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Exam 10: Property Acquisition and Cost Recovery

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Question 41

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Potomac LLC purchased an automobile for $30,000 on August 5, 2016. What is Potomac's depreciation expense for 2016? (ignore any possible bonus depreciation)

A) $3,160
B) $4,287
C) $6,000
D) $30,000
E) None of these

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

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Question 42

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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?

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1) $69,000
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Question 43

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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.

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.)

Sairra, LLC purchased only one asset during the current year (a full 12-month tax year) . Sairra placed in service furniture (7-year property) on April 16 with a basis of $25,000. Calculate the maximum depreciation expense for the current year, rounding to a whole number (ignoring §179 and bonus depreciation) :

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

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

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) , rounded to a whole number. (Assume that the 2015 §179 limits are identical to 2016.)

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

Lax, LLC purchased only one asset during the current year (a full 12-month tax year) . Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) :

Wheeler LLC purchased two assets during the current year (a full 12-month tax year) . Wheeler placed in service computer equipment (5-year property) on November 16 with a basis of $15,000 and furniture (7-year property) on April 20 with a basis of $11,000. Calculate the maximum depreciation expense, rounding to a whole number (ignoring §179 and bonus depreciation) :

Which of the following depreciation conventions are not used under MACRS?

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

Putin 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, rounded to the nearest whole number?

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

Which of the allowable methods allows the most accelerated depreciation?

Arlington LLC purchased an automobile for $40,000 on July 5, 2016. What is Arlington's depreciation expense for 2016 if its business use percentage is 75 percent? (ignore any possible bonus depreciation)

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

All assets subject to amortization have the same recovery period.

Crouch LLC placed in service on May 19, 2016 machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) . (Assume that the 2015 §179 limits are identical to 2016.)