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Exam 10: Property Acquisition and Cost Recovery

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Question 31

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Taxpayers may use historical data to determine the recovery period for tax depreciation.

A) True
B) False

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Question 32

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Sequoia purchased the rights to cut timber on several tracts of land over a fifteen-year period. It paid $500,000 for cutting rights. A timber engineer estimates that 500,000 board feet of timber will be cut. During the current year, Sequoia cut 45,000 board feet of timber, which it sold for $900,000. What is Sequoia's cost depletion expense for the current year?

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$45,000
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Question 33

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Tax depreciation is currently calculated under what system?

An office building was purchased on December 9^th 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 10^th year, the building was sold on March 10^th. Calculate the maximum depreciation expense for the real property during the current year, rounded to the nearest whole number.

Reid acquired two assets in 2016: computer equipment (5-year property) acquired on August 6^th with a basis of $500,000 and machinery (7-year property) on November 9^th with a basis of $500,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). Assume the 2015 §179 limits are identical to 2016.

Amit purchased two assets during the current year. Amit placed in service computer equipment (5-year property) on April 16^th with a basis of $5,000 and furniture (7-year property) on September 9^th with a basis of $20,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

Which of the following business assets is not depreciated?

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion expense for the current year?

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15^th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?

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 1^st 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, rounded to the nearest whole number?

The mid-month convention applies to real property in the year of acquisition and disposition.

The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Tax cost recovery methods do not include:

Lax, LLC purchased only one asset during the current year (a full 12-month tax year) . Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) :

Putin 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, rounded to the nearest whole number?

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.

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, rounded to a whole number (ignoring §179 and bonus depreciation) :

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?

Potomac LLC purchased an automobile for $30,000 on August 5, 2016. What is Potomac's depreciation expense for 2016? (ignore any possible bonus depreciation)

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2016 machinery and equipment (7-year property) with a basis of $850,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing, rounded to the nearest whole number (but ignoring bonus expensing). Assume the 2015 §179 limits are identical to 2016.