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Exam 10: Property Acquisition and Cost Recovery

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Question 61

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Which of the following is not usually included in an asset's tax basis?

A) Purchase price.
B) Sales tax.
C) Shipping.
D) Installation costs.
E) All of the choices are included in an asset's tax basis.

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

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Question 62

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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.)

A) $0.
B) $5,500.
C) $6,000.
D) $12,000.
E) None of the choices are correct.

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

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Question 63

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Sequoia purchased the rights to cut timber on several tracts of land over a 15-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 deduction for the current year?

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.)

Businesses deduct percentage depletion when they sell the natural resource and they deduct cost depletion in the year they produce or extract the natural resource.

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.)

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.