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Exam 9: Property Acquisition and Cost Recovery

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Question 1

Multiple Choice

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Which of the allowable methods allows the most accelerated depreciation?

A) 150 percent declining balance.
B) 200 percent declining balance.
C) Straight-line.
D) Sum-of-the-years-digits.
E) None of the methods would allow accelerated depreciation.

F) A) and B)
G) B) and E)

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B

Question 2

Multiple Choice

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-Suvi,Inc.purchased two assets during the current year (a full 12-month tax year) .Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) .(Use MACRS Table 1) (Round final answer to the nearest whole number.)

A) $857.
B) $3,357.
C) $5,429.
D) $6,000.
E) None of the choices are correct.

F) A) and B)
G) B) and D)

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Question 3

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Paulman 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,Paulman 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? (Round 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? (Round final answer to the nearest whole number.)

Which is not an allowable method under MACRS?

-Littman LLC placed in service on July 29,2018 machinery and equipment (7-year property) with a basis of $600,000.Littman's income for the current year before any depreciation expense was $100,000.Which of the following statements is true to maximize Littman's total depreciation expense for 2018? (Use MACRS Table 1)

-Sairra,LLC purchased only one asset during the current year (a full 12-month tax year) .Sairra placed in service furniture (7-year property) on April 16 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.)

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year,the taxpayer must use the mid-quarter convention for the year of disposition.

Alexandra purchased a $55,000 automobile during 2018.The business use was 70 percent.What is the allowable depreciation for the current year (ignore any possible bonus depreciation)? (Use Exhibit 10-10)

Goodwill and customer lists are examples of §197 amortizable assets.

IN THE TEXT -During August of the prior year,Julio purchased an apartment building that he used as a rental property.The basis was $1,400,000.Calculate the maximum depreciation expense during the current year.(Use MACRS Table 3)

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

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

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

PC Mine purchased a platinum deposit for $3,500,000.It estimated it would extract 17,000 ounces of platinum from the deposit.PC mined the platinum and sold it reporting gross receipts of $500,000 and $8 million for years 1 and 2,respectively.During years 1 and 2,PC reported net income (loss)from the platinum deposit activity in the amount of ($100,000)and $3,800,000,respectively.In years 1 and 2,PC actually extracted 2,000 and 8,000 ounces of platinum.What is PC's depletion expense for years 1 and 2 if the applicable percentage depletion for platinum is 22 percent? (Round final answer to the nearest whole number.)

-Eddie purchased only one asset during the current year.Eddie placed in service furniture (7-year property)on May 1ˢᵗ with a basis of $26,500.Calculate the maximum depreciation expense,rounded to the nearest whole number (ignoring §179 and bonus depreciation).(Use MACRS Table 1)

-Lenter LLC placed in service on April 29,2018 machinery and equipment (7-year property) with a basis of $1,600,000.Assume that Lenter has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) .(Use MACRS Table 1)

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

IN THE TEXT -Simmons LLC purchased an office building and land several years ago for $250,000.The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land.The property was placed in service on October 2.If the property is disposed of on February 27 during the 10ᵗʰ year,calculate Simmons' maximum depreciation in the 10ᵗʰ year.(Use MACRS Table 5)   EXHIBIT 10-6

Depletion is the method taxpayers use to recover their capital investment in natural resources.

-Billie Bob purchased a used camera (5-year property) for use in his sole proprietorship in the prior year.The basis of the camera was $2,400.Billie Bob used the camera in his business 60 percent of the time during the first year.During the second year,Billie Bob used the camera 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)