Exam 9: Property Acquisition and Cost Recovery

Anne LLC purchased computer equipment (5-year property) on August 29 with a basis of $30,000 and used the half-year convention. 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:

Which of the following assets is eligible for bonus depreciation?

Alexandra purchased a $35,000 automobile during 2014. The business use was 70 percent. What is the allowable depreciation for the current year (ignore any possible bonus depreciation)?

Jorge purchased a copyright for use in his business in the current year. The purchase occurred on July 15th and the purchase price was $75,000. If the patent has a remaining life of 75 months, what is the total amortization expense Jorge may deduct during the current year?

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

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

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

Putin Corporation began business on September 23rd of the current year. It incurred $40,000 of start-up costs and $60,000 of organizational expenditures. 1) How much may be immediately expensed for the year? 2) How much amortization may be deducted in the first year, rounded to the nearest whole number?

Flax, LLC purchased only one asset during 2014. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).

Boxer LLC has acquired various types of assets recently. Below is a list of assets acquired during 2013 and 2014: Asset Cost Basis Convention Date Placed in Service Machinery 25,000 Half year January 24, 2013 Warehouse 800,000 Mid month August 1, 2013 Furniture 100,000 October 5, 2014 Computer equipment 65,000 October 10, 2014 Office equipment 34,000 September 28, 2014 Automobile 35,000 July 15, 2014 Office building 800,000 September 24, 2014 Boxer did not elect §179 expense or potential bonus depreciation in 2013, but would like to elect §179 expense for 2014 (assume that taxable income is sufficient). Calculate Boxer's maximum depreciation expense for 2014, rounded to the nearest whole number (ignore bonus depreciation for 2014). If necessary, use the 2013 luxury automobile limitation amount for 2014 and assume that the 2013 §179 limits are extended to 2014.

The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.

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).

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.

The 200 percent or double declining balance method is allowable for five and seven year property.

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

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, rounded to the nearest whole number?

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 expense Daschle may deduct during the current year?

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion expense for the current year?

Columbia LLC placed in service on October 9, 2014 machinery and equipment (7-year property) with a basis of $2,150,000. Assume that Columbia has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) for the year, rounded to the nearest whole number. Assume the 2013 §179 limits are extended to 2014.

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