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Exam 10: Property Acquisition and Cost Recovery

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Question 1

True/False

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All assets subject to amortization have the same recovery period.

A) True
B) False

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Question 2

Multiple Choice

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Assume that Brittany acquires a competitor's assets on September 30^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement) . Given that the noncompete agreement expires on September 30^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

A) $0
B) $1,667
C) $2,917
D) $3,333
E) None of the choices are correct.

F) None of the above
G) A) and C)

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Question 3

Multiple Choice

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Which depreciation convention is the general rule for tangible personal property?

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

Lax LLC purchased only one asset during the current year (a full 12-month tax year) . On August 26 Lax placed in service computer equipment (five-year property) with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) . (Use MACRS Table 1.)

Yasmin purchased two assets during the current year. On May 26th Yasmin placed in service computer equipment (five-year property)with a basis of $10,000 and on December 9th placed in service machinery (seven-year property)with a basis of $10,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

Arlington LLC purchased an automobile for $55,000 on July 5, 2019. What is Arlington's depreciation deduction for 2019 if its business-use percentage is 75 percent? (Ignore any possible bonus depreciation.) (Use Exhibit 10-10.)

Deirdre's business purchased two assets during the current year (a full 12-month tax year) . On January 20 Deirdre placed in service computer equipment (five-year property) with a basis of $15,000 and on September 1 placed in service machinery (seven-year property) with a basis of $15,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

Taylor LLC purchased an automobile for $55,000 on July 5, 2019. What is Taylor's maximum depreciation deduction for 2019 (including bonus depreciation) if its business use percentage is 100 percent?

How is the recovery period of an asset determined?

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Sairra LLC purchased only one asset during the current year (a full 12-month tax year) . On April 16 Sairra placed in service furniture (seven-year property) with a basis of $25,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) . (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

Bonnie Jo used two assets during the current year. The first was computer equipment with an original basis of $15,000, currently in the second year of depreciation and depreciated under the half-year convention. This asset was disposed of on October 1st of the current year. The second was furniture with an original basis of $24,000, placed in service during the first quarter, currently in the fourth year of depreciation, and depreciated under the mid-quarter convention. What is Bonnie Jo's depreciation deduction for the current year? (Round final answer to the nearest whole number.)(Use MACRS Table 1 and Table 2.)

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly. Occasionally, she uses the equipment for personal use. During the first year, Phyllis used the equipment for business use 70 percent of the time; however, during the current (second)year, the business use fell to 40 percent. Assume that the equipment is seven-year MACRS property and is under the half-year convention. Assume the ADS recovery period is 10 years. What is the depreciation allowance for the current year? (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

Which of the following is not usually included in an asset's tax basis?

Boxer LLC has acquired various types of assets recently used 100 percent in its trade or business. Below is a list of assets acquired during 2018 and 2019: Boxer did not elect §179 expense and elected out of bonus depreciation in 2018, but would like to take advantage of the §179 expense and bonus depreciation for 2019 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation deduction for 2019. (Use MACRS Table 1, MACRS Table 5, and Exhibit 10-10. )(Round final answer to the nearest whole number.)

Anne LLC purchased computer equipment (five-year property) on August 29 for $30,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.)

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Northern LLC only purchased one asset this year. In 2019, Northern LLC placed in service on September 6^th machinery and equipment (seven-year property)with a basis of $3,150,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing). (Use MACRS Table 1.)(Round final answer to the nearest whole number.)