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Exam 10: Property Acquisition and Cost Recovery

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Question 21

True/False

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

A) True
B) False

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Question 22

Multiple Choice

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Which of the following depreciation conventions are not used under MACRS?

A) Full-month
B) Mid-month
C) Half-year
D) Mid-quarter
E) All of the choices are used under MACRS.

F) A) and C)
G) A) and D)

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Question 23

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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.

depreciation) . (Use MACRS Table 2 in the text) (Round final answer to the nearest whole number)

Roth, LLC purchased only one asset during the current year. Roth placed in service computer equipment (5-year property) on November 1st with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2 in the text)

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-yearperiod. Santa Fe paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, whichit sold for $250,000. What is Santa Fe's cost depletion expense for the current year?

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

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

Racine started a new business in the current year. She incurred $52,000 of start-up costs.If her business started on November 23rd of the current year, what is the total expense she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?

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

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

Daschle LLC completed some research and development during June of the current year.The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization expense Daschle may deduct during the current year?

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

An office building was purchased on December 9th several years ago for $2,500,000. The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000. During the current year, the 10th year, the building was sold on March 10th. Calculate the maximum depreciation expense for the real property during the current year, rounded to the nearest wholenumber. (Use MACRS Table 5 in the text)

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 thedepreciation allowance for the current year? (Use MACRS Table 1) (Round final answer to thenearest whole number)

Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset) . What is Bethany's amortization expense for the current year? (Round final answer to the nearest whole number)

Columbia LLC only purchased one asset this year. Columbia LLC placed in service on October 9,2017 machinery and equipment (7-year property) with a basis of $2,150,000. Assume that Columbia has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) for the year. (Use MACRS Table 2 in thetext) (Round final answer to the nearest whole number)

Alexandra purchased a $35,000 automobile during 2017. The business use was 70 percent. What is the allowable depreciation for the current year (ignore any possible bonus depreciation)? Exhibit10-8

Which of the following assets is eligible for bonus depreciation?

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