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Exam 10: Property Acquisition and Cost Recovery

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Question 31

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Which of the following business assets is not depreciated?

A) Automobile.
B) Building.
C) Patent.
D) Machinery.
E) All of the assets are depreciated.

F) B) and D)
G) A) and D)

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Question 32

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If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year, the taxpayer must use the mid-quarter convention for the year of disposition.

A) True
B) False

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Question 33

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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.

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

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.

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.)

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 expense she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?

Reid acquired two assets in 2018: computer equipment (5-year property) acquired on August 6^th with a basis of $1,000,000 and machinery (7-year property) on November 9th with a basis of $1,000,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). (Use MACRS Table 1)

Suvi, Inc. purchased two assets during the current year (a full 12-month tax year) . Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 1) (Round final answer to the nearest whole number.)

Tax cost recovery methods include depreciation, amortization, and depletion.

Columbia LLC only purchased one asset this year. Columbia LLC placed in service on July 9, 2018 machinery and equipment (7-year property) with a basis of $2,750,000. 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.)

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 expense Daschle may deduct during the current year?

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

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?

Sairra, LLC purchased only one asset during the current year (a full 12-month tax year) . Sairra placed in service furniture (7-year property) on April 16 with a basis of $25,000. Calculate the maximum depreciation expense for the current year? (ignoring §179 and bonus depreciation) . (Use MACRS Table 1) (Round final answer to the nearest whole number.)

Boxer LLC has acquired various types of assets recently used 100% in its trade or business. Below is a list of assets acquired during 2017 and 2018: Boxer did not elect §179 expense and elected out of bonus depreciation in 2017, but would like to take advantage of the §179 expense and bonus depreciation for 2018 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation expense for 2018. (Use MACRS Table 1, Table 5 and Exhibit 10-10 ) (Round final answer to the nearest whole number.)

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

If the business use percentage for listed property falls below 50 percent, the only adjustment is all future depreciation must be calculated under the straight-line method.

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

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