Exam 2: Property Acquisition and Cost Recovery

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 10^th year, calculate Simmons's maximum depreciation in the 10^th year. (Use MACRS Table 5 and Exhibit 10-6.)

Like financial accounting, most acquired business property must be capitalized for tax purposes.

The 200 percent or double declining balance method is allowable for five- and seven-year property.

Clay LLC placed in service machinery and equipment (seven-year property) with a basis of $3,450,000 on June 6, 2019. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

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

Tax depreciation is currently calculated under what system?

Which of the following business assets is not depreciated?

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 deduction for Years 1 and 2 if the applicable percentage depletion for platinum is 22 percent? (Round final answer to the nearest whole number.)

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

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 copyright has a remaining life of 75 months, what is the total amortization amount Jorge may deduct during the current year? (Assume this is not an asset acquisition to which §197 applies.)

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe's cost depletion deduction for the current year?

Potomac LLC purchased an automobile for $30,000 on August 5, 2019. What is Potomac's depreciation deduction for 2019? (Ignore any possible bonus depreciation.) (Use MACRS Table 1 and Exhibit 10-10.)

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

Sairra LLC purchased only one asset during the current year (a full 12-month tax year). On April 16 Sairra placed in service furniture (seven-year property) 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.)

To increase their depreciation deduction on automobiles, taxpayers should elect §179 expense.

The basis for a personal-use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

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

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Bonnie Jo purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $2,400. Bonnie Jo used the camera 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 deduction 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.)

An example of an asset that is both personal-use and personal property is: