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Exam 10: Property Acquisition and Cost Recovery

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Question 1

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Sequoia purchased the rights to cut timber on several tracts of land over a 15-year period. It paid $504,000 for cutting rights. A timber engineer estimates that 504,000 board feet of timber will be cut. During the current year, Sequoia cut 49,000 board feet of timber, which it sold for $904,000. What is Sequoia's cost depletion deduction for the current year?

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The depleti...

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Question 2

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Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $2,400. Bonnie Jo used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Bonnie did not place the property in service in the last quarter.) (Use MACRS Table 1.)

A) $240
B) $288
C) $480
D) $2,400
E) None of the choices are correct.

F) A) and D)
G) All of the above

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Question 3

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Taxpayers use the half-year convention for all assets.

Assume that Brittany acquires a competitor's assets on September 30 ^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement) . Given that the noncompete agreement expires on September 30 ^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

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

Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $4,400. Bonnie Jo used the camera in her business 70 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Bonnie Jo's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Bonnie did not place the property in service in the last quarter.) (Use MACRS Table 1.)

Sairra LLC purchased only one asset during the current year (a full 12-month tax year) . On April 16 Sairra placed in service furniture (seven-year property) with a basis of $35,000. 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.)

Beth's business purchased only one asset during the current year (a full 12-month tax year) . On December 1 Beth placed in service machinery (seven-year property) with a basis of $75,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

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

Lax LLC purchased only one asset during the current year (a full 12-month tax year) . On August 26 Lax placed in service computer equipment (five-year property) with a basis of $22,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) . (Use MACRS Table 1.)

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

Oksana started a 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?

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

Which of the following is not usually included in an asset's tax basis?

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

Which of the following business assets is not depreciated?

Which of the following assets is not eligible for bonus depreciation?

Roth LLC purchased only one asset during the current year. On August 1^st Roth placed in service office equipment (seven-year property)with a basis of $58,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.)(Round final answer to the nearest whole number.)

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