: Comprehension
5439OTHER:   Time: 10 min.
5440DATE CREATED:   11/15/2017 1:09 PM
5441DATE MODIFIED:   7/24/2018 9:58 PM
5442Copyright Cengage Learning. Powered by Cognero. Page 86
5443Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5444136. Once set for a year, when might the IRS change the rate for the automatic mileage method?
5445ANSWER:   Changes in the past have been justified by significant increases or decreases in fuel
5446prices. Such a change places a premium on keeping track of mileage on a monthly
5447basis.
5448POINTS:   1
5449DIFFICULTY:   Moderate
5450QUESTION TYPE:   Essay
5451HAS VARIABLES:   False
5452LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-02 - LO: 9-02
5453NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5454STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5455KEYWORDS:   Bloom's: Knowledge
5456OTHER:   Time: 5 min.
5457DATE CREATED:   11/15/2017 1:09 PM
5458DATE MODIFIED:   7/24/2018 7:07 PM
5459137. Travel status requires that the taxpayer be away from home overnight.
5460a. What does “away from home overnight” mean?
5461b. What tax advantages result from being in travel status?
5462ANSWER:  
5463a. “Home” for this purpose is the place of taxpayer’s principal employment.
5464“Overnight” need not be a 24-hour period, but it must be a time duration
5465substantially longer than an ordinary day’s work such as to require rest or sleep.
5466b. If “travel status” exists, many otherwise nondeductible expenses (e.g., meals,
5467lodging, transportation) become deductible.
5468POINTS:   1
5469DIFFICULTY:   Moderate
5470QUESTION TYPE:   Essay
5471HAS VARIABLES:   False
5472LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5473NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5474STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5475AICPA: FN-Measurement
5476KEYWORDS:   Bloom's: Comprehension
5477OTHER:   Time: 10 min.
5478DATE CREATED:   11/15/2017 1:09 PM
5479DATE MODIFIED:   7/24/2018 9:58 PM
5480Copyright Cengage Learning. Powered by Cognero. Page 87
5481Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5482138. When is a taxpayer’s work assignment in a new locale temporary? Permanent? What difference does it make?
5483ANSWER:   Temporary indicates that the assignment’s termination is expected within a
5484reasonably short period of time. In no event can the period of absence exceed one
5485year. If the taxpayer’s assignment is indefinite, and not temporary, his or her tax
5486home changes and travel status ends.
5487POINTS:   1
5488DIFFICULTY:   Moderate
5489QUESTION TYPE:   Essay
5490HAS VARIABLES:   False
5491LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-03 - LO: 9-03
5492NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5493STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5494AICPA: FN-Measurement
5495KEYWORDS:   Bloom's: Comprehension
5496OTHER:   Time: 5 min.
5497DATE CREATED:   11/15/2017 1:09 PM
5498DATE MODIFIED:   7/24/2018 7:07 PM
5499139. Nick Lee is a linebacker for the Baltimore Ravens (a professional football club). During the football season he rents
5500an apartment in a Baltimore suburb. The rest of the time he lives with his family in Ann Arbor (MI) and works at a
5501local bank as a vice president in charge of public relations. Can Nick deduct his expenses while away from Ann
5502Arbor? Explain.
5503ANSWER:   Probably not. Although his personal residence is in Ann Arbor, Nick’s tax home is
5504likely to be the Baltimore area. Considering the salaries of professional football
5505players, Nick’s income from the Ravens must heavily outweigh that received from
5506an Ann Arbor bank. Furthermore, his principal activity and the time spent (e.g.,
5507conditioning, training, playing) is that of a player and not a banker.
5508POINTS:   1
5509DIFFICULTY:   Moderate
5510QUESTION TYPE:   Essay
5511HAS VARIABLES:   False
5512LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5513NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5514STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5515KEYWORDS:   Bloom's: Comprehension
5516OTHER:   Time: 10 min.
5517DATE CREATED:   11/15/2017 1:09 PM
5518DATE MODIFIED:   7/24/2018 9:58 PM
5519Copyright Cengage Learning. Powered by Cognero. Page 88
5520Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5521140. How are combined business/pleasure trips treated for travel within the United States as opposed to foreign travel?
5522ANSWER:   The major difference is that transportation charges are fully deductible if the trip is
5523primarily for business and within the United States. If the foreign trip is primarily
5524business, transportation expenses must be allocated between business and personal
5525unless (1) the taxpayer was away from home for seven days or less or (2) if less
5526than 25% of the time was spent on personal pursuits.
5527POINTS:   1
5528DIFFICULTY:   Easy
5529QUESTION TYPE:   Essay
5530HAS VARIABLES:   False
5531LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5532NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5533STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5534AICPA: FN-Measurement
5535KEYWORDS:   Bloom's: Comprehension
5536OTHER:   Time: 10 min.
5537DATE CREATED:   11/15/2017 1:09 PM
5538DATE MODIFIED:   7/24/2018 9:58 PM
5539Copyright Cengage Learning. Powered by Cognero. Page 89
5540Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5541141. In terms of IRS attitude, what do the following expenses have in common?
5542a. Cost of a CPA exam review course.
5543b. Cost of a review course for the bar exam.
5544c. Cost of a law degree by a taxpayer who does not intend to practice law.
5545ANSWER:  
5546a.
5547It is the position of the IRS that the costs associated with becoming a CPA are
5548incurred in order to acquire a basic skill and thus are not deductible as education
5549expenses.
5550b. The same reasoning as noted in part a. above applies to review course taken to
5551pass the bar exam.
5552c. Regardless of a taxpayer’s career goals, the IRS considers a law degree to be
5553the acquisition of a basic skill.
5554POINTS:   1
5555DIFFICULTY:   Easy
5556QUESTION TYPE:   Essay
5557HAS VARIABLES:   False
5558LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-05 - LO: 9-05
5559NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5560STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5561AICPA: FN-Measurement
5562KEYWORDS:   Bloom's: Comprehension
5563OTHER:   Time: 10 min.
5564DATE CREATED:   11/15/2017 1:10 PM
5565DATE MODIFIED:   7/24/2018 7:07 PM
5566Copyright Cengage Learning. Powered by Cognero. Page 90
5567Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5568142. Madison and Christopher are staff accountants at a major public accounting firm. Both are pursuing a law degree in
5569a night program at local law school. Madison contends that the cost of the program is a deduction for income tax
5570purposes, while Christopher maintains that it is not. Who is correct and why?
5571ANSWER:   Both are partly correct and incorrect. The IRS takes the position that pursuing a law
5572degree is not maintaining or improving existing skills but results in acquiring a new
5573job skill. Thus, a legal education is not job related to accounting but constitutes a new
5574trade or business. However, § 222 allows a deduction for tuition (up to $4,000 or
5575less) even if the education is not job related. This provision allows some or all of the
5576law school tuition to be deductible but not other associated expenses (e.g., textbooks,
5577transportation). In summary, some costs can be claimed and some cannot.
5578POINTS:   1
5579DIFFICULTY:   Easy
5580QUESTION TYPE:   Essay
5581HAS VARIABLES:   False
5582LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-03 - LO: 11-03
5583NATIONAL STANDARDS:   United States - BUSPROG: Technology: Technology: - BUSPROG:
5584Technology
5585STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5586AICPA: FN-Measurement
5587KEYWORDS:   Bloom's: Analysis
5588OTHER:   Time: 10 min.
5589DATE CREATED:   11/15/2017 1:10 PM
5590DATE MODIFIED:   7/24/2018 9:58 PM
5591143. Logan, Caden, and Olivia are three unrelated parties who claim the standard deduction. All are married and attend
5592Citron University and each pays tuition of $6,100. Of this payment, Logan can claim a deduction of $4,000; Caden a
5593deduction of $2,000; and Olivia no deduction at all. Explain.
5594ANSWER:   The most apparent explanation is the limitation imposed on the § 222 tuition
5595deduction. Logan’s MAGI must be less than $130,000, while Caden’s MAGI is more
5596than $130,000 but not more than $160,000. Lastly, Olivia’s MAGI must be in excess
5597of $160,000.
5598POINTS:   1
5599DIFFICULTY:   Easy
5600QUESTION TYPE:   Essay
5601HAS VARIABLES:   False
5602LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-05 - LO: 9-05
5603NATIONAL STANDARDS:   United States - BUSPROG: Technology: Technology: - BUSPROG:
5604Technology
5605STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5606AICPA: FN-Measurement
5607KEYWORDS:   Bloom's: Comprehension
5608OTHER:   Time: 10 min.
5609DATE CREATED:   11/15/2017 1:10 PM
5610DATE MODIFIED:   7/24/2018 7:07 PM
5611Copyright Cengage Learning. Powered by Cognero. Page 91
5612Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5613144. Meg teaches the fifth grade at a local school. During the year, she spends $1,200 for school supplies for use in her
5614classroom. On her income tax return, some of this expense is not reported and the balance is deducted in two
5615different places. Explain what has probably happened.
5616ANSWER:   Meg probably has been reimbursed for some of these expenses. If she renders an
5617adequate accounting to her employer, the reimbursement is not reported in her
5618income nor is the expense involved deducted. As to the remaining expenses, she has
5619claimed $250 as a deduction for AGI; the balance would be a miscellaneous
5620itemized deduction (and not deductible from 2018 through 2025).
5621POINTS:   1
5622DIFFICULTY:   Moderate
5623QUESTION TYPE:   Essay
5624HAS VARIABLES:   False
5625LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
5626NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5627STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5628AICPA: FN-Measurement
5629KEYWORDS:   Bloom's: Comprehension
5630OTHER:   Time: 10 min.
5631DATE CREATED:   11/15/2017 1:10 PM
5632DATE MODIFIED:   7/24/2018 9:58 PM
5633Copyright Cengage Learning. Powered by Cognero. Page 92
5634Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5635145. In connection with the office in the home deduction of a self-employed individual, comment on the following:
5636a. Mixed use (i.e., business and personal) of the portion of the home allocated to business.
5637b. The difference between direct and indirect expenses for deduction purposes.
5638c. The classification of the expense (i.e., dfor or dfrom AGI).
5639ANSWER:  
5640a. In most cases, mixed use of the portion allocated to business is not allowed.
5641Consequently, the office must be exclusively used for business. An exception is
5642made, however, when the home is used as a daycare center. Here, mixed use is
5643allowed.
5644b. Direct expenses (e.g., painting the office) are deductible in full because they
5645only benefit the office area. Indirect expenses (e.g., homeowners casualty
5646insurance) must be allocated since they relate to both the business and personal
5647portions of the home. In the case of the simplified method of determining the
5648deduction, the distinction between direct and indirect expenses is not relevant.
5649c. An office in the home expense for a self-employed taxpayer is a deduction for
5650AGI.
5651POINTS:   1
5652DIFFICULTY:   Moderate
5653QUESTION TYPE:   Essay
5654HAS VARIABLES:   False
5655LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-05 - LO: 11-05
5656NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5657STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5658AICPA: FN-Measurement
5659KEYWORDS:   Bloom's: Comprehension
5660OTHER:   Time: 10 min.
5661DATE CREATED:   11/15/2017 1:10 PM
5662DATE MODIFIED:   7/24/2018 9:58 PM
5663Copyright Cengage Learning. Powered by Cognero. Page 93
5664Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5665146. Regarding the simplified method of computing the office in the home deduction, comment on the following
5666independent factors.
5667a.     Taxpayer has set aside 400 square feet for use as an office.
5668b.     Taxpayer has repainted and recarpeted the office area.
5669c.     In past years, taxpayer has always taken the deduction using the regular (actual expense) method.
5670d.     The net income from the business is not large.
5671ANSWER:  
5672a.  Unfortunately, the deduction is limited to 300 square feet--so the maximum allowed is
5673$1,500 (300 × $5).
5674b. Direct expenses cannot be claimed under this method.
5675c. As the choice allowed is annual, the method used in the past does not matter. However,
5676no carry over of unused deduction can be claimed. Also, a prior choice cannot be
5677changed but is binding on the taxpayer.
5678d. The deduction cannot exceed the net income from the property. Furthermore, any unused
5679deduction amount cannot be carried over to future years.
5680POINTS:   1
5681DIFFICULTY:   Moderate
5682QUESTION TYPE:  Essay
5683HAS VARIABLES:   False
5684DATE CREATED:   11/15/2017 1:10 PM
5685DATE MODIFIED:   7/24/2018 7:07 PM
5686Copyright Cengage Learning. Powered by Cognero. Page 94
5687Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5688147. Regarding tax favored retirement plans for employees and self-employed persons, comment on the following:
5689a. The exclusion versus deduction approaches as to contributions by participants.
5690b. Tax-free accumulation of earnings.
5691c. The deferral of income tax consequences.
5692d. Employee versus self-employed status.
5693ANSWER:  
5694a. Contributions by employees to retirement plans that are qualified provide a tax
5695benefit either in the form of an exclusion from gross income or as a deduction
5696for AGI. The traditional IRA takes the deduction approach. This is also the case
5697of contributions by a self-employed person to a Keogh (H.R. 10) plan.
5698b. A characteristic of all tax-favored retirement plans is that income accumulates
5699free of tax. This allows for a greater accumulation to take place up to the point
5700of distribution.
5701c. Except in the Roth IRA, the main objective of retirement plans is to defer
5702taxation until distributions are made.
5703d. Keogh (H.R. 10) plans are, in effect, the self-employed version of employee
5704retirement plans.
5705POINTS:   1
5706DIFFICULTY:   Moderate
5707QUESTION TYPE:   Essay
5708HAS VARIABLES:   False
5709LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-04 - LO: 11-04
5710NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5711STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5712AICPA: FN-Measurement
5713KEYWORDS:   Bloom's: Comprehension
5714OTHER:   Time: 15 min.
5715DATE CREATED:   11/15/2017 1:10 PM
5716DATE MODIFIED:   7/24/2018 9:58 PM
5717Copyright Cengage Learning. Powered by Cognero. Page 95
5718Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5719148. Ashley and Matthew are husband and wife and both are practicing CPAs. On a joint return, Ashley gets to deduct
5720her professional dues but Matthew does not. Explain.
5721ANSWER:   Most likely Ashley is self-employed, while Matthew is employed. Thus, Ashley’s
5722expenses are deductions for AGI and Matthew’s are miscellaneous itemized
5723deductions (which are not deductible).
5724POINTS:   1
5725DIFFICULTY:   Moderate
5726QUESTION TYPE:   Essay
5727HAS VARIABLES:   False
5728LEARNING OBJECTIVES:  EOTX.SWFT.LO: 11-01 - LO: 11-01
5729NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5730STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5731AICPA: FN-Measurement
5732KEYWORDS:   Bloom's: Comprehension
5733OTHER:   Time: 5 min.
5734DATE CREATED:   11/15/2017 1:10 PM
5735DATE MODIFIED:   7/24/2018 9:58 PM
5736149. Isabella is a dental hygienist who works for five different dentists. She spends one day a week (i.e., Monday through
5737Friday) with each. All of the dentists except Dr. Stanki (the Wednesday assignment) treat her as an employee. Dr.
5738Stanki, however, classifies her as being self-employed. Comment on this discrepancy in treatment.
5739ANSWER:   Unless Isabella’s Wednesday duties are significantly different than the rest of the
5740week, Dr. Stanki has placed himself in a vulnerable position. In terms of the proper
5741work classification of a service provider, one key consideration is how they are
5742treated by other comparable businesses. In all likelihood, therefore, Dr. Stanki will
5743have a tough time convincing the IRS that Isabella is an independent contractor
5744when four of his colleagues consider her to be an employee. More likely, Dr. Stanki
5745desires to save on payroll taxes and avoid covering Isabella in any fringe benefits
5746offered to other employees.
5747POINTS:   1
5748DIFFICULTY:   Easy
5749QUESTION TYPE:   Essay
5750HAS VARIABLES:   False
5751LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-01 - LO: 9-01
5752NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5753STATE STANDARDS:   United States - AK - AICPA: FN-Reporting
5754KEYWORDS:   Bloom's: Comprehension
5755OTHER:   Time: 10 min.
5756DATE CREATED:   11/15/2017 1:10 PM
5757DATE MODIFIED:   7/24/2018 7:07 PM
5758Copyright Cengage Learning. Powered by Cognero. Page 96
5759Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5760150. Felicia, a recent college graduate, is employed as an accountant by an oil company. She would like to continue her
5761education and obtain a law degree. Discuss Felicia’s tax status if she attends a local law school on a:
5762a. Part-time basis.
5763b. Full-time basis.
5764ANSWER:  
5765a.
5766Regarding the usual education expense justification of maintaining and improving
5767on existing skills, Felicia will not succeed. The IRS has successfully maintained
5768that obtaining a law degree leads to a new trade or business. Reliance on § 222,
5769however, is appropriate since the education need not be job related.
5770Unfortunately, § 222 only covers tuition, is limited to $4,000, and may be
5771reduced (or eliminated) by an AGI limitation.
5772b. If Felicia quits her job and returns to college on a full-time basis, she no longer is
5773in a trade or business. A temporary break in employment status (e.g., leave of
5774absence), however, will cure this problem if properly structured. However,
5775Felicia will still encounter the new trade or business provision.
5776POINTS:   1
5777DIFFICULTY:   Moderate
5778QUESTION TYPE:  
5779QUESTION TYPE:  
5780Essay
5781Essay
5782HAS VARIABLES:   False
5783LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-05 - LO: 9-05
5784NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5785STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5786AICPA: FN-Measurement
5787KEYWORDS:   Bloom's: Comprehension
5788OTHER:   Time: 10 min.
5789DATE CREATED:   11/15/2017 1:10 PM
5790DATE MODIFIED:   7/24/2018 7:07 PM
5791Copyright Cengage Learning. Powered by Cognero. Page 97
5792Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5793151. Discuss the 50% overall limitation in connection with various employee expenses under the following arrangements:
5794a. The employee is not reimbursed by the employer.
5795b. The employee is fully reimbursed under a nonaccountable plan.
5796c. The employee is partially reimbursed under an accountable plan.
5797d. The employee is fully reimbursed under an accountable plan.
5798ANSWER:  
5799a.
5800Any overall limitation (50%) is imposed on the employee. The employee has the
5801burden of being able to substantiate the expenses involved. Furthermore, these
5802will be miscellaneous itemized deductions (and not deductible from 2018 through
58032025).
5804b. The reimbursement must be reported as income. Deductions are handled as in
5805part a. above.
5806c. Unless the reimbursement identifies the expenses covered, it must be allocated
5807between the items that are and are not subject to the overall limitation (50%).
5808d. A washout results. In effect the expenses are treated as deductions for AGI
5809and fully offset the reimbursement. As far as the employee is concerned, the
5810expenses are not subject to the overall limitation (50%).
5811POINTS:   1
5812DIFFICULTY:   Moderate
5813QUESTION TYPE:   Essay
5814HAS VARIABLES:   False
5815LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
5816CMPV.SWFT.LO: 9-09 - LO: 9-09
5817NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5818STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5819AICPA: FN-Measurement
5820KEYWORDS:   Bloom's: Comprehension
5821OTHER:   Time: 15 min.
5822DATE CREATED:   11/15/2017 1:10 PM
5823DATE MODIFIED:   7/24/2018 7:07 PM
5824Copyright Cengage Learning. Powered by Cognero. Page 98
5825Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5826152. Explain to a small business owner some advantages and disadvantages of a simplified employee pension plan (SEP).
5827ANSWER:   Defined benefit and defined contribution plans have become complex and costly
5828due to restrictive legislation over the past 15 years. Thus, a SEP has become an
5829alternative to these traditional plans. Some advantages of the SEP are as follows:
5830∙ Less costly and complex.
5831∙ Can establish after the end of the tax year.
5832∙ Vesting immediately.
5833There are still some disadvantages of a SEP:
5834∙ There is a 25% deduction limit for a SEP rather than a 100% deduction for
5835certain defined contribution plans.
5836∙ Participation rules are stricter.
5837∙
5838There is no 10-year forward averaging technique for certain lump-sum
5839distributions.
5840∙ Someone else other than a covered participant must be the trustee.
5841POINTS:   1
5842DIFFICULTY:   Moderate
5843QUESTION TYPE:   Essay
5844HAS VARIABLES:   False
5845LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-06 - LO: 9-06
5846NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5847STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5848AICPA: FN-Measurement
5849KEYWORDS:   Bloom's: Comprehension
5850OTHER:   Time: 5 min.
5851DATE CREATED:   11/15/2017 1:15 PM
5852DATE MODIFIED:   7/24/2018 7:07 PM
5853Copyright Cengage Learning. Powered by Cognero. Page 99
5854Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
5855153. Compare a § 401(k) plan with an IRA.
5856ANSWER:   An instructor can use Concept Summary 19.4 to cover this comparison. Most
5857employees will find a § 401(k) plan more attractive than an IRA. Probably the
5858biggest limitation of an IRA is the $5,500 maximum shelter in 2018 (ignoring the
5859catch-up provision). Under § 401(k), employees are permitted to shelter
5860compensation up to $18,000 (in 2018). The restrictions on deducting contributions to
5861IRAs for many middle-income and upper-income taxpayers may cause many
5862employees to utilize § 401(k) plans more frequently.
5863Another difference between § 401(k) plans and IRAs is the manner in which the
5864money is treated. Money placed in an IRA may be tax deductible, whereas dollars
5865placed in a § 401(k) plan are considered to be deferred compensation. Thus, a §
5866401(k) reduction may reduce profit sharing payments, group term life insurance, and
5867Social Security benefits.
5868POINTS:   1
5869DIFFICULTY:   Moderate
5870QUESTION TYPE:   Essay
5871HAS VARIABLES:   False
5872LEARNING OBJECTIVES:  CMPV.SWFT.LO: 9-09 - LO: 9-09
5873NATIONAL STANDARDS:   United States - BUSPORG: Comprehension - BUSPORG:Comprehension
5874STATE STANDARDS:   United States - AK - AICPA: FN-Measurement -
5875AICPA: FN-Measurement
5876KEYWORDS:   Bloom's: Comprehension
5877OTHER:   Time: 10 min.
5878DATE CREATED:   11/15/2017 1:15 PM
5879DATE MODIFIED:   7/24/2018 7:07 PM
5880Copyright Cengage Learning. Powered by Cognero. Page 100
5881Chapter 09: Deductions: Employee and Self-Employed-Related Expenses