Hazel Purchased a New Business Asset (Five-Year Asset) on September

question 20

Multiple Choice

Hazel purchased a new business asset (five-year asset) on September 30, 2019, at a cost of $100,000.On October 4, 2019, she placed the asset in service.This was the only asset she placed in service in 2019.Hazel did not elect
§ 179 or additional first-year depreciation.On August 20, 2020, Hazel sold the asset.Determine the cost recovery for 2020 for the asset.

• A)$14,250
• B)$19,000
• C)$23,750
• D)$38,000

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Definitions:

Fixed-cost Financing

Refers to the method of raising capital where the company incurs fixed financial charges, such as interest on bonds or dividends on preferred stock, regardless of its financial performance.

Financial Leverage

A strategy involving the use of borrowed money to increase the potential return of an investment.

Operating Leverage

The use of fixed as opposed to variable cost in a firm’s cost structure.

Combined Leverage

Refers to the use of both operating and financial leverage by a company to assess the potential impact on earnings due to changes in sales.