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Exam 2: Property Acquisition and Cost Recovery

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Question 41

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

A) True
B) False

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Question 42

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All assets subject to amortization have the same recovery period.

A) True
B) False

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Question 43

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PC Mine purchased a platinum deposit for $3,500,000. It estimated it would extract 17,000 ounces of platinum from the deposit. PC mined the platinum and sold it, reporting gross receipts of $500,000 and $8 million for Years 1 and 2, respectively. During Years 1 and 2, PC reported net income (loss) from the platinum deposit activity in the amount of ($100,000) and $3,800,000, respectively. In Years 1 and 2, PC actually extracted 2,000 and 8,000 ounces of platinum. What is PC's depletion deduction for Years 1 and 2 if the applicable percentage depletion for platinum is 22 percent? (Round final answer to the nearest whole number.)

Sequoia purchased the rights to cut timber on several tracts of land over a 15-year period. It paid $500,000 for cutting rights. A timber engineer estimates that 500,000 board feet of timber will be cut. During the current year, Sequoia cut 45,000 board feet of timber, which it sold for $900,000. What is Sequoia's cost depletion deduction for the current year?

Alexandra purchased a $55,000 automobile during 2020. The business use was 70 percent. What is the allowable depreciation for the current year? (Ignore any possible bonus depreciation.) (Use Exhibit 10-10.)

The §179 immediate expensing election phases out based upon a taxpayer's taxable income.

Which of the following business assets is not depreciated?

The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.

Assume that Cannon LLC acquires a competitor's assets on June 15 ^th of a prior year. The purchase price was $450,000. Of the amount, $196,200 is allocated to tangible assets and $253,800 is allocated to three §197 intangible assets: $153,000 to goodwill, $50,400 to a customer list with an expected life of eight years, and $50,400 to a three-year noncompete agreement. On May 30 ^th of the second year, the customer list is sold for $10,000. (Round your amortization and final answer to the nearest whole number. Round your allocation percentage to the nearest whole percentage, e.g., 0.1234 as 12 percent .) 1) What is Cannon's amortization deduction for the second year? 2) What is the basis of the intangibles at the end of the second year?

Oksana started a 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?

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.)

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10 ^th of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

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

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 amount Daschle may deduct during the current year?

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

Beth's business purchased only one asset during the current year (a full 12-month tax year) . On December 1 Beth placed in service machinery (seven-year property) with a basis of $70,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

If a taxpayer places only one asset (a building) in service during the fourth quarter of the year, the mid-quarter convention must be used.

Littman LLC placed in service on July 29, 2020, 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 2020? (Use MACRS Table 1.)

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

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?