ACCT413 Exam 3 | exam review 2024
1. What is Cost Recovery?: When a company expenses the cost of acquiring assets
2. What is depreciation?: The cost recovery method that allocates the cost of
tangible and real property over a period of time
3. What is amortization?: The cost recovery method that recovers the cost of
intangible assets over a period of time
4. What is depletion?: The cost recovery method that allocates the price of natural
resources as they are removed
5. What is the adjusted/tax basis?: The initial basis (cost) of an asset + capital
improvement - depreciation/amortization
6. Personal Property: Tangible assets used for everyday life like cars, machinery,
equipment
- uses depreciation
7. Real Property: Buildings and Land even though land is not depreciable
- uses depreciation
8. Intangible Assets: nonphysical assets like goodwill/patents
- uses amortization
9. Natural Resources: Commodities that are valuable at their natural form like gold,
timber, coal, oil
- uses depletion
10.De Minimis Safe Harbor: Taxpayers may immediately deduct low-cost personal
property items used in business
- up to $5,000 per item/invoice with audited financial statement
- up to $2,500 per item/invoice without
11.How are routine maintenance costs treated for assets?: They can be imme- diately
, ACCT413 Exam 3 | exam review 2024
expensed
12.When do you capitalize costs for property?: When the costs result in the
betterment, restoration and adaptation for a new/different use for the property
13.What is the basis for a personal asset that has been converted to business use if
the transaction is fully taxable?: FMV
14.What is the basis for a personal asset that has been converted to business use if
the transaction is tax deferred?: Carryover basis- same basis it was when it was in
personal use
15.What is the basis for a personal asset that has been converted to business use if
the transaction is a gift?: The same basis the transferor had in the property
16.What is the basis for a personal asset that has been converted to business use if
the transaction is an inheritance?: FMV of the property on the day of the transferor's
death
, ACCT413 Exam 3 | exam review 2024
17.What is needed to compute MACRS depreciation?: The asset's depreciable basis,
the date the asset was put in service, the depreciation method applicable, the asset's
recovery period (life), and the depreciation convention applicable
- convention: what is used to compute the amount of deductible depreciation in the year
the property was acquired and the year it was disposed
18.Define personal property: Any tangible assets besides buildings and land such as
cars, computers, furniture, machinery, and equipment
- not the same as personal use property
19.What assets have a predetermined recovery period of 5 years?: cars, light general
purpose trucks, camera equipment, computers, any equipment connected to a computer
20.What assets have a predetermined recovery period of 7 years?: Office
furniture, fixtures, machinery and equipment
21.What assets have a predetermined recovery period of 15 years?: qualified
improvement property
22.When does the mid quarter convention apply?: When more than 40% of the
personal property is placed into service in the fourth quarter of the year
23.What do you do if the half year convention applies to an asset that has been
disposed of before it has been fully depreciated?: Multiply the percentage you get from
the table by 50%
24.What type of depreciation does real property use?: straight line
25.What is the recovery period of residential property?: 27.5 years
26.What asset has a recovery period of 39 years?: nonresidential property placed
in service on or after May 13, 1993
27.What asset has a recovery period of 31.5 years?: nonresidential property placed
1. What is Cost Recovery?: When a company expenses the cost of acquiring assets
2. What is depreciation?: The cost recovery method that allocates the cost of
tangible and real property over a period of time
3. What is amortization?: The cost recovery method that recovers the cost of
intangible assets over a period of time
4. What is depletion?: The cost recovery method that allocates the price of natural
resources as they are removed
5. What is the adjusted/tax basis?: The initial basis (cost) of an asset + capital
improvement - depreciation/amortization
6. Personal Property: Tangible assets used for everyday life like cars, machinery,
equipment
- uses depreciation
7. Real Property: Buildings and Land even though land is not depreciable
- uses depreciation
8. Intangible Assets: nonphysical assets like goodwill/patents
- uses amortization
9. Natural Resources: Commodities that are valuable at their natural form like gold,
timber, coal, oil
- uses depletion
10.De Minimis Safe Harbor: Taxpayers may immediately deduct low-cost personal
property items used in business
- up to $5,000 per item/invoice with audited financial statement
- up to $2,500 per item/invoice without
11.How are routine maintenance costs treated for assets?: They can be imme- diately
, ACCT413 Exam 3 | exam review 2024
expensed
12.When do you capitalize costs for property?: When the costs result in the
betterment, restoration and adaptation for a new/different use for the property
13.What is the basis for a personal asset that has been converted to business use if
the transaction is fully taxable?: FMV
14.What is the basis for a personal asset that has been converted to business use if
the transaction is tax deferred?: Carryover basis- same basis it was when it was in
personal use
15.What is the basis for a personal asset that has been converted to business use if
the transaction is a gift?: The same basis the transferor had in the property
16.What is the basis for a personal asset that has been converted to business use if
the transaction is an inheritance?: FMV of the property on the day of the transferor's
death
, ACCT413 Exam 3 | exam review 2024
17.What is needed to compute MACRS depreciation?: The asset's depreciable basis,
the date the asset was put in service, the depreciation method applicable, the asset's
recovery period (life), and the depreciation convention applicable
- convention: what is used to compute the amount of deductible depreciation in the year
the property was acquired and the year it was disposed
18.Define personal property: Any tangible assets besides buildings and land such as
cars, computers, furniture, machinery, and equipment
- not the same as personal use property
19.What assets have a predetermined recovery period of 5 years?: cars, light general
purpose trucks, camera equipment, computers, any equipment connected to a computer
20.What assets have a predetermined recovery period of 7 years?: Office
furniture, fixtures, machinery and equipment
21.What assets have a predetermined recovery period of 15 years?: qualified
improvement property
22.When does the mid quarter convention apply?: When more than 40% of the
personal property is placed into service in the fourth quarter of the year
23.What do you do if the half year convention applies to an asset that has been
disposed of before it has been fully depreciated?: Multiply the percentage you get from
the table by 50%
24.What type of depreciation does real property use?: straight line
25.What is the recovery period of residential property?: 27.5 years
26.What asset has a recovery period of 39 years?: nonresidential property placed
in service on or after May 13, 1993
27.What asset has a recovery period of 31.5 years?: nonresidential property placed
