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Exam 8: Depreciation, cost Recovery, amortization, and Depletion

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Question 31

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Orange Corporation begins business on April 2,2011.The corporation has startup expenditures of $54,000.If Orange Corporation elects § 195,determine the total amount that Orange may deduct in 2011.

A) $1,000.
B) $2,650.
C) $3,650.
D) $5,000.
E) None of the above.

F) C) and D)
G) A) and E)

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Question 32

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On March 3,2011,Sally purchased and placed in service a building costing $12,000,000.The building has 10 floors.The bottom three floors are rented out to businesses.The top seven floors are residential apartments.The gross rents from the businesses are $60,000 and the gross rents from the apartments are $110,000.Determine Sally's cost recovery for the building in 2011.

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The gross rents from the apart...

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Question 33

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Bhaskar purchased a new factory building on September 2,2011,for $2,000,000.He elected the alternative depreciation system (ADS) .Determine the cost recovery deduction for 2012.

On June 1,2011,Gabriella purchased a computer and peripheral equipment (five-year property)for $25,000.She used the assets 40% for business,50% for the production of income,and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for the current year.

Rick purchased a uranium interest for $10,000,000 on January 3,2011,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2011 and 7,000 units were sold in 2011.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine the depletion deduction for 2011.

Janet purchased a new car on June 5,2011,at a cost of $18,000.She used the car 80% for business and 20% for personal use in 2011.She used the automobile 40% for business and 60% for personal use in 2012.Janet elects not to take additional first-year depreciation.Determine Janet's cost recovery recapture for 2012.

The concept of depreciation assumes that the asset has a determinable useful life.

Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2011.

Under the alternative depreciation system (ADS),the half-year and mid-quarter conventions are applicable for personalty.

On February 15,2011,Martin signed a 20-year lease on a commercial building.In March 2011,Martin purchased and placed in service seven-year class assets costing $400,000.In June 2011,Martin paid $200,000 for qualified leasehold real property improvements.Martin desires to take the maximum cost recovery deduction with respect to the assets in 2011.Assuming taxable income is not a limitation,determine Martin's maximum cost recovery for 2011.

On April 5,2011,Orange Corporation purchased,and placed in service,seven-year class assets costing $700,000 and five-year class assets costing $1,400,000.Orange elects to expense the maximum amount under § 179.Orange elected not to deduct additional first-year depreciation.Assume taxable income is not a limitation.Determine Orange Corporation's cost recovery with respect to the assets for 2011.

An election to use straight-line under ADS is made on a class-by-class basis for property other than eligible real estate.

Pat purchased a used five-year class asset on March 15,2011,for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2011 for earnings and profits purposes.

The statutory dollar cost recovery limits under § 280F do not apply to all automobiles.

The cost of a covenant not to complete for five years incurred in connection with the acquisition of a business is amortized over 5 years.

The statutory dollar cost recovery limits under § 280F for passenger automobiles still apply if mid-quarter cost recovery is used.

During the past two years,through extensive advertising and improved customer relations,Orange Corporation estimated that it had developed customer goodwill worth $500,000.For the current year,determine the amount of goodwill Orange Corporation may amortize.

Property used for the production of income is not eligible for § 179 expensing.

The cost recovery method for some personal property under MACRS is 150% declining balance.

On February 20,2011,Susan paid $200,000 for a qualified leasehold improvement to an office building that she is going to lease to John.The lease will begin on June 1,2011,and terminate on May 31,2021.At the termination of the lease,the improvement will be worthless.Susan did not elect to treat the leasehold improvement property as § 179 property; however,she did elect not to take additional first-year depreciation.Determine Susan's deductible loss as a result of the termination of the lease.