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Exam 10: Property Acquisition and Cost Recovery

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Question 31

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Deirdre's business purchased two assets during the current year (a full 12-month tax year) . Deirdre placed in service computer equipment (5-year property) on January 20 with a basis of $15,000 and machinery (7-year property) on October 1 with a basis of $15,000. Calculate the maximum depreciation expense, rounded to a whole number (ignoring §179 and bonus depreciation) :

A) $1,286
B) $5,144
C) $5,786
D) $6,000
E) None of these

F) C) and E)
G) C) and D)

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Question 32

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Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

A) True
B) False

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Question 33

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Timothy purchased a new computer for his consulting practice on October 15^th 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?

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the 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?

Which of the following business assets is not depreciated?

During April of the current year, Ronen purchased a warehouse that he used for business purposes. The basis was $1,600,000. Calculate the maximum depreciation expense during the current year.

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2016 machinery and equipment (7-year property) with a basis of $850,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing, rounded to the nearest whole number (but ignoring bonus expensing). Assume the 2015 §179 limits are identical to 2016.

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than the amount of the allowable depreciation.

Poplock LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate Poplock's maximum depreciation for this first year, rounded to the nearest whole number:

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?

The MACRS recovery period for automobiles and computers is:

Teddy purchased only one asset during the current year. Teddy placed in service machinery (7-year property) on October 1^st with a basis of $76,500. Calculate the maximum depreciation expense, rounded to the nearest whole number (ignoring §179 and bonus depreciation).

Columbia LLC only purchased one asset this year. Columbia LLC placed in service on October 9, 2016 machinery and equipment (7-year property) with a basis of $2,150,000. 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, rounded to the nearest whole number. Assume the 2015 §179 limits are identical to 2016.

Occasionally bonus depreciation is used as a stimulus tool by tax policy makers.

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

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

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 1^st 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, rounded to the nearest whole number?

Which of the following assets is eligible for bonus depreciation?

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?