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Exam 10: Property Acquisition and Cost Recovery

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Question 41

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All assets subject to amortization have the same recovery period.

A) True
B) False

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Question 42

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The MACRS recovery period for automobiles and computers is:

A) 3 years.
B) 5 years.
C) 7 years.
D) 10 years.
E) None of the choices are correct.

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

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Question 43

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Paulman incurred $55,000 of research and experimental expenses and began amortizing them over 60 months during June of year 1. During May of year 3, Paulman received a patent based upon the research being amortized. $36,000 of legal expenses for the patent was incurred. The patent is expected to have a remaining useful life of 17 years. 1) What is the basis of the patent? (Round amortization for each year to the nearest whole number.) 2) What is the amortization expense with respect to the patent during the year it was issued? (Round final answer to the nearest whole number.)

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

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)

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?

Bonnie Jo used two assets during the current year. The first was computer equipment with an original basis of $15,000, currently in the second year of depreciation, and under the half-year convention. This asset was disposed of on October 1st of the current year. The second was furniture with an original basis of $24,000 placed in service during the first quarter, currently in the fourth year of depreciation, and under the mid-quarter convention. What is Bonnie Jo's depreciation expense for the current year? (Round final answer to the nearest whole number) (Use MACRS Table 1 and Table 2)

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

Eddie purchased only one asset during the current year. Eddie placed in service furniture (7-year property) on May 1^st with a basis of $26,500. Calculate the maximum depreciation expense, rounded to the nearest whole number (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

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

Tasha LLC purchased furniture (7-year property) on April 20 for $20,000 and used the half-year convention. Tasha did not take §179 or bonus depreciation in the year it acquired the furniture. 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. (Use MACRS Table 2) EXHIBIT 10-6 (Round final answer to the nearest whole number.)

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

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)

Which of the following would be considered an improvement rather than a routine maintenance?

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. (Use MACRS Table 5)

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.

Roth, LLC purchased only one asset during the current year. Roth placed in service office equipment (7-year property) on August 1^st with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention) (Round final answer to the nearest whole number.)

Lenter LLC placed in service on April 29, 2018 machinery and equipment (7-year property) with a basis of $1,600,000. Assume that Lenter has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) . (Use MACRS Table 1)

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

Tax cost recovery methods do not include: