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Exam 10: Property Acquisition and Cost Recovery

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Question 1

True/False

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Cost depletion is available to all natural resource producers.

A) True
B) False

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True

Question 2

Multiple Choice

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Littman LLC placed in service on July 29, 2019, 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 2019? (Use MACRS Table 1.)

A) Littman should take §179 expense equal to the maximum $1,000,000.
B) Littman should take no §179 expense.
C) Littman's §179 expense will be greater than $100,000.
D) Littman's §179 expense will be less than $100,000.
E) None of the choices are correct.

F) C) and E)
G) A) and B)

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D

Question 3

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Oksana started an 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?

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

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

Eddie purchased only one asset during the current year.On May 1st Eddie placed in service furniture (seven-year property)with a basis of $26,500.Calculate the maximum depreciation deduction, rounded to the nearest whole number (ignoring §179 and bonus depreciation).(Use MACRS Table 1.)

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

Northern LLC only purchased one asset this year.In 2019, 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.)(Round final answer to the nearest whole number.)

An asset's capitalized cost basis includes only the actual purchase price, whereas expenses to purchase, prepare the asset for use, and begin using the asset are immediately expensed.

Taxpayers may use historical data to determine the recovery period for tax depreciation.

The method for tax amortization is always the straight-line method.

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 deduction during the current year.(Use MACRS Table 5.)

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 deducted (excluding amounts amortized over 180 months) for the year?

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly.Occasionally, she uses the equipment for personal use.During the first year, Phyllis used the equipment for business use 70 percent of the time; however, during the current (second)year, the business use fell to 40 percent.Assume that the equipment is seven-year MACRS property and is under the half-year convention.Assume the ADS recovery period is 10 years.What is the depreciation allowance for the current year? (Use MACRS Table 1.)(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 $25,000.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.)

Olney LLC only purchased one asset this year.Olney LLC placed in service on July 19, 2019, 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.)(Round final answer to the nearest whole number.)

Gessner LLC patented a process it developed in the current year.The patent is expected to create benefits for Gessner over a 10-year period.The patent was issued on April 15^th and the legal costs associated with the patent were $43,000.In addition, Gessner had unamortized research expenditures of $15,000 related to the process.What is the total amortization amount Gessner may deduct during the current year?

Businesses may immediately expense research and experimentation expenditures, or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

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

Which of the following depreciation conventions is not used under MACRS?