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Exam 10: Property Acquisition and Cost Recovery

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Question 1

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

A) True
B) False

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True

Question 2

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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 3

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

Olney LLC only purchased one asset this year.Olney LLC placed in service on July 19,2019,machinery and equipment (seven-year property)with a basis of $1,330,000.Assume that Olney has sufficient income to avoid any limitations.Calculate the maximum depreciation deduction,including §179 expensing (but ignoring bonus depreciation).(Use MACRS Table 1.)(Round final answer to the nearest whole number.)

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?

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly.Occasionally,she uses the equipment for personal use.During the first year,Phyllis used the equipment for business use 70 percent of the time; however,during the current (second)year,the business use fell to 40 percent.Assume that the equipment is seven-year MACRS property and is under the half-year convention.Assume the ADS recovery period is 10 years.What is the depreciation allowance for the current year? (Use MACRS Table 1.)(Round final answer to the nearest whole number.)

Cost depletion is available to all natural resource producers.

Real property is depreciated using the straight-line method.

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 through 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 through 3,Lucky Strike actually extracted 300,000 ounces of silver as follows: What is Lucky Strike's depletion deduction for Year 2 if the applicable percentage depletion for silver is 15 percent?

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

Northern LLC only purchased one asset this year.In 2019,Northern LLC placed in service on September 6^th machinery and equipment (seven-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.)

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.)

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?

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.

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

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?

Alexandra purchased a $55,000 automobile during 2019.The business use was 70 percent.What is the allowable depreciation for the current year? (Ignore any possible bonus depreciation.)(Use Exhibit 10-10.)

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

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 deduction during the current year.(Use MACRS Table 5.)

Anne LLC purchased computer equipment (five-year property) on August 29 for $30,000 and used the half-year convention to depreciate it.Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment.During the current year,which is the fourth year Anne LLC owned the property,the property was disposed of on January 15.Calculate the maximum depreciation expense.(Use MACRS Table 1.)