Exam 10: Property Acquisition and Cost Recovery

Beth's business purchased only one asset during the current year (a full 12-month tax year). On December 1 Beth placed in service machinery (seven-year property)with a basis of $74,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)(Round final answer to the nearest whole number.)

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.

Billie Bob purchased a used camera (five-year property)for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation deduction during the second year, assuming the sole proprietorship had a loss during the year. (Billie Bob did not place the asset in service in the last quarter.)(Use MACRS Table 1.)

Taylor LLC purchased an automobile for $55,000 on July 5, 2020. What is Taylor's maximum depreciation deduction for 2020 (including bonus depreciation)if its business use percentage is 100 percent?

Potomac LLC purchased an automobile for $30,000 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.)

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 eight years, and $50,400 to a three-year noncompete agreement. On May 30 ^th of the second year, the customer list is sold for $10,000. (Round your amortization and final answer to the nearest whole number. Round your allocation percentage to the nearest whole percentage, e.g., 0.1234 as 12 percent .) 1)What is Cannon's amortization deduction for the second year? 2)What is the basis of the intangibles at the end of the second year?

Deirdre's business purchased two assets during the current year (a full 12-month tax year).On January 20 Deirdre placed in service computer equipment (five-year property)with a basis of $15,000 andon September 1 placed in service machinery (seven-year property)with a basis of $15,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year ConventionTable.)(Round final answer to the nearest whole number.)

Racine started a new business in the current year. She incurred $52,000 of start-up costs. If her business started on November 23 ^rd of the current year, what is the total amount she may deduct with respect to the start-up costs for her initial year, rounded to the nearest whole number?

Littman LLC placed in service on July 29, 2020, machinery and equipment (seven-year property)with a basis of $600,000. Littman's income for the current year before any depreciation deduction was $100,000. Which of the following statements is true to maximize Littman's total depreciation deduction for 2020? (Use MACRS Table 1.)

Reid acquired two assets in 2020: on August 6thhe acquired computer equipment (five-year property)with a basis of $1,040,000 andon November 9th he acquired machinery (seven-year property)with a basis of $1,040,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but not bonus depreciation). (Use MACRS Table 1, Table 2.)

Alexandra purchased a $55,000 automobile during 2020. The business use was 70 percent. What is the allowable depreciation for the current year? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation deduction during the current year. (UseMACRS Table 3.)

Clay LLC placed in service machinery and equipment (seven-year property)with a basis of $3,450,000 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.)

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2020, machinery and equipment (seven-year property)with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction, including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)

Arlington LLC purchased an automobile for $69,000 on July 5, 2020. What is Arlington's depreciation deduction for 2020 if its business-use percentage is 68 percent? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

Cost depletion is available to all natural resource producers.

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 $3,150,000. 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.)

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

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

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.)