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Exam 10: Property Acquisition and Cost Recovery

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Question 21

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

A) True
B) False

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Question 22

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Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10 ^th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

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$800.When personal property is...

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Question 23

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To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

Paulman incurred $71,000 of research and experimental expenses and began amortizing them over 60 months during June of Year 1. During May of Year 3, Paulman received a patent based upon the research being amortized. $52,000 of legal expenses for the patent were incurred. The patent is expected to have a remaining useful life of 17 years. 1)What is the basis of the patent? (Round amortization for each year to the nearest whole number.) 2)What is the amortization deduction with respect to the patent during the year it was issued? (Round final answer to the nearest whole number.)

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

Alexandra purchased a $56,600 automobile during 2020. The business use was 70 percent. What is the allowable depreciation for the current year? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

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 $97,500. 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.)

Yasmin purchased two assets during the current year. On May 26^th Yasmin placed in service computer equipment (five-year property)with a basis of $10,000 andon December 9^th placed in service machinery (seven-year property)with a basis of $10,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

Oksana started a LLC on November 2 of the current year. She incurred $36,000 of start-up costs. How much of the start-up costs can be immediately expensed for the year? How much amortization may Oksana deduct in the first year?

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

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.

Bonus depreciation is used as a stimulus tool by tax policy makers.

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.

Wheeler LLC purchased two assets during the current year (a full 12-month tax year) . On November 16 Wheeler placed in service computer equipment (five-year property) with a basis of $24,500 and on April 20 placed in service furniture (seven-year property) with a basis of $16,700. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

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

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?

Anne LLC purchased computer equipment (five-year property) on August 29 for $30,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.)

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?

Northern LLC only purchased one asset this year. In 2020, Northern LLC placed in service on September 6^th machinery and equipment (seven-year property)with a basis of $3,150,000. 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.)

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.)