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Exam 2: Property Acquisition and Cost Recovery

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Question 21

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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)

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$2,800.
The asset's recovery period is 5...

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Question 22

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Billie Bob purchased a used camera (5-year property) for use in his sole proprietorship in the prior year. The basis of the camera was $2,400. Billie Bob used the camera in his business 60 percent of the time during the first year. During the second year, Billie Bob used the camera 40 percent for business use. Calculate Billie Bob's depreciation expense during the second year assuming the sole proprietorship had a loss during the year (Billie Bob did not place the asset in service in the last quarter) . (Use MACRS Table 1)

A) $0.
B) $48.
C) $192.
D) $336.
E) None of the choices are correct.

F) All of the above
G) None of the above

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Question 23

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Which of the following depreciation conventions are not used under MACRS?

Property expensed under the §179 immediate expensing election is not included in the 40 percent test to determine whether the mid-quarter convention must be used.

How is the recovery period of an asset determined?

Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year. (Use MACRS Table 3)

The alternative depreciation system requires both a slower method of recovery and longer recovery periods.

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)

Tax cost recovery methods do not include:

The 200 percent or double declining balance method is allowable for five and seven-year property.

If a business mistakenly claims too little depreciation, the business must only reduce the asset's basis by the depreciation actually taken rather than the amount of the allowable depreciation.

Which of the following assets is not eligible for bonus depreciation?

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)

Taxpayers may always expense a portion of start-up costs and organizational expenditures.

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.)

Business assets that tend to be used for both business and personal purposes are referred to as listed property.

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.)

Alexandra purchased a $55,000 automobile during 2018. The business use was 70 percent. What is the allowable depreciation for the current year (ignore any possible bonus depreciation)? (Use Exhibit 10-10)

Suvi, Inc. purchased two assets during the current year (a full 12-month tax year) . Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation) . (Use MACRS Table 1) (Round final answer to the nearest whole number.)

The manner in which a business amortizes a patent or copyright is the same whether the business directly purchases the patent or copyright or whether it self-creates the intangible.