Free SERIES 7 Exam Braindumps (page: 46)

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In terms of depletion, percentage depletion is better than cost depletion because it:

  1. permits recovery of more than the original cost
  2. is limited to production
  3. is more widely available
  4. is not subject to recapture

Answer(s): A

Explanation:

permits recovery of more than the original cost. Percentage depletion is only available for small producing wells.



Which of the following is not an intangible drilling cost?

  1. salaries
  2. supplies and fuel
  3. machinery and pipe
  4. repairs

Answer(s): C

Explanation:

machinery and pipe. These are tangible fixed assets and not associated with intangible drilling costs.



Limited partnerships try to avoid recapture because:

  1. it turns potential capital gains into current taxable income
  2. it may subject the partnership to the add-on tax
  3. it increases the risk of a tax audit
  4. it always increases the investor’s tax bracket

Answer(s): A

Explanation:

it turns potential capital gains into current taxable income. Recapture is taxed as ordinary income, not capital gain. The other choices are not true.



If recaptured deductions are added to income, recaptured investment tax credits are added to:

  1. income
  2. basis
  3. gains
  4. taxes

Answer(s): D

Explanation:

taxes. Tax credits are not deductible expenses and have no effect on basis.






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