Exam 10: Cost Recovery on Property: Depreciation, Depletion, and Amortization

Carolyn purchases a new trucks (5-year MACRS property) costing $3,500,000 for use in her floral business on January 5, 2018. What is her maximum allowable cost recovery on the trucks in 2018?

Which of the following intangible assets is subject to the 15-year amortization period?

Why would a taxpayer ever elect to use the alternative depreciation system (ADS) rather than the MACRS?

Davis, Inc., a motorcycle wheel manufacturer, purchased a new spoke machine in 2018 for $200,000. What are the tax effects of this purchase? I.If taxable income is $100,000, then $100,000 can be expensed in 2018. II.No Section 179 election is allowed if Davis decides to use a $200,000 depreciable basis. III.If Davis had purchased a total of $4,400,000 of equipment in 2018, the corporation can deduct none of the purchases in 2018 through use of the Section 179 election. ​

Which of the following would be allowed a depreciation deduction? I.Inventory. II.Land acquired as an investment. III.Residence used as rental property. IV.Airplane used by company controller to attend accounting conference. ​

Match each statement with the correct term below. -Listed property

In 2018, Sanford Corporation purchases and places in service $3,370,000 of equipment for its manufacturing business. What portion of the $3,370,000 may Sanford elect to treat as a Section 179 expense?

Eduardo is a single taxpayer with a farming operation that suffered a net loss of $30,000 in 2018. In addition, he earned $50,000 from his accounting firm. Eduardo purchased $50,000 of equipment for his farm. He wants to maximize his cost recovery deduction and believes the Section 179 election will help achieve that goal. What is the amount of the maximum Section 179 deduction Eduardo can use? Explain the optimum approach to attain his goal. Assume Eduardo's total taxable business income in 2019 will be $60,000, and he plans to add about $20,000 of equipment to the farm operation.

On June 1, 2018, AZ Construction Corporation places a $2,000,000 crane (7 year life) in service. AZ does not want to use bonus depreciation. It placed no other assets in service during the year. What is the amount of AZ Construction's maximum depreciation deduction for the crane for 2018?

Chestnut Furniture Company purchases a delivery van on June 14, 2018, at a cost of $30,000. The delivery van has a 5-year MACRS life and an ADS recovery period of 5 years. What is Chestnut's minimum cost recovery deduction on the van in 2018?

MACRS applies to new and used depreciable personal property used for the production of income.

Annie owns a mine, which cost her $460,000 several years ago. In prior years she had claimed depletion in the amount of $140,000. It is estimated that 800,000 tons of minerals remained in the mine at the beginning of the year. During the current year, Annie mined and sold 180,000 tons. What is the amount of Annie's cost depletion deduction for the current year?

To compute depreciation using MACRS on an asset purchased today, you need to know I.the asset's depreciable basis. II.the recovery period of the asset. III.the first and last year convention that applies to the asset's class. IV.whether you want to minimize or maximize the current year's depreciation. ​

Shannon purchases equipment classified as 3-year property on December 19, 2018, at a cost of $100,000. Section 179 is not elected and an election is made not to take bonus depreciation and Shannon does not use the straight-line method. Shannon purchased no other depreciable property in 2018. What is the amount of the MACRS depreciation deduction for 2018?

In June 2018, Chase purchases a new car for $40,000. He uses the car 75% for business purposes. What is Chase's maximum depreciation deduction for the car in 2018?

The Section 179 election promotes which of the following tax concept(s) or doctrine(s)? I.Claim of Right Doctrine. II.Administrative Convenience Concept. III.Tax benefit rule. IV.Substance-Over-Form Doctrine. ​

Watson Company purchases used equipment (5-year MACRS property) for $1,100,000 on July 8, 2018. Watson does not want to use bonus depreciation. What is Watson' maximum allowable cost recovery deduction for 2018 on the equipment if this is the only purchase of equipment for 2018?

Lindale Rentals places an apartment building in service on November 22, 2018. The building's depreciable basis is $3,300,000. What is Lindale Homes' 2018 depreciation deduction on the property?

Serena owns a van that she paid $22,000 for in 2011 and used exclusively for personal purposes until May 9, 2016, when she began using the van in her plumbing business. On May 9, 2016, a comparable van was selling for $13,000. Serena sells the van on October 28, 2018. Assuming that the van is 5-year MACRS property, it is not listed property, and that Serena did not make the Section 179 election to expense on the van, what is her allowable depreciation deduction in 2018?

Jason purchases a patent at a cost of $24,000. The patent has 8 years of legal life remaining from the date of purchase. I.If the patent is the only asset Jason purchased, he must amortize the patent over 15 years. II.If the patent was part of the purchase of all the assets of a business, he must amortize the patent over 15 years. ​