Question 1

Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Accepted Answer

The answer of Flax, LLC purchased only one asset this...

Question 2

Columbia LLC only purchased one asset this year. Columbia LLC placed in service on July 9, 2018 machinery and equipment (7-year property) with a basis of $2,750,000. Assume that Columbia has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing) for the year. (Use MACRS Table 2) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Columbia LLC only purchased one asset this...

Question 3

Timothy purchased a new computer for his consulting practice on October 15ᵗʰ of the current year. The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery expense with respect to the computer during the current year?

Accepted Answer

The answer of Timothy purchased a new computer for his...

Question 4

Eddie purchased only one asset during the current year. Eddie placed in service furniture (7-year property) on May 1ˢᵗ with a basis of $26,500. Calculate the maximum depreciation expense, rounded to the nearest whole number (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Accepted Answer

The answer of Eddie purchased only one asset during the...

Question 5

Kristine sold two assets on March 20th of the current year. The first was machinery with an original basis of $51,000, currently in the fourth year of depreciation, and under the half-year convention. The second was furniture with an original basis of $16,000 placed in service during the fourth quarter, currently in the third year of depreciation, and under the mid-quarter convention. What is Kristine's depreciation expense for the current year if the depreciation recovery period is 7-years? (Use MACRS Table 1, Table 2, and EXHIBIT 10-6) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Kristine sold two assets on March 20th...

Question 6

Reid acquired two assets in 2018: computer equipment (5-year property) acquired on August 6ᵗʰ with a basis of $1,000,000 and machinery (7-year property) on November 9th with a basis of $1,000,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). (Use MACRS Table 1)

Accepted Answer

The answer of Reid acquired two assets in 2018: computer...

Question 7

Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise. During the past several years, 4,000 pounds were extracted. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $250,000. What is Santa Fe's cost depletion expense for the current year?
A) $60,000.
B) $90,000.
C) $190,000.
D) $160,000.
E) None of the choices are correct.

Accepted Answer

The depletion expense is $60,000 ($300,000/5,000) × 1,000. Cost depletion is limited to the taxpayer's basis. As a result, even though 1,500 pounds were extracted, only 1,000 pounds can be expensed under cost depletion.

Question 8

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10ᵗʰ of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

Accepted Answer

The answer of Jaussi purchased a computer several years ago...

Question 9

Northern LLC only purchased one asset this year. In 2018, Northern LLC placed in service on September 6ᵗʰ machinery and equipment (7-year property) with a basis of $3,150,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing). (Use MACRS Table 1) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Northern LLC only purchased one asset this...

Question 10

Amit purchased two assets during the current year. Amit placed in service computer equipment (5-year property) on April 16ᵗʰ with a basis of $5,000 and furniture (7-year property) on September 9ᵗʰ with a basis of $20,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Accepted Answer

The answer of Amit purchased two assets during the current...

Question 11

During April of the current year, Ronen purchased a warehouse that he used for business purposes. The basis was $1,600,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 5)

Accepted Answer

The answer of During April of the current year, Ronen...

Question 12

Lucky Strike Mine (LLC) purchased a silver deposit for $1,500,000. It estimated it would extract 500,000 ounces of silver from the deposit. Lucky Strike mined the silver and sold it reporting gross receipts of $1.8 million, $2.5 million, and $2 million for years 1 through 3, respectively. During years 1 - 3, Lucky Strike reported net income (loss) from the silver deposit activity in the amount of ($100,000), $400,000, and $100,000, respectively. In years 1 - 3, Lucky Strike actually extracted 300,000 ounces of silver as follows: 
What is Lucky Strike's depletion expense for year 2 if the applicable percentage depletion for silver is 15 percent?
A) $200,000
B) $375,000
C) $400,000
D) $450,000
E) None of the choices are correct.

Accepted Answer

The depletion expense is $450,000, the greater of cost or percentage depletion. Cost depletion is $450,000 ($1,500,000 ÷ 500,000) × 150,000. Percentage depletion is $200,000; the lesser of the statutory percentage $375,000 ($2,500,000 × .15) or $200,000 [($400,000 × 50%) = 50 percent of net income].

Question 13

Janey purchased machinery on April 8ᵗʰ of the current year. The relevant costs for the year are as follows: machinery for $10,000, $800 shipping, $50 for delivery insurance, $500 for installation, $750 for sales tax, $150 for the annual tune up, and $200 of property taxes (an annual tax on business property). What is Janey's tax basis for the machinery?

Accepted Answer

The answer of Janey purchased machinery on April 8ᵗʰ of...

Question 14

An office building was purchased on December 9ᵗʰ several years ago for $2,500,000. The purchase price was allocated as follows: building $1,900,000, landscaping $100,000, and land $500,000. During the current year, the 10ᵗʰ year, the building was sold on March 10ᵗʰ. Calculate the maximum depreciation expense for the real property during the current year, rounded to the nearest whole number. (Use MACRS Table 5)

Accepted Answer

The answer of An office building was purchased on December...

Question 15

Roth, LLC purchased only one asset during the current year. Roth placed in service office equipment (7-year property) on August 1ˢᵗ with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Roth, LLC purchased only one asset during...

Question 16

Bonnie Jo used two assets during the current year. The first was computer equipment with an original basis of $15,000, currently in the second year of depreciation, and under the half-year convention. This asset was disposed of on October 1st of the current year. The second was furniture with an original basis of $24,000 placed in service during the first quarter, currently in the fourth year of depreciation, and under the mid-quarter convention. What is Bonnie Jo's depreciation expense for the current year? (Round final answer to the nearest whole number) (Use MACRS Table 1 and Table 2)

Accepted Answer

The answer of Bonnie Jo used two assets during the...

Question 17

Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2018 machinery and equipment (7-year property) with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing, (but ignoring bonus expensing). (Use MACRS Table 1) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Olney LLC only purchased one asset this...

Question 18

Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly. Occasionally, she uses the equipment for personal use. During the first year, Phyllis used the equipment for business use 70 percent of the time; however, during the current (second) year the business use fell to 40 percent. Assume that the equipment is seven-year MACRS property and is under the half-year convention. Assume the ADS recovery period is 10 years. What is the depreciation allowance for the current year? (Use MACRS Table 1) (Round final answer to the nearest whole number.)

Accepted Answer

The answer of Phyllis purchased $8,000 of specialized audio equipment...

Question 19

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 3)

Accepted Answer

The answer of During August of the prior year, Julio...

Question 20

Yasmin purchased two assets during the current year. Yasmin placed in service computer equipment (5-year property) on May 26ᵗʰ with a basis of $10,000 and machinery (7-year property) on December 9ᵗʰ with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2)

Accepted Answer

The answer of Yasmin purchased two assets during the current...

Quiz 2: Property Acquisition and Cost Recovery

Flax, LLC purchased only one asset this year. Flax placed in service a computer (5-year property) on January 16 with a basis of $14,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Eddie purchased only one asset during the current year. Eddie placed in service furniture (7-year property) on May 1ˢᵗ with a basis of $26,500. Calculate the maximum depreciation expense, rounded to the nearest whole number (ignoring §179 and bonus depreciation). (Use MACRS Table 1)

Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes. On November 10ᵗʰ of the current year, when the fair market value of the computer was $800, Jaussi converted it to business use. What is Jaussi's tax basis for the computer?

During April of the current year, Ronen purchased a warehouse that he used for business purposes. The basis was $1,600,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 5)

During August of the prior year, Julio purchased an apartment building that he used as a rental property. The basis was $1,400,000. Calculate the maximum depreciation expense during the current year. (Use MACRS Table 3)