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Exam 9: Property Acquisition and Cost Recovery

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Question 51

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

A) True
B) False

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Question 52

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(Table 2,and EXHIBIT 10-6) IN THE TEXT -Kristine sold two assets on March 20th of the current year.The first was machinery with an original basis of $51,000,currently in the fourth year of depreciation,and under the half-year convention.The second was furniture with an original basis of $16,000 placed in service during the fourth quarter,currently in the third year of depreciation,and under the mid-quarter convention.What is Kristine's depreciation expense for the current year if the depreciation recovery period is 7-years? (Use MACRS Table 1,Table 2,and EXHIBIT 10-6)(Round final answer to the nearest whole number.)

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$3,579. The depreciation on th...

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Question 53

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

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?

Significant limits are placed on the depreciation of luxury automobiles.

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?

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

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?

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 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,which it sold for $250,000.What is Santa Fe's cost depletion expense for the current year?

IN THE TEXT -Tasha LLC purchased furniture (7-year property) on April 20 for $20,000 and used the half-year convention.Tasha did not take §179 or bonus depreciation in the year it acquired the furniture.During the current year,which is the fourth year Tasha LLC owned the property,the property was disposed of on December 15.Calculate the maximum depreciation expense.(Use MACRS Table 2) EXHIBIT 10-6  (Round final answer to the nearest whole number.)

The MACRS recovery period for automobiles and computers is:

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.

Jorge purchased a copyright for use in his business in the current year.The purchase occurred on July 15ᵗʰ and the purchase price was $75,000.If the copyright has a remaining life of 75 months,what is the total amortization expense Jorge may deduct during the current year? (Assume not in an asset acquisition to which §197 applies)  

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

-Amit purchased two assets during the current year.Amit placed in service computer equipment (5-year property)on April 16ᵗʰ with a basis of $5,000 and furniture (7-year property)on September 9ᵗʰ with a basis of $20,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).(Use MACRS Table 1)

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

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?

-Bonnie Jo purchased a used camera (5-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 expense 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)

Real property is always depreciated using the straight-line method.

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