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Exam 9: Property Acquisition and Cost Recovery

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Question 21

True/False

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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.

A) True
B) False

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Question 22

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Racine started a new business in the current year.She incurred $52,000 of start-up costs.If her business started on November 23ʳᵈ of the current year,what is the total expense she may deduct with respect to the start-up costs for her initial year,rounded to the nearest whole number?

A) $2,555.
B) $3,544.
C) $5,522.
D) $52,000.
E) None of the choices are correct.

F) A) and E)
G) A) and D)

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Question 23

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in youre textbook (Exhibit 10-10( -Potomac LLC purchased an automobile for $30,000 on August 5,2018.What is Potomac's depreciation expense for 2018 (ignore any possible bonus depreciation) ? (Use MACRS Table 1,and Exhibit 10-10)

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.)

MACRS Table1 MACRS Table5 Exhibit 10-10 IN THE TEXT -Boxer LLC has acquired various types of assets recently used 100% in its trade or business.Below is a list of assets acquired during 2017 and 2018: $\begin{array}{l}\begin{array}{lll}\text { Asset } & \text { Cost Basis } \\\text { Machinery } & 25,000 \\\text { Warehouse } & 800,000 \\\text { Furniture } & 100,00 \\\text { Computer equipment } & 65,00 \\\text { Office equipment } & 34,000 \\\text { Automobile } & 35,000 \\\text { Office building } & 800,000\end{array}\begin{array}{lll}\text {Convention}&\text {Date Placed in Service}\\\text {Half year}&\text {January 24, 2017}\\\text {Mid month}&\text {August 1, 2017}\\&\text {October 5, 2018}\\&\text {October 10, 2018}\\&\text {September 28, 2018}\\&\text {July 15,2018}\\&\text {September 24, 2018}\\\end{array}\end{array}$ Boxer did not elect §179 expense and elected out of bonus depreciation in 2017,but would like to take advantage of the §179 expense and bonus depreciation for 2018 (assume that taxable income is sufficient).Calculate Boxer's maximum depreciation expense for 2018.(Use MACRS Table 1,Table 5 and Exhibit 10-10 )(Round final answer to the nearest whole number.)

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: $\begin{array} { c c c } & \text { Ources extracted per year } & \\\text { Year 1 } & \text { Year 2 } & \text { Year 3 } \\50,000 & 150,000 & 100,000\end{array}$ What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?

The §179 immediate expensing election phases out based upon the amount of tangible personal property a taxpayer places in service during the year.

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

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

Assume that Bethany acquires a competitor's assets on March 31ˢᵗ.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? (Round final answer to the nearest whole number.)

Assume that Cannon LLC acquires a competitor's assets on June 15ᵗʰ 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 8 years,and $50,400 to a 3 year non-compete agreement.On May 30ᵗʰ 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%.) 1) What is Cannon's amortization expense for the second year? 2) What is the basis of the intangibles at the end of the second year?

Tax cost recovery methods do not include:

-Clay LLC placed in service machinery and equipment (7-year property) with a basis of $3,450,000 on June 6,2018.Assume that Clay has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus depreciation.) (Use MACRS Table 1) (Round final answer to the nearest whole number.)  

Yasmin purchased two assets during the current year.Yasmin placed in service computer equipment (5-year property)on May 26ᵗʰ with a basis of $10,000 and machinery (7-year property)on December 9ᵗʰ with a basis of $10,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).(Use MACRS Table 2)

-Northern LLC only purchased one asset this year.In 2018,Northern LLC placed in service on September 6ᵗʰ machinery and equipment (7-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.)

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.

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.

Like financial accounting,most acquired business property must be capitalized for tax purposes.

-Olney LLC only purchased one asset this year.Olney LLC placed in service on July 19,2018 machinery and equipment (7-year property)with a basis of $1,330,000.Assume that Olney has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing,(but ignoring bonus expensing).(Use MACRS Table 1)(Round final answer to the nearest whole number.)

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