Exam 8: Depreciation, cost Recovery, amortization, and Depletion

During the past two years,through extensive advertising and improved customer relations,Orange Corporation estimated that it had developed customer goodwill worth $500,000.For the current year,determine the amount of goodwill Orange Corporation may amortize.

On June 1,2014,Sam purchased used farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Determine the cost recovery deduction for 2014.

A taxpayer may elect to use the alternative depreciation system (ADS)to compute depreciation for earnings and profits.

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

White Company acquires a new machine (seven-year property)on January 10,2013,at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight­line method.White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2013 assuming White has taxable income of $800,000.

The cost recovery period for 3-year class property is 4 years.

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

Barry purchased a used business asset (seven-year property)on September 30,2014,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,did not take additional first-year depreciation (if available),and did not elect straight-line cost recovery.Barry sold the asset on July 17,2015.Determine the cost recovery deduction for 2015.

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.

Discuss the tax implications of a seller allocating the selling price to goodwill or a covenant not to compete.

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

All personal property placed in service in 2013 and used in a trade or business qualifies for additional first-year depreciation.

In a farming business,if the uniform capitalization rules are not used,cost is recovered using the ADS straight-line method.

The only asset Bill purchased during 2014 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2014.

In 2014,Marci is considering starting a new business.Marci had the following costs associated with this venture: Advertising \ 5,000 Travel 10,000 Market surveys 8,000 Professional services 30,000 Interest expense 2,000 Taxes 1,000 Marci started the new business on January 5,2015.Determine the deduction for Marci's startup costs for 2014.

On June 1,2014,Gabriella purchased a computer and peripheral equipment (five-year property)for $25,000.She used the assets 40% for business,50% for the production of income,and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for the current year.

Orange Corporation begins business on April 2,2014.The corporation has startup expenditures of $64,000 which it incurred last year.If Orange Corporation elects § 195,determine the total amount that Orange may deduct in 2014.

On July 17,2014,Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2015,he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2015.

The cost recovery method for new farm equipment placed in service during 2014 is 200% declining balance.