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Exam 10: Property Acquisition and Cost Recovery

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Question 31

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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.

A) True
B) False

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Question 32

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All assets subject to amortization have the same recovery period.

A) True
B) False

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Question 33

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Assume that Yuri acquires a competitor's assets on May 1^st. The purchase price was $518,000. Of that amount, $334,000 is allocated to tangible assets and $184,000 is allocated to goodwill (a §197 intangible asset). What is Yuri's amortization deduction for the current year?(Round final answer to the nearest whole number.)

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,450,000 on June 6, 2020. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation) . (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

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

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

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather thanby the amount of the allowable depreciation.

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

Cost depletion is available to all natural resource producers.

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?

Tom Tom LLC purchased a rental house and land during the current year for $180,000. The purchase price was allocated as follows: $115,000 to the building and $65,000 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.)

Which of the allowable methods allows the most accelerated depreciation?

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

The MACRS recovery period for automobiles and computers is:

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

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.)

Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. 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?

How is the recovery period of an asset determined?

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe's cost depletion deduction for the current year?

Limits are placed on the depreciation of luxury automobiles.