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Exam 2: Property Acquisition and Cost Recovery

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Question 21

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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.)

A) $641
B) $909
C) $5,128
D) $7,346
E) None of the choices are correct.

F) A) and D)
G) A) and C)

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Question 22

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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?

A) $2,417
B) $2,174
C) $4,108
D) $4,350
E) None of the choices are correct.

F) A) and B)
G) None of the above

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Question 23

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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.)

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Reid acquired two assets in 2020: on August 6thhe acquired computer equipment (five-year property) with a basis of $1,040,000 andon November 9th he acquired machinery (seven-year property) with a basis of $1,040,000. 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, Table 2.)

Oksana started a LLC on November 2 of the current year. She incurred $47,000 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?

Daschle LLC completed some research and development during June of the current year. The related costs were $69,600. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization amount Daschle may deduct during the current year?

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 $15,000 and on April 20 placed in service furniture (seven-year property) with a basis of $11,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

Deirdre's business purchased two assets during the current year (a full 12-month tax year) .On January 20 Deirdre placed in service computer equipment (five-year property) with a basis of $15,000 andon September 1 placed in service machinery (seven-year property) with a basis of $15,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Half-Year ConventionTable.) (Round final answer to the nearest whole number.)

Kristine sold two assets on March 20 ^th of the current year. The first was machinery with an original basis of $51,000, currently in the fourth year of depreciation, anddepreciated 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, anddepreciated 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.)

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.)

How is the recovery period of an asset determined?

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation deduction during the current year. (UseMACRS Table 3.)

Which of the following assets is not eligible for bonus depreciation?

Roth LLC purchased only one asset during the current year. On August 1^st Roth placed in service office equipment (seven-year property) with a basis of $47,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

Tom Tom LLC purchased a rental house and land during the current year for $174,000. The purchase price was allocated as follows: $112,000 to the building and $62,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year. (Use MACRS Table 3.) (Round final answer to the nearest whole number.)

Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year. (Use MACRS Table 3.)

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.)

Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business started on November 23 ^rd of the current year, what is the total amount she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?

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 depreciationpercentage from the MACRS table by 50 percent to calculate the depreciation expense properly.