Exam 7: Property Acquisitions and Cost Recovery Deductions

The MACRS calculation is based on the estimated useful life of the depreciable asset.

Terrance Inc., a calendar year taxpayer, purchased used equipment for $2,765,000 and placed it in service on March 4, 2020. The equipment was seven-year recovery property and was the only depreciable asset that Terrance purchased during 2020 (assume no election for Section 179 expense and no Bonus Depreciation taken). Use Table 7-2. Compute Terrance's tax depreciation with respect to the equipment for 2020 and 2021.Compute Terrance's adjusted basis in the equipment on December 31, 2021.

Mann Inc., a calendar year taxpayer, incurred $49,640 start-up expenditures during the preoperating phase of a new business venture. The business started operations in November. Mann expensed the $49,640 on its current-year financial statements. Which of the following statements is true?

Mr. and Mrs. Carleton founded Carleton Industries in 1993. This year, an independent appraiser placed a $25 million value on Carleton's business; $5 million of the value was attributable to unrecorded goodwill. Which of the following statements is true?

Deitle Inc. manufactures small appliances. This year, Deitle capitalized $3,679,000 indirect costs to inventory for book purposes and $3,865,000 indirect costs to inventory for tax purposes. The consequence of the different accounting methods is a $186,000:

KJD Inc., a calendar year corporation, purchased $923,000 of equipment on November 13. This was KJD's only purchase of tangible personalty this year. KJD must use a midquarter convention to compute MACRS depreciation on the equipment.

Which of the following statements concerning deductible repair expenses is false?

JebSim Inc. was organized on June 1 and began business on August 10. JebSim elected a calendar year for tax purposes. The corporation incurred $25,160 of legal and other professional fees attributable to its formation. How much of these costs can JebSim deduct on its first tax return?

For tax purposes, the cost basis of an asset does not include any portion of the purchase price paid through debt financing.

Shelley purchased a residential apartment for $1,400,000 and placed it in service on September 5. Which of the following statements is false?

Purchased goodwill is amortizable both for book and tax accounting purposes.

Mann Inc. negotiated a 36-month lease on office space in a new commercial building. Mann paid $19,000 to a local carpenter to construct special-purpose shelving in the rented office. For tax purposes, Mann must:

Essco Inc., a calendar year taxpayer, made two asset purchases this year. The first purchase was a machine costing $836,000, and the second purchase was equipment costing $494,000. Both assets are 7-year recovery property. Essco placed the machine in service on July 21 and the equipment in service on October 14. How many months of MACRS depreciation is Essco allowed for each asset this year?