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Exam 10: Property Acquisition and Cost Recovery

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Question 41

Multiple Choice

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Tax cost recovery methods do not include:

A) Amortization.
B) Capitalization.
C) Depletion.
D) Depreciation.
E) All of the choices are tax cost recovery methods.

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

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Question 42

Multiple Choice

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Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it, reporting gross receipts of $1.8 million, $2.5 million, and $2 million for Years 1 through 3, respectively. During Years 1 through 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000) , $400,000, and $100,000, respectively. In Years 1 through 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: What is Lucky Strike's depletion deduction for Year 2 if the applicable percentage depletion for silver is 15 percent?

A) $200,000.
B) $375,000.
C) $400,000.
D) $450,000.
E) None of the choices are correct.

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

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Question 43

Multiple Choice

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Suvi, Inc. purchased two assets during the current year (a full 12-month tax year) . On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) 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.)

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

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

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 copyright has a remaining life of 75 months, what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.)

Assume that Bethany acquires a competitor's assets on March 31^st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset) . What is Bethany's amortization deduction for the current year? (Round final answer to the nearest whole number.)

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

Cost depletion is available to all natural resource producers.

An example of an asset that is both personal-use and personal property is:

An office building was purchased several years ago on December 9th for $2,500,000. The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000. During the current year, the 10^th year, the building was sold on March 10^th. Calculate the maximum depreciation deduction for the real property during the current year, rounded to the nearest whole number. (Use MACRS Table 5.)

Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10^th year, calculate Simmons's maximum depreciation in the 10^th year. (Use MACRS Table 5 and Exhibit 10-6.)

Eddie purchased only one asset during the current year. On May 1st Eddie placed in service furniture (seven-year property)with a basis of $26,500. Calculate the maximum depreciation deduction, rounded to the nearest whole number (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Reid acquired two assets in 2019: on August 6th he acquired computer equipment (five-year property)with a basis of $1,020,000 and on November 9th he acquired machinery (seven-year property)with a basis of $1,020,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but not bonus depreciation). (Use MACRS Table 1.)

The mid-month convention applies to real property in the year of acquisition and disposition.

Taxpayers use the half-year convention for all assets.

Roth LLC purchased only one asset during the current year. On August 1st Roth placed in service office equipment (seven-year property)with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.)(Round final answer to the nearest whole number.)

Kristine sold two assets on March 20th of the current year. The first was machinery with an original basis of $51,000, currently in the fourth year of depreciation, and depreciated under the half-year convention. The second was furniture with an original basis of $16,000, placed in service during the fourth quarter, currently in the third year of depreciation, and depreciated under the mid-quarter convention. What is Kristine's depreciation deduction for the current year if the depreciation recovery period is seven years? (Use MACRS Table 1 and Table 2 and Exhibit 10-6.)(Round final answer to the nearest whole number.)

The MACRS recovery period for automobiles and computers is:

Gessner LLC patented a process it developed in the current year. The patent is expected to create benefits for Gessner 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, Gessner had unamortized research expenditures of $15,000 related to the process. What is the total amortization amount Gessner may deduct during the current year?