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Exam 2: Property Acquisition and Cost Recovery

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Question 21

Multiple Choice

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Which is not an allowable method under MACRS?

A) 150 percent declining balance
B) 200 percent declining balance
C) Straight line
D) Sum of the years digits
E) All of the choices are allowable methods under MACRS.

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

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Question 22

Multiple Choice

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Geithner LLC patented a process it developed in the current year.The patent is expected to create benefits for Geithner over a 10-year period.The patent was issued on April 15^th and the legal costs associated with the patent were $43,000.In addition,Geithner had unamortized research expenditures of $15,000 related to the process.What is the total amortization expense Geithner may deduct during the current year?

A) $2,417
B) $2,174
C) $4,108
D) $4,350
E) None of the choices are correct.

F) A) and B)
G) A) and C)

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Question 23

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Patin Corporation began business on September 23^rd 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)

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 (ignoring §179 and bonus depreciation) .(Use MACRS Table 2) (Round final answer to the nearest whole number)

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

Which of the allowable methods allows the most accelerated depreciation?

Reid acquired two assets in 2017: computer equipment (5-year property)acquired on August 6^th with a basis of $510,000 and machinery (7-year property)on November 9th with a basis of $510,000.Assume that Reid has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing).(Use MACRS Table 1)

Racine started a new business in the current year.She incurred $52,000 of start-up costs.If her business started on November 23^rd of the current year,what is the total expense she may deduct with respect to the start-up costs for her initial year,rounded to the nearest whole number?

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.

All taxpayers may use the §179 immediate expensing election on certain property.

Taxpayers use the half-year convention for all assets.

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

Which depreciation convention is the general rule for tangible personal property?

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

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?

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?

Clay LLC placed in service machinery and equipment (7-year property) with a basis of $2,450,000 on June 6,2016.Assume that Clay has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus expensing) (Use MACRS Table 1) (Round final answer to the nearest whole number)

During August of the prior year,Julio purchased an apartment building that he used as a rental property.The basis was $1,400,000.Calculate the maximum depreciation expense during the current year.(Use MACRS Table 3)

Tax cost recovery methods include depreciation,amortization,and depletion.

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