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Exam 2: Property Acquisition and Cost Recovery

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Question 41

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Tasha LLC purchased furniture (7-year property) on April 20 for $20,000 and used the mid-quarter convention.Tasha did not take §179 or bonus depreciation in the year it acquired the furniture.During the current year,which is the fourth year Tasha LLC owned the property,the property was disposed of on December 15.Calculate the maximum depreciation expense.(Use MACRS Table 2) EXHIBIT 2-6 (Round final answer to the nearest whole number)

A) $898.
B) $2,095.
C) $2,461.
D) $2,394.
E) None of the choices are correct.

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

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Question 42

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Real property is always depreciated using the straight-line method.

A) True
B) False

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Question 43

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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.

The MACRS recovery period for automobiles and computers is:

Cost depletion is available to all natural resource producers.

Janey purchased machinery on April 8^th of the current year.The relevant costs for the year are as follows: machinery for $10,000,$800 shipping,$50 for delivery insurance,$500 for installation,$750 for sales tax,$150 for the annual tune up,and $200 of property taxes (an annual tax on business property).What is Janey's tax basis for the machinery?

Crouch LLC placed in service on May 19,2017 machinery and equipment (7-year property) with a basis of $2,200,000.Assume that Crouch has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) .(Use MACRS Table 1)

In general,a taxpayer should select longer-lived property for the §179 immediate expensing election.

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

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Assume that Cannon LLC acquires a competitor's assets on June 15^th of a prior year.The purchase price was $450,000.Of the amount,$196,200 is allocated to tangible assets and $253,800 is allocated to three §197 intangible assets: $153,000 to goodwill,$50,400 to a customer list with an expected life of 8 years,and $50,400 to a 3 year non-compete agreement.On May 30^th of the second year,the customer list is sold for $10,000.(e.g.,.1234 as 12%).(Round final answer to the nearest whole number.Round your allocation percentage to the nearest whole percentage) 1)What is Cannon's amortization expense for the second year? 2)What is the basis of the intangibles at the end of the second year?

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

Tom Tom LLC purchased a rental house and land during the current year for $150,000.The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land.The property was placed in service on May 22.Calculate Tom Tom's maximum depreciation for this first year.(Use MACRS Table 3)

Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior year.The basis of the computer was $2,400.Billie Bob used the computer in his business 60 percent of the time during the first year.During the second year,Billie Bob used the computer 40 percent for business use.Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter) .(Use MACRS Table 1)

Oksana started an LLC on November 2 of the current year.She incurred $30,000 of start-up costs.How much of the start-up costs can be immediately expensed for the year? How much amortization may Oksana deduct in the first year?

Paulsen incurred $55,000 of research and experimental expenses and began amortizing them over 60 months during June of year 1.During May of year 3,Paulsen received a patent based upon the research being amortized.$36,000 of legal expenses for the patent was incurred.The patent is expected to have a remaining useful life of 17 years. 1)What is the basis of the patent,rounding amortization for each year to the nearest whole number? 2)What is the amortization expense with respect to the patent during the year it was issued,rounded to the nearest whole number?

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

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 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 under the mid-quarter convention.What is Bonnie Jo's depreciation expense for the current year? (Round final answer to the nearest whole number)(Use MACRS Table 1 and Table 2)

An example of an asset that is both personal-use and personal property is:

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000.It estimated it would extract 500,000 ounces of silver from the deposit.Lucky Strike mined the silver and sold it reporting gross receipts of $1.8 million,$2.5 million,and $2 million for years 1 through 3,respectively.During years 1 - 3,Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000) ,$400,000,and $100,000,respectively.In years 1 - 3,Lucky Strike actually extracted 300,000 ounces of silver as follows: What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?