Question 1

On June 1,2015,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 2015 for the patent.

Accepted Answer

The patent is amortized over its useful life of 20 years. The annual amortization is $300,000 / 20 = $15,000. For 2015, since the purchase was made on June 1, only 7 months of amortization can be claimed: $15,000 * (7/12) = $8,750. However, the closest option to this calculation is $11,667, which suggests a possible error in the options provided.

Question 2

On April 5,2015,Orange Corporation purchased,and placed in service,seven-year class assets costing $540,000 and five-year class assets costing $140,000.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 2015.

Accepted Answer

The answer of On April 5,2015,Orange Corporation purchased,and placed in...

Question 3

Nora purchased a new automobile on July 20,2014,for $29,000.The car was used 60% for business and 40% for personal use.In 2015,the car was used 30% for business and 70% for personal use.Nora elects not to take additional first-year depreciation.Determine the cost recovery recapture and the cost recovery deduction for 2015.

Accepted Answer

The answer of Nora purchased a new automobile on July...

Question 4

On March 3,2015,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 2015.

Accepted Answer

The answer of On March 3,2015,Sally purchased and placed in...

Question 5

Tom purchased and placed in service used office furniture on January 3,2015,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 10,2020,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...

Question 6

Orange Corporation begins business on April 2,2015.The corporation reports startup expenditures of $64,000 all incurred last year.Determine the total amount that Orange can elect to deduct in 2015.

Accepted Answer

According to the IRS rules, a business can elect to deduct up to $5,000 in startup costs and $5,000 in organizational costs in the first year of business. However, this deduction is reduced dollar for dollar for startup costs exceeding $50,000. Since Orange Corporation's startup expenses exceed $50,000, the $5,000 deduction is reduced by $14,000 ($64,000 - $50,000), resulting in a maximum deduction of $3,000 in startup costs. Therefore, choice B ($3,200) is the closest option.

Question 7

Martin is a sole proprietor of a sandwich business.On March 4,2015,Martin purchased and placed in service new seven-year class assets costing $560,000.Martin's business reports taxable income for the year,before any deductions associated with the purchased assets,of $160,000.Martin also received $30,000 of interest income for the year,which is not related to the business.Martin wants his adjusted gross income for the year to be as low as possible.With this objective in mind,determine how Martin should recover the cost of the acquired assets.

Accepted Answer

The answer of Martin is a sole proprietor of a...

Question 8

On August 20,2015,May placed in service a building for her business.On November 28,2015,May paid $80,000 for improvements to the building.What is May's cost recovery deduction for the building improvements in 2015?

Accepted Answer

The answer of On August 20,2015,May placed in service a...

Question 9

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 advertising...

Question 10

Rod paid $1,950,000 for a new warehouse on April 14,2015.He sold the warehouse on September 29,2020.Determine the cost recovery deduction for 2015 and 2020.

Accepted Answer

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

Question 11

On April 15,2015,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 first-year depreciation (if available).Determine Sam's cost recovery from these two items for 2015.

Accepted Answer

The answer of On April 15,2015,Sam placed in service a...

Question 12

Sid bought a new $1,210,000 seven-year class asset on August 2,2015.On December 2,2015,he purchased $860,000 of used five-year class assets.If Sid elects § 179 and takes additional first-year depreciation,if available,what is the maximum cost recovery deduction for these purchases for 2015?

Accepted Answer

The answer of Sid bought a new $1,210,000 seven-year class...

Question 13

Audra acquires the following new five-year class property in 2015: Asset Acquisition Date Cost A January 10 $ 106,000 B July 5 70,000 C November 15 1,950,000 Total $ 2,126,000 Audra elects § 179 treatment for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction.Audra claims the full available additional first-year depreciation deduction.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 14

On July 15,2015,Mavis paid $275,000 for improvements on a commercial building she owns.Determine the maximum total cost recovery from the improvements in 2015.

Accepted Answer

The answer of On July 15,2015,Mavis paid $275,000 for improvements...

Question 15

Jim acquires a new seven-year class asset on September 20,2015,for $80,000.He placed the asset in service on October 5,2015.He does not elect to expense any of the asset under § 179 or elect straight-line,cost recovery.He takes additional first-year depreciation.He sells the asset on August 25,2016.This is the only asset he acquires in 2015.Determine Jim's cost recovery in 2015 and 2016.

Accepted Answer

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

Question 16

Joe purchased a new five-year class asset on June 1,2015.The asset is listed property (not an automobile).It was used 55% for business and 45% for the production of income.The asset cost $1,000,000.Joe made the § 179 election.Joe's taxable income would not create a limitation for purposes of the § 179 deduction.Joe does not take additional first-year depreciation (if available).Determine Joe's total cost recovery (including the § 179 deduction) for the year.

Accepted Answer

The answer of Joe purchased a new five-year class asset...

Question 17

Rustin bought used 7-year class property on May 15,2015,for $728,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Determine the maximum cost recovery deduction Rustin can claim for 2015.

Accepted Answer

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

Question 18

Polly purchased a new hotel on July 20,2015,for $6,000,000.On January 20,2022,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 19

On January 15,2015,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 2015 of $500,000.The percentage depletion rate is 22%.Determine Vern's depletion deduction for 2015.

Accepted Answer

The answer of On January 15,2015,Vern purchased the rights to...

Question 20

On February 21,2015,Joe purchased new farm equipment for $600,000.Joe elects to not have the uniform capitalization rules apply to his farming business.He does not claim additional first-year depreciation (if available).If Joe elects § 179,what is the maximum cost recovery deduction for this purchase for 2015?

Accepted Answer

The answer of On February 21,2015,Joe purchased new farm equipment...

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