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Exam 10: Property Acquisition and Cost Recovery

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Question 41

Multiple Choice

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

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

E) None of the above
F) B) and D)

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Question 42

True/False

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

A) True
B) False

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Question 43

Multiple Choice

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An example of an asset that is both personal-use and personal property is:

PC Mine purchased a platinum deposit for $3,500,000.It estimated it would extract 17,000 ounces of platinum from the deposit.PC mined the platinum and sold it reporting gross receipts of $500,000 and $8 million for years 1 and 2,respectively.During years 1 and 2,PC reported net income (loss)from the platinum deposit activity in the amount of ($100,000)and $3,800,000,respectively.In years 1 and 2,PC actually extracted 2,000 and 8,000 ounces of platinum.What is PC's depletion expense for years 1 and 2 if the applicable percentage depletion for platinum is 22 percent? (Round final answer to the nearest whole number)

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 in the text)

Paulsen 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,Paulsen 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,rounding 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,rounded to the nearest whole number?

Assume that Brittany acquires a competitor's assets on September 30ᵗʰ of year 1 for $350,000.Of that amount,$300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a 1-year non-compete agreement) .Given,that the non-compete agreement expires on September 30ᵗʰ of year 2,what is Brittany's amortization expense for the second year? (Round final answer to the nearest whole number)

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 in the text)(Round final answer to the nearest whole number)

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)

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.

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes.On November 10ᵗʰ of the current year,when the fair market value of the computer was $800,Jaussi converted it to business use.What is Jaussi's tax basis for the computer?

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.

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

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?

If tangible personal property is depreciated using the half-year convention and is disposed of during the first quarter of a subsequent year,the taxpayer must use the mid-quarter convention for the year of disposition.

Tasha LLC purchased furniture (7-year property) on April 20 for $20,000 and used the mid-quarter 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 in the text) EXHIBIT 10-6 in the text (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.(e.g.,.1234 as 12%).(Round final answer to the nearest whole number.Round your allocation percentage to the nearest whole percentage) 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?

Which of the following assets are eligible for §179 expensing?

Boxer LLC has acquired various types of assets recently used 100% in its trade or business.Below is a list of assets acquired during 2016 and 2017: Boxer did not elect §179 expense and elected out of bonus depreciation in 2016,but would like to elect §179 expense for 2017 (assume that taxable income is sufficient).Calculate Boxer's maximum depreciation expense for 2017,(ignore bonus depreciation for 2017).If necessary,use the 2016 luxury automobile limitation amount for 2017.(Use MACRS Table 1 and Use MACRS Table 5 in the text)Exhibit 10-8 in the text (Round final answer to the nearest whole number)

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?