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Exam 10: Property Acquisition and Cost Recovery

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Question 61

True/False

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The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

A) True
B) False

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Question 62

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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?

A) $60,000
B) $90,000
C) $190,000
D) $160,000
E) None of these

F) B) and D)
G) A) and D)

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Question 63

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Paulsen incurred $55,000 of research and experimental expenses and began amortizing them over 60 months during June of year 1. During May of year 3, Paulsen received a patent based upon the research being amortized. $36,000 of legal expenses for the patent was incurred. The patent is expected to have a remaining useful life of 17 years. 1) What is the basis of the patent, rounding amortization for each year to the nearest whole number? 2) What is the amortization expense with respect to the patent during the year it was issued, rounded to the nearest whole number?

Littman LLC placed in service on July 29, 2016 machinery and equipment (7-year property) with a basis of $600,000. Littman's income for the current year before any depreciation expense was $100,000. Which of the following statements is true to maximize Littman's total depreciation expense for 2016? (Assume that the 2015 §179 limits are identical to 2016.)

Assume that Cannon LLC acquires a competitor's assets on June 15^th of a prior year. The purchase price was $450,000. Of the amount, $196,200 is allocated to tangible assets and $253,800 is allocated to three §197 intangible assets: $153,000 to goodwill, $50,400 to a customer list with an expected life of 8 years, and $50,400 to a 3 year non-compete agreement. On May 30^th of the second year, the customer list is sold for $10,000. Please round your amortization amounts to the nearest whole number. Round your allocation percentage to the nearest whole percentage (e.g., .1234 as 12%). 1) What is Cannon's amortization expense for the second year? 2) What is the basis of the intangibles at the end of the second year?

Yasmin purchased two assets during the current year. Yasmin placed in service computer equipment (5-year property) on May 26^th with a basis of $10,000 and machinery (7-year property) on December 9^th with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

An office desk is an example of: