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Exam 2: Property Acquisition and Cost Recovery

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Question 31

True/False

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

A) True
B) False

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Question 32

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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.(Use MACRS Table 5) (Round final answer to the nearest whole number)

A) $2,648.
B) $3,371.
C) $3,751.
D) $4,774.
E) None of the choices are correct.

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

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Question 33

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Taxpayers may always expense a portion of start-up costs and organizational expenditures.

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

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

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly.Occasionally,she uses the equipment for personal use.During the first year,Phyllis used the equipment for business use 70 percent of the time; however,during the current (second)year the business use fell to 40 percent.Assume that the equipment is seven-year MACRS property and is under the half-year convention.Assume the ADS recovery period is 10 years.What is the depreciation allowance for the current year? (Use MACRS Table 1)(Round final answer to the nearest whole number)

Northern LLC only purchased one asset this year.In 2017,Northern LLC placed in service on September 6^th machinery and equipment (7-year property)with a basis of $2,200,000.Assume that Northern has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing).(Use MACRS Table 1)(Round final answer to the nearest whole number)

Littman LLC placed in service on July 29,2017 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 2017? (Use MACRS Table 1)

If a machine (seven-year property)being depreciated using the half-year convention is disposed of during the seventh year,a taxpayer must multiply the appropriate depreciation percentage from the MACRS table percentage by 50 percent to calculate the depreciation expense properly.

Suvi,Inc.purchased two assets during the current year (a full 12-month tax year) .Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) .(Use MACRS Table 1) (Round final answer to the nearest whole number)

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

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.

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.(Use MACRS Table 5)

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).(Use MACRS Table 2)

Jorge purchased a copyright for use in his business in the current year.The purchase occurred on July 15^th and the purchase price was $75,000.If the patent has a remaining life of 75 months,what is the total amortization expense Jorge may deduct during the current 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?

Significant limits are placed on the depreciation of luxury automobiles.

Tax cost recovery methods do NOT include:

Lenter LLC placed in service on April 29,2017 machinery and equipment (7-year property) with a basis of $600,000.Assume that Lenter has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including section 179 expensing (but ignoring bonus expensing) .(Use MACRS Table 1)

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