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Exam 10: Property Acquisition and Cost Recovery

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Question 21

True/False

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

A) True
B) False

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Question 22

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

A) $2,417
B) $2,174
C) $4,108
D) $4,350
E) None of the choices are correct.

F) C) and D)
G) B) and D)

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Question 23

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The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

Poplock LLC purchased a warehouse and land during the current year for $350,000.The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land.The property was placed in service on August 12.Calculate Poplock's maximum depreciation for this first year.(Use MACRS Table 5 in the text) (Round final answer to the nearest whole number)

Lax,LLC purchased only one asset during the current year (a full 12-month tax year) .Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000.Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation) .(Use MACRS Table 1 in the text)

Daschle LLC completed some research and development during June of the current year.The related costs were $60,000.If Daschle wants to capitalize and amortize the costs as quickly as possible,what is the total amortization expense Daschle may deduct during the current year?

Arlington LLC purchased an automobile for $40,000 on July 5,2017.What is Arlington's depreciation expense for 2017 if its business use percentage is 75 percent (ignore any possible bonus depreciation) ?  Exhibit 10-8 in the text

The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

Depreciation is currently computed under the Modified Accelerated Cost Recovery System (MACRS).

The 200 percent or double declining balance method is allowable for five and seven-year property.

Assume that Yuri acquires a competitor's assets on May 1ˢᵗ.The purchase price was $500,000.Of the amount,$325,000 is allocated to tangible assets and $175,000 is allocated to goodwill (a §197 intangible asset).What is Yuri's amortization expense for the current year? (Round final answer to the nearest whole number)

Flax,LLC purchased only one asset this year.Flax placed in service a computer (5-year property)on January 16 with a basis of $14,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).(Use MACRS Table 1 in the text)

Tax cost recovery methods include depreciation,amortization,and depletion.

Which of the following is not usually included in an asset's tax basis?

Patin Corporation began business on September 23ʳᵈ of the current year.It incurred $40,000 of start-up costs and $60,000 of organizational expenditures.How much total amortization may be deducted in the first year? (Round final answer to the nearest whole number)

The MACRS recovery period for automobiles and computers is:

Significant limits are placed on the depreciation of luxury automobiles.

An office desk is an example of:

Kristine sold two assets on March 20th of the current year.The first was machinery with an original basis of $51,000,currently in the fourth year of depreciation,and under the half-year convention.The second was furniture with an original basis of $16,000 placed in service during the fourth quarter,currently in the third year of depreciation,and under the mid-quarter convention.What is Kristine's depreciation expense for the current year if the depreciation recovery period is 7-years? (Use MACRS Table 1 and Table 2 in the text)EXHIBIT 10-6 in the text (Round final answer to the nearest whole number)

Real property is always depreciated using the straight-line method.