Exam 10: Depreciation, Cost Recovery, Amortization, and Depletion

Intangible assets are subject to MACRS depreciation.

On January 1, 2014, Charlie Corporation acquires all of the net assets of Rocky Corporation for $2,000,000. The following intangible assets are included in the purchase agreement: What is the total amount of amortization allowed in 2014?

J.R. acquires an oil and gas property interest for $300,000. J.R. expects to recover 50,000 barrels of oil. Intangible drilling and development costs are $80,000 and are charged to expense. Other expenses are $20,000. During the year, 13,000 barrels of oil are sold for $170,000. J.R.'s depletion deduction is

Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.

In August 2014, Tianshu acquires and places into service 7-year business equipment (tangible personal property qualifying under Sec. 179)for $70,000. This is the only asset that she purchased during the year; her taxable income from her trade or business is $23,000. She decides to limit her 179 election to the maximum amount currently deductible in her business for the current year. What is her maximum cost recovery (Sec. 179 and depreciation)deduction for 2014?

When a taxpayer leases an automobile for 100% business purposes, the entire lease payment is deductible.

If the business use of listed property is 50% or less of the total usage, the alternative depreciation system must be used.

Expenditures that enlarge a building, any elevator or escalator, any structural component that benefits a common area or the internal structural framework are not considered qualified leasehold improvement property.

In the current year George, a college professor, acquired a computer system (5-year property)for $1,000 and used the computer 80% for teaching and research-related activities and the remaining 20% for personal use. Because George's employer provides him with a computer in his office at the university, the employer does not require him to have a computer at home. No election was made regarding Sec. 179. The maximum depreciation deduction is

Jack purchases land which he plans on developing as a golf course. The land costs $20,000,000 and the cost of clearing the land, earthmoving, constructing hazards, bunkers and greens, and installing irrigation systems will cost an additional $6,000,000. What tax issues should Jack consider?

In November 2014, Kendall purchases a computer for $4,000. She does not use Sec. 179 expensing. She only uses the most accelerated depreciation method possible. The computer is the only personal property which she places in service during the year. What is her total depreciation deduction for 2014?

In accounting for research and experimental expenditures, all of the following alternatives are available with the exception of

The Section 179 expensing election is available on an annual basis for property purchased during the year.

Section 179 allows taxpayers to immediately expense up to $25,000 (for 2014), subject to limitations, of the cost of real and personal property placed into service in a trade or business.

Under the MACRS system, if the aggregate basis of all personal property placed in service during the last three months of the year exceeds 40% of the cost of all personal property placed in service during the tax year, the mid-quarter convention is required.

On June 30, 2014, Temika purchased office furniture (7-year property)costing $22,000 and computers (5-year property)with a cost of $19,000. She uses Sec. 179. Her business income is $190,000 without considering Sec. 179. How should she allocate the 179 election in order to maximize her total cost recovery deductions (depreciation and Sec. 179)for 2014 ?

In computing MACRS depreciation in the year of disposition of personal property used in a trade or business, the half-year convention must be applied to the amounts in the tables if the half-year convention was used in the year the asset was placed into service.

On October 2, 2014, Dave acquired and placed into service 5-year business equipment costing $70,000. No other acquisitions were made during the year. Dave does not use Sec. 179 expensing. The depreciation for this year is using the most accelerated method possible is

Eric is a self-employed consultant. In May of the current year, Eric acquired a computer system (5-year property)for $7,000 and used the computer 30% for business. Eric does not use Sec. 179. The maximum depreciation deduction for is

During the year 2014, a calendar year taxpayer, Marvelous Munchies, a chain of specialty food shops, purchased equipment as follows: Assume the property is all 5-year property. What is the maximum depreciation that may be deducted for the assets this year, 2014, assuming the alternative depreciation system is not chosen?