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Exam 9: Property Acquisition and Cost Recovery

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Question 31

Multiple Choice

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Which of the following is not usually included in an asset's tax basis?

A) Purchase price
B) Sales tax
C) Shipping
D) Installation costs
E) All of these are included in an asset's tax basis

F) A) and E)
G) A) and B)

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Question 32

Multiple Choice

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Which depreciation convention is the general rule for tangible personal property?

A) Full-month
B) Half-year
C) Mid-month
D) Mid-quarter
E) None of these are conventions for tangible personal property

F) B) and C)
G) A) and E)

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Question 33

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If the business use percentage for listed property falls below 50 percent, the only adjustment is all future depreciation must be calculated under the straight-line method.

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, rounded to the nearest whole number?

The MACRS recovery period for automobiles and computers is:

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

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?

Businesses may immediately expense research and experimentation expenditures or they may elect to capitalize these costs and amortize them using the straight-line method over a period of not less than 60 months.

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

All taxpayers may use the §179 immediate expensing election on certain property.

Reid acquired two assets this year: computer equipment (5-year property) acquired on August 6th with a basis of $500,000 and machinery (7-year property) on November 9th with a basis of $500,000. Assume that Reid has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (but not bonus expensing). Assume the 2013 §179 limits are extended to 2014.

In general, a taxpayer should select longer-lived property for the §179 immediate expensing election.

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).

Real property is always depreciated using the straight-line method.

Clay LLC placed in service machinery and equipment (7-year property) with a basis of $2,450,000 on June 6, 2014. Assume that Clay has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignoring any possible bonus expensing) , rounded to a whole number. Assume that the 2013 §179 limits are extended to 2014:

Daschle LLC completed some research and development during June of the current year. The related costs were $60,000. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization expense Daschle may deduct during the current year?

Taxpayers use the half-year convention for all assets.

Suvi, Inc. purchased two assets during the current 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, rounded to a whole number (ignoring §179 and bonus depreciation) :

Which of the following assets are eligible for §179 expensing?

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).