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Exam 10: Property Acquisition and Cost Recovery

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Question 21

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

A) $2,000.
B) $2,858.
C) $3,000.
D) $4,000.
E) None of the choices are correct.

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

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Question 22

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

A) Oil change.
B) Engine overhaul.
C) Wiper blade replacement.
D) Air filter change.

E) All of the above
F) A) and B)

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Question 23

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Which of the following business assets is not depreciated?

Deirdre's business purchased two assets during the current year (a full 12-month tax year) .On January 20 Deirdre placed in service computer equipment (five-year property) with a basis of $15,000 and on September 1 placed in service machinery (seven-year property) with a basis of $15,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) .(Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.

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

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

Janey purchased machinery on April 8^th of the current year.The relevant costs for the year are as follows: machinery for $10,000, $800 shipping, $50 for delivery insurance, $500 for installation, $750 for sales tax, $150 for the annual tune-up, and $200 of property taxes (an annual tax on business property).What is Janey's tax basis for the machinery?

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.

Taylor LLC purchased an automobile for $55,000 on July 5, 2019.What is Taylor's maximum depreciation deduction for 2019 (including bonus depreciation) if its business use percentage is 100 percent?

If a machine (seven-year property)being depreciated using the half-year convention is disposed of during the seventh year, a taxpayer must multiply the appropriate depreciation percentage from the MACRS table by 50 percent to calculate the depreciation expense properly.

Tom Tom LLC purchased a rental house and land during the current year for $150,000.The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land.The property was placed in service on May 22.Calculate Tom Tom's maximum depreciation for this first year.(Use MACRS Table 3.)

Wheeler LLC purchased two assets during the current year (a full 12-month tax year) .On November 16 Wheeler placed in service computer equipment (five-year property) with a basis of $15,000 and on April 20 placed in service furniture (seven-year property) with a basis of $11,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) .(Use MACRS Table 2.) (Round final answer to the nearest whole number.)

The mid-month convention applies to real property in the year of acquisition and disposition.

Simmons LLC purchased an office building and land several years ago for $250,000.The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land.The property was placed in service on October 2.If the property is disposed of on February 27 during the 10^th year, calculate Simmons's maximum depreciation in the 10^th year.(Use MACRS Table 5 and Exhibit 10-6.)

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

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than by the amount of the allowable depreciation.

Real property is depreciated using the straight-line method.

Amit purchased two assets during the current year.On April 16th Amit placed in service computer equipment (five-year property)with a basis of $5,000 and on September 9th placed in service furniture (seven-year property)with a basis of $20,000.Calculate the maximum depreciation deduction (ignoring §179 and bonus depreciation).(Use MACRS Table 1.)