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

Question 1

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

Answer 1

True

Question 2

The cost recovery period for new farm equipment placed in service during 2011 is seven years.

Answer 2

True

Question 3

Under MACRS,if the mid-quarter convention is applicable,all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.

Answer 3

False

Question 4

Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.

Question 5

Under the MACRS mid-quarter convention,an asset sold on December 10 will be treated as though it were sold on November 15 for a calendar year taxpayer.

Question 6

If more than 40% of the value of property,other than real property,is placed in service during the last quarter,all of the property will be allowed 1.5 months of cost recovery.

Question 7

Land improvements are generally eligible for cost recovery.

Question 8

In a farming business,MACRS straight-line cost recovery is required for all fruit bearing trees.

Question 9

All eligible real estate under MACRS is permitted a full month of cost recovery in the month of disposition.

Question 10

The basis of cost recovery property must be reduced by the cost recovery allowed.

Question 11

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

Question 12

When lessor owned leasehold improvements are abandoned because of the termination of the lease,a loss can be taken for the unrecovered basis.

Question 13

The cost recovery basis for property converted from personal use to business use is the fair market value of the property at the time of the conversion.

Question 14

Under the MACRS straight-line election for personalty,the mid-quarter convention is applicable.

Question 15

The key date for calculating cost recovery is the date the asset is purchased.

Question 16

If 150% declining-balance is used,there is no straight-line switchover.

Question 17

In a farming business,if the uniform capitalization rules apply,cost is recovered using the ADS straight-line method.

Question 18

Motel buildings are classified as residential rental real estate.

Question 19

Antiques may be eligible for cost recovery if they are used in a trade or business.

Question 20

Taxpayers may elect to use the straight-line method under MACRS for personalty.

Question 21

If a used $15,000 automobile used 100% for business in the first year (2011)fails the 50% business usage test in the second year,no cost recovery will be recaptured.

Question 22

Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.

Question 23

The § 179 limit of $250,000 for qualified leasehold improvement property is in addition to the $500,000 limit for tangible personal property.

Question 24

If a taxpayer uses regular MACRS for all property,an alternative minimum tax adjustment is made with respect to the depreciation on 3,5,7,and 10-year property.

Question 25

The costs of leasehold improvements owned by the lessee on residential rental real estate are recovered over a 27.5-year MACRS recovery period.

Question 26

The inclusion amount for a leased automobile is adjusted by a business usage percentage.

Question 27

For all property placed in service in 2011,the § 179 maximum deduction is limited to $500,000.

Question 28

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

Question 29

If an automobile is placed in service in 2011,the limitation for cost recovery in 2013 will be based on the cost recovery limits for the year 2013.

Question 30

The § 179 deduction can exceed $500,000 in 2011 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.

Question 31

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

Question 32

If a new car that is used predominantly in business is placed in service in 2011,the statutory dollar cost recovery limit under § 280F will depend on whether the taxpayer takes MACRS or straight-line depreciation.

Question 33

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

Question 34

ADS straight-line depreciation is used to compute earnings and profits.

Question 35

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

Question 36

The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds used for the production of income is $25,000.

Question 37

Once the more-than-50% business usage test is passed for listed property,it does not matter if the business usage for the property drops to 50% or less during the recovery period.

Question 38

A taxpayer may elect to use the alternative depreciation system (ADS)on property used predominantly outside the United States.

Question 39

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

Question 40

Not all listed property is subject to the substantiation requirements of § 274.

Question 41

Alice purchased office furniture on September 20,2011,for $100,000.On October 10,she purchased business computers for $80,000.Alice did not elect to expense any of the assets under § 179,nor did she elect straight-line cost recovery.She elects not to take additional first-year depreciation.Determine the cost recovery deduction for the business assets for 2011.

A) $6,426.
B) $14,710.
C) $25,722.
D) $30,290.
E) None of the above.

Question 42

Hazel purchased a new business asset (five-year asset)on September 30,2011,at a cost of $100,000.On October 4,2011,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2011.The only election with respect to the asset was not to take additional first-year depreciation.On August 20,2012,Hazel sold the asset.Determine the cost recovery for 2012 for the asset.

A) $9,600.
B) $16,000.
C) $26,000.
D) $38,000.
E) None of the above.

Question 43

Cost depletion is determined by multiplying the depletion cost per unit by the number of units produced.

Question 44

Bonnie purchased a new business asset (five-year property)on March 10,2011,at a cost of $20,000.She also purchased a new business asset (seven-year property)on November 20,2011,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight-line cost recovery.Bonnie elects not to take additional first-year depreciation.Determine the cost recovery deduction for 2011 for these assets.

A) $5,858.
B) $7,464.
C) $9,586.
D) $19,429.
E) None of the above.

Question 45

If startup expenses total $50,000 in 2011,the total amount is amortized over 180 months.

Question 46

On June 1 of the current year,Tab converted a machine from personal use to rental property.At the time of the conversion,the machine was worth $90,000.Five years ago Tab purchased the machine for $70,000.The machine is still encumbered by a $50,000 mortgage.What is the basis of the machine for cost recovery?

A) $70,000.
B) $90,000.
C) $120,000.
D) $140,000.
E) None of the above.

Question 47

Tara purchased a machine for $40,000 to be used in her business.The cost recovery allowed and allowable for the three years the machine was used are as follows: If Tara sells the machine after three years for $15,000,how much gain should she recognize?

A) $3,480.
B) $6,360.
C) $9,240.
D) $11,480.
E) None of the above.

Question 48

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in October of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

A) In the current year using a mid-quarter convention.
B) In the current year using a half-year convention.
C) In the following year using a mid-quarter convention.
D) In the following year using a half-year convention.
E) None of the above.

Question 49

Which of the following assets would be subject to cost recovery?

A) A painting by Picasso hanging on a doctor's office wall.
B) An antique vase in a doctor's waiting room.
C) Stock in the doctor's LLC.
D) a., b., and c.
E) None of the above.

Question 50

Percentage depletion enables the taxpayer to recover only the cost of an asset.

Question 51

James purchased a new business asset (three-year personalty)on July 23,2011,at a cost of $40,000.He did not elect to expense any of the asset under § 179,nor did he elect straight-line cost recovery.James elects not to take additional first-year depreciation.Determine the cost recovery deduction for 2011.

A) $8,333.
B) $16,665.
C) $33,333.
D) $41,665.
E) None of the above.

Question 52

A purchased trademark is a § 197 intangible.

Question 53

For real property,the ADS convention is the mid-month convention.

Question 54

The amortization period in 2011 for $4,000 of startup expenses if no election is made is 180 months.

Question 55

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

Question 56

Tan Company acquires a new machine (ten-year property)on January 15,2011,at a cost of $200,000.Tan also acquires another new machine (seven-year property)on November 5,2011,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election.Tan elects not to take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2011.

A) $24,000.
B) $25,716.
C) $102,000.
D) $132,858.
E) None of the above.

Question 57

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.

Question 58

Intangible drilling costs may be expensed rather than capitalized and written off through depletion.

Question 59

Barry purchased a used business asset (seven-year property)on September 30,2011,at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179,nor did he elect straight-line cost recovery.Barry sold the asset on July 17,2012.Determine the cost recovery deduction for 2012.

A) $19,133.
B) $24,490.
C) $34,438.
D) $55,100.
E) None of the above.

Question 60

Goodwill associated with the acquisition of a business cannot be amortized.

Question 61

On July 17,2011,Kevin places in service a used automobile that cost $25,000.The car is used 80% for business and 20% for personal use.In 2012,he used the automobile 40% for business and 60% for personal use.Determine the cost recovery recapture for 2012.

A) $0.
B) $448.
C) $2,000.
D) $2,500.
E) None of the above.

Question 62

The only asset Bill purchased during 2011 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2011.

A) $1,428.
B) $2,499.
C) $26,749.
D) $33,375.
E) None of the above.

Question 63

Cora purchased a hotel building on May 17,2011,for $6,000,000.Determine the cost recovery deduction for 2012.

A) $96,300.
B) $119,040.
C) $138,000.
D) $153,840.
E) None of the above.

Question 64

On June 1,2011,James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car.)James does elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2011.

A) $1,776.
B) $1,836.
C) $6,576.
D) $8,000.
E) None of the above.

Question 65

Mary purchased a new five-year class asset on March 7,2011.The asset was listed property (not an automobile).It was used 60% for business and the rest of the time for personal use.The asset cost $600,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $400,000.Mary does elect not to take additional first-year depreciation.Determine the total deductions with respect to the asset for 2011.

A) $72,000.
B) $250,000.
C) $272,000.
D) $360,000.
E) None of the above.

Question 66

In 2010,Gail had a § 179 deduction carryover of $15,000.In 2011,she elected § 179 for an asset acquired at a cost of $115,000.Gail's § 179 business income limitation for 2011 is $127,000.Determine Gail's § 179 deduction for 2011.

A) $15,000.
B) $115,000.
C) $127,000.
D) $130,000.
E) None of the above.

Question 67

Carlos purchased an apartment building on November 16,2011,for $1,000,000.Determine the cost recovery for 2011.

A) $3,210.
B) $3,970.
C) $4,550.
D) $7,580.
E) None of the above.

Question 68

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.

A) $0.
B) $123,503.
C) $127,990.
D) $128,631.
E) None of the above.

Question 69

On June 1,2011,Sam purchased new farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Sam does elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2011.

A) $5,000.
B) $7,500.
C) $10,000.
D) $12,500.
E) None of the above.

Question 70

Diane purchased a factory building on November 15,1993,for $5,000,000.She sells the factory building on February 2,2011.Determine the cost recovery deduction for the year of the sale.

A) $16,025.
B) $19,844.
C) $26,458.
D) $158,750.
E) None of the above.

Question 71

On May 2,2011,Karen placed in service a used sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine the cost recovery for 2011.

A) $2,200.
B) $3,060.
C) $25,000.
D) $27,200.
E) None of the above.

Question 72

Doug purchased a new factory building on January 15,1988,for $400,000.On March 1,2011,the building was sold.Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight-line method.

A) $0.
B) $1,587.
C) $2,645.
D) $12,696.
E) None of the above.

Question 73

On May 15,2011,Brent purchased new farm equipment for $120,000.Brent used the equipment in connection with his farming business.Brent does not elect to expense assets under § 179.Brent does elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2011.

A) $12,852.
B) $18,000.
C) $24,000.
D) $30,000.
E) None of the above.

Question 74

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.

A) $0.
B) $928.
C) $1,008.
D) $1,440.
E) None of the above.

Question 75

Hans purchased a new passenger automobile on August 17,2011,for $30,000.During the year the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2011.

A) $500.
B) $1,000.
C) $1,224.
D) $1,500.
E) None of the above.

Question 76

On May 30,2011,Jane signed a 20-year lease on a factory building to use for her business.The lease begins on June 1,2011.In August 2011,Jane paid $300,000 for qualified leasehold improvements to the building.Jane elected to treat the qualified leasehold improvements as § 179 property.Determine Jane's total deduction with respect to the leasehold improvements for 2011.

A) $2,889.
B) $250,000.
C) $250,482.
D) $300,000.
E) None of the above.

Question 77

On June 1,2011,Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car.)She does elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2012.

A) $3,060.
B) $3,290.
C) $3,430.
D) $6,720.
E) None of the above.

Question 78

Howard's business is raising and harvesting peaches.On March 10,2011,Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not elect to expense assets under § 179.Determine the cost recovery deduction for 2011.

A) $0.
B) $2,500.
C) $10,000.
D) $60,000.
E) None of the above.

Question 79

Augie purchased one used asset during the year (five-year property)on November 10,2011,at a cost of $650,000.She made the § 179 election.The income from the business before the cost recovery deduction and the § 179 deduction was $400,000.Determine the total cost recovery deduction with respect to the asset for 2011.

A) $7,500.
B) $92,500.
C) $392,500.
D) $500,000.
E) None of the above.

Question 80

White Company acquires a new machine (seven-year property)on January 10,2011,at a cost of $900,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does elect not to take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2011 assuming White has taxable income of $800,000.

A) $64,000.
B) $128,610.
C) $257,175.
D) $500,000.
E) None of the above.