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Exam 2: Property Acquisition and Cost Recovery

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Question 1

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Taylor LLC purchased an automobile for $55,000 on July 5, 2020. What is Taylor's maximum depreciation deduction for 2020 (including bonus depreciation) if its business use percentage is 100 percent?

A) $10,100
B) $11,000
C) $18,100
D) $55,000
E) None of the choices are correct.

F) A) and E)
G) D) and E)

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Question 2

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Tax depreciation is currently calculated under what system?

A) Sum-of-the-years'-digits
B) Accelerated cost recovery system
C) Modified Accelerated Cost Recovery System
D) Straight-line system
E) None of the choices are correct.

F) A) and B)
G) B) and C)

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Question 3

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Timothy purchased a new computer for his consulting practice on October 15 ^th of the current year. The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery deduction with respect to the computer during the current year?

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year. (Use MACRS Table 5.) (Round final answer to the nearest whole number.)

Bonus depreciation is used as a stimulus tool by tax policy makers.

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

Amit purchased two assets during the current year.On April 16^th Amit placed in service computer equipment (five-year property) with a basis of $5,000 and on September 9^th placed in service furniture (seven-year property) with a basis of $20,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Which of the following would be considered an improvement rather than routine maintenance?

Jasmine started a new business in the current year. She incurred $22,000 of start-up costs. How much of the start-up costs can be immediately deducted (excluding amounts amortized over 180 months) for the year?

Lenter LLC placed in service on April 29, 2020, machinery and equipment (seven-year property) with a basis of $1,600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus expensing) . (Use MACRS Table 1.)

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.)

Cost depletion is available to all natural resource producers.

The 200 percent or double declining balance method is allowable for five- and seven-year property.

Arlington LLC purchased an automobile for $62,000 on July 5, 2020. What is Arlington's depreciation deduction for 2020 if its business-use percentage is 61 percent? (Ignore any possible bonus depreciation.) (Use Exhibit 10-10.)

Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $2,400. Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Bonnie did not place the property in service in the last quarter.) (Use MACRS Table 1.)

Assume that Yuri acquires a competitor's assets on May 1^st. The purchase price was $508,000. Of that amount, $329,000 is allocated to tangible assets and $179,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization deduction for the current year?(Round final answer to the nearest whole number.)

Which of the following assets is eligible for §179 expensing?

Patin Corporation began business on September 23 ^rd of the current year. It incurred $40,000 of start-up costs and $60,000 of organizational expenditures. How much total amortization may be deducted in the first year? (Round final answer to the nearest whole number.)

If the business-use percentage for listed property falls below 50 percent, the only adjustment isthat all future depreciation must be calculated under the straight-line method.

Northern LLC only purchased one asset this year. In 2020, Northern LLC placed in service on September 6^th machinery and equipment (seven-year property) with a basis of $3,180,000. 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.)