Question 1

George purchases used seven-year class property at a cost of $200,000 on April 20, 2014. Determine George's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming George does not elect § 179.

Accepted Answer

The answer of George purchases used seven-year class property at...

Question 2

Orange Corporation begins business on April 2, 2014. The corporation has startup expenditures of $64,000 which it incurred last year. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2014.

Accepted Answer

The answer of Orange Corporation begins business on April 2,...

Question 3

On March 1, 2014, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2014, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table is $20, determine Lana's inclusion as a result of the lease.

Accepted Answer

Lana's inclusion amount is calculated by multiplying the IRS table amount ($20) by the business use percentage (60%). Therefore, $20 * 60% = $12. Since the question asks for the inclusion amount, the closest option is $10.

Question 4

On February 21, 2014, Joe purchased new farm equipment for $60,000. Joe has made an election to not have the uniform capitalization rules apply to his farming business. He does not take additional first-year depreciation (if available). If Joe elects § 179, what is the maximum write­off for this purchase for 2014?

Accepted Answer

The answer of On February 21, 2014, Joe purchased new...

Question 5

On June 1, 2014, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming the dollar amount from the IRS table is $241, determine Norm's inclusion amount.

Accepted Answer

Since the lease payments are less than the IRS table amount of $241, the inclusion amount is $0.

Question 6

Rod paid $1,950,000 for a new warehouse on April 14, 2014. He sold the warehouse on September 29, 2019. Determine the cost recovery deduction for 2014 and 2019.

Accepted Answer

The answer of Rod paid $1,950,000 for a new warehouse...

Question 7

On April 5, 2014, Orange Corporation purchased, and placed in service, seven-year class assets costing $54,000 and five-year class assets costing $14,000. Orange elects to expense the maximum amount under § 179. Orange does not take additional first-year depreciation (if available). Assume taxable income is not a limitation. Determine Orange Corporation's cost recovery with respect to the assets for 2014.

Accepted Answer

The answer of On April 5, 2014, Orange Corporation purchased,...

Question 8

Pat purchased a used five-year class asset on March 15, 2014, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2014 for earnings and profits purposes.

Accepted Answer

The class life for a five-year asset is 20% and the half-year convention applies in the first year of service. Therefore, the cost recovery deduction for 2014 is $6,000 ($60,000 x 20% x ½).

Question 9

Audra acquires the following new five-year class property in 2014:
 $$\begin{array} { l l r } 
\text { Asset } & \text { Acquisition Date } & \text { Cost } \
\text { A } & \text { January 10 } & \$ 106,000 \
\text { B } & \text { Juy 5 } & 70,000 \
\text { C} & \text { November 15 } & 300,000 \
\text { Total } & &\$ 470,000
\end{array}$$ 
Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction. Audra does not take additional first-year depreciation (if available). Determine her total cost recovery deduction (including the § 179 deduction) for the year.

Accepted Answer

The answer of Audra acquires the following new five-year class...

Question 10

Polly purchased a new hotel on July 20, 2014, for $6,000,000. On January 20, 2021, the building was sold. Determine the cost recovery deduction for the year of the sale.

Accepted Answer

The answer of Polly purchased a new hotel on July...

Question 11

Jim acquires a new seven-year class asset on September 20, 2013, for $80,000. He placed the asset in service on October 5, 2013. He does not elect to expense any of the asset under § 179 or elect straight­line, cost recovery. He takes additional first-year depreciation. He sells the asset on August 25, 2014. This is the only asset he acquires in 2013. Determine Jim's cost recovery in 2013 and 2014.

Accepted Answer

The answer of Jim acquires a new seven-year class asset...

Question 12

Bhaskar purchased a new factory building on September 10, 2014, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2015.

Accepted Answer

Under ADS, nonresidential real property is depreciated over 40 years using the straight-line method. The building cost is $3,200,000 ($3,700,000 - $500,000 for land). For 2015, the cost recovery deduction is $80,000 ($3,200,000 / 40 years).

Question 13

On April 15, 2014, Sam placed in service a storage facility (a single-purpose agricultural structure) costing $80,000. Sam also purchased and planted fruit trees costing $40,000. Sam does not elect to expense any of the acquisitions under § 179 and he elects not to take additional first­year depreciation (if available). Determine Sam's cost recovery from these two items for 2014.

Accepted Answer

The answer of On April 15, 2014, Sam placed in...

Question 14

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.

Accepted Answer

The answer of During the past two years, through extensive...

Question 15

On March 3, 2014, 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 2014.

Accepted Answer

The answer of On March 3, 2014, Sally purchased and...

Question 16

On January 15, 2014, Vern purchased the rights to a mineral interest for $3,500,000. At that time it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Vern incurred expenses during 2014 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2014.

Accepted Answer

$3,500,000/500,000 = $7 per unit
25,000 units sold × $7 = $175,000 cost depletion 22% × $800,000 = $176,000 percentage depletion
Percentage limit ($800,000 - $500,000)× 50% = $150,000 Thus,the deduction is $175,000.

Question 17

Rustin bought used 7-year class property on May 15, 2014, for $72,000. Rustin elects § 179 and straight­line cost recovery. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum write-off Rustin can take in 2014.

Accepted Answer

The answer of Rustin bought used 7-year class property on...

Question 18

Sid bought a new $80,000 seven-year class asset on August 2, 2014. On December 2, 2014, he purchased $24,000 of used five-year class assets. Sid does not take additional first­year depreciation if available. If Sid elects § 179, what is the maximum write-off for these purchases for 2014?

Accepted Answer

The answer of Sid bought a new $80,000 seven-year class...

Question 19

On June 1, 2014, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2014 for the patent.

Accepted Answer

The formula for calculating annual amortization expense on a patent is (cost of patent)/useful life. In this case, the cost of the patent is $300,000 and the useful life is 20 years, so the annual amortization expense is $15,000. However, since Red only owned the patent for a portion of the year (from June 1 to December 31), they can only amortize a portion of this amount for 2014. The portion of the year they owned the patent is 7/12 (June to December is 7 months out of the 12-month year), so the amount that Red may amortize for 2014 is:

($15,000 annual amortization expense) x (7/12 portion of year owned) = $8,750
Therefore, the total amount that Red may amortize for 2014 for the patent is $11,667 ($8,750 + $2,917 for 5 months of amortization expense in 2015). Choice C is the correct answer.

Question 20

Tom purchased and placed in service used office furniture on January 3, 2014, for $40,000. Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The accountant also used the same depreciation amounts when filing Tom's income tax returns. On January 10, 2019, Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.

Accepted Answer

The answer of Tom purchased and placed in service used...

Quiz 8: Depreciation, Cost Recovery, Amortization, and Depletion

George purchases used seven-year class property at a cost of $200,000 on April 20, 2014. Determine George's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming George does not elect § 179.

Orange Corporation begins business on April 2, 2014. The corporation has startup expenditures of $64,000 which it incurred last year. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2014.

On June 1, 2014, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming the dollar amount from the IRS table is $241, determine Norm's inclusion amount.

Rod paid $1,950,000 for a new warehouse on April 14, 2014. He sold the warehouse on September 29, 2019. Determine the cost recovery deduction for 2014 and 2019.

Pat purchased a used five-year class asset on March 15, 2014, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2014 for earnings and profits purposes.

Polly purchased a new hotel on July 20, 2014, for $6,000,000. On January 20, 2021, the building was sold. Determine the cost recovery deduction for the year of the sale.

Bhaskar purchased a new factory building on September 10, 2014, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS) . Determine the cost recovery deduction for 2015.

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.

Rustin bought used 7-year class property on May 15, 2014, for $72,000. Rustin elects § 179 and straightline cost recovery. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum write-off Rustin can take in 2014.

Sid bought a new $80,000 seven-year class asset on August 2, 2014. On December 2, 2014, he purchased $24,000 of used five-year class assets. Sid does not take additional firstyear depreciation if available. If Sid elects § 179, what is the maximum write-off for these purchases for 2014?

On June 1, 2014, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2014 for the patent.

Quiz 8: Depreciation, Cost Recovery, Amortization, and Depletion

George purchases used seven-year class property at a cost of $200,000 on April 20, 2014. Determine George's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming George does not elect § 179.

Orange Corporation begins business on April 2, 2014. The corporation has startup expenditures of $64,000 which it incurred last year. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2014.

On June 1, 2014, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming the dollar amount from the IRS table is $241, determine Norm's inclusion amount.

Rod paid $1,950,000 for a new warehouse on April 14, 2014. He sold the warehouse on September 29, 2019. Determine the cost recovery deduction for 2014 and 2019.

Pat purchased a used five-year class asset on March 15, 2014, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2014 for earnings and profits purposes.

Polly purchased a new hotel on July 20, 2014, for $6,000,000. On January 20, 2021, the building was sold. Determine the cost recovery deduction for the year of the sale.

Bhaskar purchased a new factory building on September 10, 2014, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS) . Determine the cost recovery deduction for 2015.

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.

Rustin bought used 7-year class property on May 15, 2014, for $72,000. Rustin elects § 179 and straight­line cost recovery. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum write-off Rustin can take in 2014.

Sid bought a new $80,000 seven-year class asset on August 2, 2014. On December 2, 2014, he purchased $24,000 of used five-year class assets. Sid does not take additional first­year depreciation if available. If Sid elects § 179, what is the maximum write-off for these purchases for 2014?

On June 1, 2014, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2014 for the patent.

Rustin bought used 7-year class property on May 15, 2014, for $72,000. Rustin elects § 179 and straightline cost recovery. Rustin's taxable income would not create a limitation for purposes of the § 179 deduction. Determine the maximum write-off Rustin can take in 2014.

Sid bought a new $80,000 seven-year class asset on August 2, 2014. On December 2, 2014, he purchased $24,000 of used five-year class assets. Sid does not take additional firstyear depreciation if available. If Sid elects § 179, what is the maximum write-off for these purchases for 2014?