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Exam 9: Property Acquisition and Cost Recovery

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Question 21

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Assume that Bethany acquires a competitor's assets on March 31st. 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 expense for the current year, rounded to the nearest whole number?

A) $0
B) $1,250
C) $1,319
D) $1,389
E) None of these

F) A) and B)
G) B) and E)

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Question 22

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Amit purchased two assets during the current year. Amit placed in service computer equipment (5-year property) on April 16th with a basis of $5,000 and furniture (7-year property) on September 9th with a basis of $20,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

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Question 23

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

Clay LLC placed in service machinery and equipment (7-year property) with a basis of $2,450,000 on June 6, 2014. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus expensing) , rounded to a whole number. Assume that the 2013 §179 limits are extended to 2014:

Assume that Brittany acquires a competitor's assets on September 30th 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 30th of year 2, what is Brittany's amortization expense for the second year, rounded to the nearest whole number?

Beth's business purchased only one asset during the current year. Beth placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) :

Taxpayers use the half-year convention for all assets.

Which of the following business assets is not depreciated?

Which depreciation convention is the general rule for tangible personal property?

Oksana started an LLC on November 2 of the current year. She incurred $30,000 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?

An office desk is an example of:

Wheeler LLC purchased two assets during the current year. Wheeler placed in service computer equipment (5-year property) on November 16 with a basis of $15,000 and furniture (7-year property) on April 20 with a basis of $11,000. Calculate the maximum depreciation expense, rounding to a whole number (ignoring §179 and bonus depreciation) :

The mid-month convention applies to real property in the year of acquisition and disposition.

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 10th year, calculate Simmons' maximum depreciation in the 10th year:

Which is not an allowable method under MACRS?

Reid acquired two assets this year: computer equipment (5-year property) acquired on August 6th with a basis of $500,000 and machinery (7-year property) on November 9th with a basis of $500,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). Assume the 2013 §179 limits are extended to 2014.

Potomac LLC purchased an automobile for $30,000 on August 5, 2014. What is Potomac's depreciation expense for 2014 (ignore any possible bonus depreciation) ?

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it reporting gross receipts of $1.8 million, $2.5 million, and $2 million for years 1 through 3, respectively. During years 1 - 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000) , $400,000, and $100,000, respectively. In years 1 - 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: $\begin{array} {c} \begin{array} { | c | } \hline { \text { Ounces extracted per year } } \end{array}\\\begin{array} {| l | l | l | } \hline \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\\hline 50,000 & 150,000 & 100,000 \\\hline\end{array}\end{array}$ What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?

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

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