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Exam 10: Property Acquisition and Cost Recovery

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Question 51

Multiple Choice

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An office desk is an example of:

A) Personal property
B) Personal-use property
C) Real property
D) Business property
E) Personal property and Business property

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

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Question 52

Multiple Choice

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Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the mid-quarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a whole number:

A) $898
B) $2,095
C) $2,461
D) $2,394
E) None of these

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

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Question 53

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Roth, LLC purchased only one asset during the current year. Roth placed in service computer equipment (5-year property) on November 1^st with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

Depletion is the method taxpayers use to recover their capital investment in natural resources.

Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

Significant limits are placed on the depreciation of luxury automobiles.

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: What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?

Assume that Cannon LLC acquires a competitor's assets on June 15^th of a prior year. The purchase price was $450,000. Of the amount, $196,200 is allocated to tangible assets and $253,800 is allocated to three §197 intangible assets: $153,000 to goodwill, $50,400 to a customer list with an expected life of 8 years, and $50,400 to a 3 year non-compete agreement. On May 30^th of the second year, the customer list is sold for $10,000. Please round your amortization amounts to the nearest whole number. Round your allocation percentage to the nearest whole percentage (e.g., .1234 as 12%). 1) What is Cannon's amortization expense for the second year? 2) What is the basis of the intangibles at the end of the second year?

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 expense for the current year, rounded to the nearest whole number?

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.

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

Beth's business purchased only one asset during the current year (a full 12-month tax 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) :

Which is not an allowable method under MACRS?

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

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

Geithner LLC patented a process it developed in the current year. The patent is expected to create benefits for Geithner 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, Geithner had unamortized research expenditures of $15,000 related to the process. What is the total amortization expense Geithner may deduct during the current year?

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.

Northern LLC only purchased one asset this year. In 2016, Northern LLC placed in service on September 6^th machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing), rounded to the nearest whole number. Assume the 2015 §179 limits are identical to 2016.

All taxpayers may use the §179 immediate expensing election on certain property.

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15^th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?