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Exam 10: Property Acquisition and Cost Recovery

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Question 41

Multiple Choice

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A) $1,728.
B) $3,456.
C) $1,874.
D) $432.
E) None of the choices are correct.

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

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Question 42

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

A) True
B) False

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Question 43

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

Taxpayers use the half-year convention for all assets.

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

Like financial accounting, most acquired business property must be capitalized for taxpurposes.

Which of the allowable methods allows the most accelerated depreciation?

Yasmin purchased two assets during the current year. Yasmin placed in service computer equipment(5-year property) on May 26th with a basis of $10,000 and machinery (7-year property) on December9th with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2 in the text)

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

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?

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?

What is the amortization expense with respect to the patent during the year it was issued, rounded to the nearest whole number?

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2017 machinery and equipment (7-year property) with a basis of $850,000. Assume that Olney hassufficient income to avoid any limitations. Calculate the maximum depreciation expense including§179 expensing, (but ignoring bonus expensing). (Use MACRS Table 1) (Round final answer to the nearest whole number)

Patin Corporation began business on September 23rd 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? (Round final answer to the nearest whole number)

Cost depletion is available to all natural resource producers.

Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

All assets subject to amortization have the same recovery period.

Timothy purchased a new computer for his consulting practice on October 15th of the current year.The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery expense with respect to the computer during the current year?

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