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Exam 10: Property Acquisition and Cost Recovery

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Question 1

Multiple Choice

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An office desk is an example of:

A) Personal property.
B) Personal-use property.
C) Real property.
D) Business property.
E) Personal property and business property.

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

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E

Question 2

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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?

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$5,278. $5,000 of start-up expenses can be immediately expensed and $278 ($25,000 ÷ 180) × 2 months of amortization may be deducted.

Question 3

Multiple Choice

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Arlington LLC purchased an automobile for $55,000 on July 5, 2018. What is Arlington's depreciation expense for 2018 if its business use percentage is 75 percent (ignore any possible bonus depreciation) ?  Exhibit 10-10

Cost depletion is available to all natural resource producers.

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

The method for tax amortization is always the straight-line method.

Columbia LLC only purchased one asset this year. Columbia LLC placed in service on July 9, 2018 machinery and equipment (7-year property) with a basis of $2,750,000. 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) (Round final answer to the nearest whole number.)

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

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.)

Taylor LLC purchased an automobile for $55,000 on July 5, 2018. What is Taylor's maximum depreciation expense for 2018 if its business use percentage is 100 percent?

The MACRS recovery period for automobiles and computers is:

Gessner LLC patented a process it developed in the current year. The patent is expected to create benefits for Gessner over a 10-year period. The patent was issued on April 15ᵗʰ and the legal costs associated with the patent were $43,000. In addition, Gessner had unamortized research expenditures of $15,000 related to the process. What is the total amortization expense Gessner may deduct during the current year?

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)

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the year?

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

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)

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.)

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

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)

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?