Exam 10: Property Acquisition and Cost Recovery

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 deduction for the current year? (Round final answer to the nearest whole number.)

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 $44,000. 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.)

Used property is eligible for bonus depreciation.

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.)

Northern LLC only purchased one asset this year. In 2020, Northern LLC placed in service on September 6^th machinery and equipment (seven-year property)with a basis of $3,230,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing). (Use MACRS Table 1.)

Alexandra purchased a $56,300 automobile during 2020. The business use was 60 percent. What is the allowable depreciation for the current year? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

Clay LLC placed in service machinery and equipment (seven-year property)with a basis of $3,468,000 on June 6, 2020. 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.)

Roth LLC purchased only one asset during the current year. On August 1^st Roth placed in service office equipment (seven-year property)with a basis of $51,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.)(Round final answer to the nearest whole number.)

Wheeler LLC purchased two assets during the current year (a full 12-month tax year). On November 16 Wheeler placed in service computer equipment (five-year property)with a basis of $22,500 and on April 20 placed in service furniture (seven-year property)with a basis of $15,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)(Round final answer to the nearest whole number.)

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

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $770,250 for extraction rights. A geologist estimates that Santa Fe will recover 9,750 pounds of turquoise. During the current year, Santa Fe extracted 2,925 pounds of turquoise, which it sold for $491,000. What is Santa Fe's cost depletion deduction for the current year?

Oksana started a 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?

Bonnie Jo used two assets during the current year. The first was computer equipment with an original basis of $15,000, currently in the second year of depreciation anddepreciated under the half-year convention. This asset was disposed of on October 1^st of the current year. The second was furniture with an original basis of $24,000, placed in service during the first quarter, currently in the fourth year of depreciation, anddepreciated under the mid-quarter convention. What is Bonnie Jo's depreciation deduction for the current year? (Round final answer to the nearest whole number.)(Use MACRS Table 1 and Table 2.)

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.

Assume that Brittany acquires a competitor's assets on September 30 ^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement). Given that the noncompete agreement expires on September 30 ^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

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

Yasmin purchased two assets during the current year. On May 26^th Yasmin placed in service computer equipment (five-year property)with a basis of $10,000 andon December 9^th placed in service machinery (seven-year property)with a basis of $10,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

Potomac LLC purchased an automobile for $31,800 on August 5, 2020. What is Potomac's depreciation deduction for 2020? (Ignore any possible bonus depreciation.)(Use MACRS Table 1 and Exhibit 10-10.)

Flax LLC purchased only one asset this year.On January 16 Flax placed in service a computer (five-year property)with a basis of $14,000. Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

Paulman incurred $55,000 of research and experimental expenses and began amortizing them over 60 months during June of Year 1. During May of Year 3, Paulman received a patent based upon the research being amortized. $36,000 of legal expenses for the patent were incurred. The patent is expected to have a remaining useful life of 17 years. 1)What is the basis of the patent? (Round amortization for each year to the nearest whole number.)2)What is the amortization deduction with respect to the patent during the year it was issued? (Round final answer to the nearest whole number.)