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Exam 2: Property Acquisition and Cost Recovery

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Question 1

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

A) Full-month
B) Half-year
C) Mid-month
D) Mid-quarter
E) All of the choices are used under MACRS.

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

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Question 2

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Assume that Yuri acquires a competitor's assets on May 1^st.The purchase price was $500,000.Of the amount,$325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset).What is Yuri's amortization expense for the current year? (Round final answer to the nearest whole number)

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$7,778
The full-month conventi...

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Question 3

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Taxpayers may use historical data to determine the recovery period for tax depreciation.

Anne LLC purchased computer equipment (5-year property) on August 29 for $30,000 and used the half-year convention.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)

Which of the following assets is eligible for bonus depreciation?

Which of the following business assets is NOT depreciated?

Goodwill and customer lists are examples of §197 amortizable assets.

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

Columbia LLC only purchased one asset this year.Columbia LLC placed in service on October 9,2017 machinery and equipment (7-year property)with a basis of $2,150,000.Assume that Columbia has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing)for the year.(Use MACRS Table 2)(Round final answer to the nearest whole number)

Alexandra purchased a $35,000 automobile during 2017.The business use was 70 percent.What is the allowable depreciation for the current year (ignore any possible bonus depreciation)? Exhibit 2-8

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

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.

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.

How is the recovery period of an asset determined?

Bonnie Jo purchased a used computer (5-year property) for use in her sole proprietorship.The basis of the computer was $2,400.Bonnie Jo used the computer in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year.Calculate Bonnie Jo's depreciation expense during the first year assuming the sole proprietorship had a loss during the year (Bonnie did not place the property in service in the last quarter) .(Use MACRS Table 1)

Assume that Brittany acquires a competitor's assets on September 30^th of year 1 for $350,000.Of that amount,$300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a 1-year non-compete agreement) .Given,that the non-compete agreement expires on September 30^th of year 2,what is Brittany's amortization expense for the second year? (Round final answer to the nearest whole number)

PC Mine purchased a platinum deposit for $3,500,000.It estimated it would extract 17,000 ounces of platinum from the deposit.PC mined the platinum and sold it reporting gross receipts of $500,000 and $8 million for years 1 and 2,respectively.During years 1 and 2,PC reported net income (loss)from the platinum deposit activity in the amount of ($100,000)and $3,800,000,respectively.In years 1 and 2,PC actually extracted 2,000 and 8,000 ounces of platinum.What is PC's depletion expense for years 1 and 2 if the applicable percentage depletion for platinum is 22 percent? (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 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 under the mid-quarter convention.What is Kristine's depreciation expense for the current year if the depreciation recovery period is 7-years? (Use MACRS Table 1 and Table 2)EXHIBIT 2-6 (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.

Potomac LLC purchased an automobile for $30,000 on August 5,2017.What is Potomac's depreciation expense for 2017 (ignore any possible bonus depreciation) ? Exhibit 2-8