Exam 10: Property Acquisition and Cost Recovery

Which of the following assets are eligible for §179 expensing?

If the business use percentage for listed property falls below 50 percent, the only adjustment is all future depreciation must be calculated under the straight-line method.

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

Billie Bob purchased a used computer (5-year property) for use in his sole proprietorship in the prior year. The basis of the computer was $2,400. Billie Bob used the computer in his business 60 percent of the time during the first year. During the second year, Billie Bob used the computer 40 percent for business use. Calculate Billie Bob's depreciation expense 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):

Timothy purchased a new computer for his consulting practice on October 15^th of the current year. The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery expense with respect to the computer during the current year?

Arlington LLC purchased an automobile for $40,000 on July 5, 2016. What is Arlington's depreciation expense for 2016 if its business use percentage is 75 percent? (ignore any possible bonus depreciation)

Which depreciation convention is the general rule for tangible personal property?

Jasmine started a new business in the current year. She incurred $10,000 of start-up costs. How much of the start-up costs can be immediately expensed (excluding amounts amortized over 180 months) for the year?

Crouch LLC placed in service on May 19, 2016 machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing). (Assume that the 2015 §179 limits are identical to 2016.)

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

Tasha LLC purchased furniture (7-year property) on April 20 with a basis of $20,000 and used the mid-quarter convention. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense, rounding to a whole number:

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

Alexandra purchased a $35,000 automobile during 2016. The business use was 70 percent. What is the allowable depreciation for the current year? (ignore any possible bonus depreciation)

Which of the following assets is eligible for bonus depreciation?

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 expense for the current year, rounded to the nearest whole number?

Occasionally bonus depreciation is used as a stimulus tool by tax policy makers.

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it reporting gross receipts of $1.8 million, $2.5 million, and $2 million for years 1 through 3, respectively. During years 1 - 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000), $400,000, and $100,000, respectively. In years 1 - 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: Ounces extracted per year Year 1 Year 2 Year 3 50,000 150,000 100,000 What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than the amount of the allowable depreciation.

Beth's business purchased only one asset during the current year (a full 12-month tax year). Beth placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation):

During April of the current year, Ronen purchased a warehouse that he used for business purposes. The basis was $1,600,000. Calculate the maximum depreciation expense during the current year.