Question 1

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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Question 2

Polly purchased a new hotel on July 20,2011,for $6,000,000.On January 20,2018,the building was sold.Determine the cost recovery deduction for the year of the sale.

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Question 3

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.

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Question 4

Audra acquires the following new five-year class property in 2011:
  Audra elects § 179 for Asset B and Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction.Audra elects not to take additional first-year depreciation.Determine her total cost recovery deduction (including the § 179 deduction)for the year.

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Question 5

On June 1,2011,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 five years.Determine the total amount that Red may amortize for 2011 for the patent.

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Question 6

George purchases used seven-year class property at a cost of $200,000 on April 20,2011.Determine George's cost recovery deduction for 2011 for alternative minimum tax purposes,assuming George does not elect § 179 and the maximum cost recovery deduction is taken for regular income tax purposes.

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Question 7

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.

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Question 8

Sid bought a new $700,000 seven-year class asset on August 2,2011.On December 2,2011,he purchased $160,000 of used five-year class assets.Sid elects not to take additional first-year depreciation.If Sid elects § 179,what is the maximum write-off for these purchases for 2011?

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Question 9

On January 15,2011,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 2011 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2011.

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The answer of On January 15,2011,Vern purchased the rights to...

Question 10

On March 1,2011,Lana leases and places in service a passenger automobile.The lease will run for five years and the payments are $500 per month.During 2011,she uses her car 40% for business and 60% for personal activities.Assuming the dollar amount from the IRS table is $110,determine Lana's deduction for the lease payments.

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The answer of On March 1,2011,Lana leases and places in...

Question 11

Jim acquires a new seven-year class asset on September 20,2011,for $80,000.He placed the asset in service on October 5,2011.He does not elect to expense any of the asset under § 179 or elect straight-line,cost recovery.He elects not to take additional first-year depreciation.He sells the asset on August 25,2012.This is the only asset he acquires in 2011.Determine Jim's cost recovery in 2011 and 2012.

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Question 12

Rustin bought used 7-year class property on May 15,2011,for $800,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Rustin elects not to take additional first-year depreciation.Determine the write-off Rustin can take in 2011.

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Question 13

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.

Accepted Answer

According to Section 195 of the IRS code, startup expenditures can be deducted up to a maximum of $5,000 in the year that the business begins operations. However, the amount of the deduction is reduced by the amount by which the total startup expenditures exceed $50,000.

In this case, the startup expenditures are $54,000, which is $4,000 over the $50,000 threshold. Therefore, the maximum amount that Orange Corporation can deduct in 2011 is $5,000 - $4,000 = $1,000.

Therefore, the correct answer is C: $3,650, which is the amount remaining after subtracting the maximum deduction of $1,000 from the total startup expenditures of $54,000.

Question 14

On June 1,2011,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

The inclusion amount is $0 because the lease payments do not exceed the threshold amount from the IRS table.

Question 15

On July 10,2011,Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2011,assuming Ariff's § 179 business income is $110,000.Ariff elects not to take additional first-year depreciation.

Accepted Answer

Ariff can claim up to $34,000 as a Section 179 deduction in 2011. This is because the maximum Section 179 deduction limit for 2011 was $500,000, and the cost of the SUV falls within that limit. However, the deduction is limited to Ariff's business income of $110,000. Additionally, since Ariff elected not to take additional first-year depreciation, there is no additional deduction available for the SUV in 2011. Therefore, the maximum deduction is $34,000. Option A is incorrect because $2,960 is not the maximum Section 179 deduction Ariff can claim. Option B is incorrect because Ariff elected not to take additional first-year depreciation. Option D is incorrect because Ariff cannot deduct the entire cost of the SUV in 2011. Option E is incorrect because there is a maximum limit to the Section 179 deduction, and Ariff's deduction cannot exceed his business income.

Question 16

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.

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Question 17

Tom acquired a used five-year class asset on November 5,2011 for $20,000.This was the only asset Tom acquired in 2011.He placed the asset in service on January 20,2012.However,because the asset was purchased in 2011,Tom deducted regular MACRS cost recovery on the asset for the year 2011.He did not elect to expense any of the asset under § 179.In 2012,Tom purchased no assets and because he had no taxable income,he did not deduct any cost recovery.In 2013,Tom sold the five-year asset on September 25th.Determine the basis of the five-year asset at the time of the sale.

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Question 18

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.

Accepted Answer

The asset in question is a 5-year property. Straight-line depreciation must be used and the mid-month convention is assumed. Therefore, the annual depreciation is $60,000/5 = $12,000. Because Pat placed the asset in service on March 15, he can only claim 10.5 months' depreciation in the first year (i.e. March 15 to December 31). The depreciation for 2011 is $12,000 × 10.5/12 = $6,000.

Question 19

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.

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Question 20

Rod paid $950,000 for a new warehouse on April 14,2011.He sold the warehouse on September 29,2016.Determine the cost recovery deduction for 2011 and 2016.

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

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