Question 1

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.To maximize its total cost recovery deduction,what was Sanjuro Corporation's cost recovery deduction for the used office equipment for 2014?

Accepted Answer

To maximize overall depreciation,$325,000 [$500,000 - ($2,175,000 - $2,000,000)] of Sec.179 expensing should be elected on the used office equipment because by doing so the mid-quarter convention will be avoided.(550,000/1,850,000 = 29.73%)[($550,000 x .1429)] = $78,595 + $325,000 Sec.179 = $403,595

Question 2

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What is Sanjuro Corporation's cost recovery deduction for the office equipment for 2015?

Accepted Answer

[875,000 - $325,000 expensed under Sec.179)x .2449] = $134,695; To maximize its deductions,it claimed Sec.179 expensing on the used office equipment in 2014.

Question 3

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
To maximize its total cost recovery deduction,what was Sanjuro Corporation's cost recovery deduction for the computer equipment for 2014?

Accepted Answer

The computer equipment was eligible for 50% x $220,000 bonus depreciation = $110,000; MACRS depreciation = $110,000 x .20 = $22,000; total cost recovery is $132,000.To maximize its deductions,it would claim Sec.179 expensing on the used office equipment.

Question 4

The lease inclusion amount:

Accepted Answer

The lease inclusion amount is a substitute for the depreciation limits applicable to purchased autos. It is the amount that must be included in the lessee's income each year to account for the value of the leased vehicle. It is not related to the annual lease payments, applies only to leased autos above a certain value, and typically decreases over the duration of the lease.

Question 5

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.To maximize its total cost recovery deduction,what was Sanjuro Corporation's cost recovery deduction for the automobile for 2014?

Accepted Answer

The used automobile was not eligible for bonus depreciation.To maximize its deductions,it would claim Sec.179 expensing on the used office equipment in 2014.

Question 6

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What is Sanjuro Corporation's maximum deduction for cost recovery for the warehouse for 2015?

Accepted Answer

($2,450,000 x .02564)

Question 7

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What is Sanjuro Corporation's cost recovery deduction for the warehouse for 2016 if it is sold in November of 2016?

Accepted Answer

($2,450,000 x .02564 x 10.5/12 = $54,966)

Question 8

In May 2014,Stephen acquired a used automobile for $12,000 and used the automobile 75% for business.No Sec.179 election was made.In 2015,Stephen's business use of the automobile decreases to 45%.As a result of this change in business use:

Accepted Answer

(.75 x $12,000 x .2)- (.75 x $12,000 x .1)

Question 9

Cora,a calendar-year corporation,purchased a new machine for $35,000 and some used office furniture for $180,000 in July 2015.What is Cora's maximum cost recovery deduction for 2015?

Accepted Answer

Sec.179 expensing is limited to $10,000 ($225,000 - $35,000 - $180,000),which can be applied to either asset (There is no bonus depreciation.)Total depreciation ($35,000 + $180,000 - $10,000)x .1429 = $29,295 + $10,000 Sec.179 = $39,295

Question 10

YumYum Corporation (a calendar-year corporation)moved into a new office building adjacent to its manufacturing plant in 2015.It purchased and placed in service the following assets during 2015:  All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.YumYum Corporation made any elections available to maximize its overall depreciation deduction for 2015.What is its maximum depreciation deduction on the new automobile in 2015?

Accepted Answer

The answer of YumYum Corporation (a calendar-year corporation)moved into a...

Question 11

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What is Sanjuro Corporation's cost recovery deduction for the automobile for 2017?

Accepted Answer

$1,875 is the fourth year auto ceiling limit.To maximize its deductions,it would claim Sec.179 expensing on the used office equipment in 2014.

Question 12

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What is Sanjuro Corporation's maximum deduction for cost recovery for the automobile for 2016?

Accepted Answer

$3,050 is the third year auto ceiling limit.To maximize its deductions,it would claim Sec.179 expensing on the used office equipment in 2014.

Question 13

On November 7,2015,Wilson Corporation acquires 7-year property for $35,000.This is the only property acquired this year and Section 179 expensing is elected.What is Wilson's total depreciation deduction for 2015?

Accepted Answer

[($35,000 - $25,000)x .0357] = $25,357

Question 14

YumYum Corporation (a calendar-year corporation)moved into a new office building adjacent to its manufacturing plant in 2015.It purchased and placed in service the following assets during 2015:  All assets are used 100% for business use.The office building does not include the cost of the land on which it is located that was an additional $300,000.The corporation had $900,000 income from operations before calculating depreciation deductions.If YumYum Corporation made all elections available to maximize its overall depreciation deduction for 2015,what would its maximum cost recovery deduction be for 2015?

Accepted Answer

Sec.179 expensing limited to $5,000 ($225,000 - $45,000 - $25,000 - $120,000 - $120,000 - $30,000).[($850,000 x .02033)+ ($45,000 x .2)+ $5,000 Sec.179.+ ($120,000 + 25,000 - $5,000).1429 + $3,160 auto limit] = $54,447

Question 15

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What was Sanjuro Corporation's maximum total cost recovery deduction for 2014?

Accepted Answer

The warehouse: ($2,450,000 x .02247)= 55,052.Used auto: 3,160 (it is not eligible for bonus depreciation).To maximize overall depreciation,$325,000 [$500,000 - ($2,175,000 - $2,000,000)] of Sec.179 expensing should be elected on the used office equipment because by doing so the mid-quarter convention will be avoided.(550,000/1,850,000 = 29.73%)[($550,000 x .1429)] = $78,595 + $325,000 Sec.179 = $403,595.The computer equipment is eligible for $110,000 (50% x $220,000)bonus depreciation; MACRS depreciation = $110,000 x .20 = $22,000; total cost recovery for the computer equipment is $132,000.The machinery is eligible for 50% bonus depreciation (.5 x $1,050,000 = $525,000); MACRS depreciation is $75,023 ($525,000 x .1429)and total cost recovery on the machinery is $600,023.The total cost recovery for all the property is $1,193,830 consisting of $55,052 warehouse + $3,160 automobile + 132,000 computer equipment + $403,595 used office equipment + $600,023 machinery.

Question 16

Rodriguez Corporation acquired 7-year property costing $50,000 on October 1,2015.This is the only property acquired this year and Rodriguez elects to expense the maximum amount under Section 179.Rodriguez's income before deducting depreciation is $20,000.What is the maximum amount that Rodriguez can deduction in 2015 for Section 179 expensing?

Accepted Answer

$25,000 is the maximum potential Section 179 deduction but is limited to Rodriguez's income of $20,000.

Question 17

Chipper,a calendar-year corporation,purchased new machinery for $1,125,000 in February,2014.In October,it purchased $1,075,000 of used machinery.What was Chipper's maximum cost recovery deduction for 2014?

Accepted Answer

Sec.179 expensing was limited to $300,000 ($2,500,000 - $1,125,000 - $1,075,000 = $300,000.)applied to the used machinery as it was not eligible for bonus depreciation.The mid-quarter MACRS convention was required as more than 40% was invested in the last quarter [$775,000)/($1,125,000 + $775,000)= 40.79]; MACRS: $775,000 x .0357 = $27,668.Bonus depreciation: $1,125,000 x .5 = $562,500; MACRS: [($1,125,000 - $562,500 bonus)x .25 = $140,625).Total cost recovery = $1,030,793 (300,000 + $27,668 + $562,500 + $140,625).

Question 18

Allen Corporation acquired 5-year property costing $150,000 on September 10,2015.This is the only property acquired this year and Allen elects to expense the maximum amount under Section 179.Allen's income before deducting depreciation is $15,000.What is the maximum amount that Allen can deduct in 2015 for Section 179 expensing?

Accepted Answer

$25,000 is the maximum potential Section 179 deduction but is limited to Allen's income of $15,000.

Question 19

Sanjuro Corporation (a calendar-year corporation)purchased and placed in service the following assets during 2014:  All assets are used 100% for business use.The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000.The corporation has $3,000,000 income from operations before calculating depreciation deductions.Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2014.
What is Sanjuro Corporation's cost recovery deduction for the computer equipment for 2015?

Accepted Answer

50% bonus depreciation was taken in 2014; $110,000 x .32 = $35,200; To maximize its deductions,it would claim Sec.179 expensing on the used office equipment in 2014.

Question 20

Zachary purchased a new car on August 1,2014 for $14,500.His records indicate that he uses the car 45 percent for business and 55 percent for personal use.What are his cost recovery deductions for 2014 and 2015?

Accepted Answer

($14,500 x .1 x .45)and ($14,500 x .2 x .45).Because the car is not used more than 50% for business,it is ineligible for Sec.179 expensing or bonus depreciation and ADS must be used.

Quiz 6: Property Acquisitions and Cost Recovery Deductions