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

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Question 1

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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.

A) $150,000
B) $175,000
C) $176,000
D) $200,000
E) $250,000

F) D) and E)
G) A) and E)

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Question 2

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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.

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2015: $1,950,000 × ....

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Question 3

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On June 1,2015,Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241,determine Norm's gross income inclusion amount.

Discuss the difference between the half-year convention and the mid-quarter convention.

In a farming business,MACRS straight-line cost recovery is required for all fruit bearing trees.

In 2015,Marci is considering starting a new business.Marci incurs the following costs associated with this venture. Advertising $ 5,000 Travel 10,000 Market surveys 8,000 Professional services 30,000 Interest expense 2,000 Taxes 1,000 Marci started the new business on January 5,2016.Determine the deduction for Marci's startup costs for 2015.

The basis of cost recovery property must be reduced by at least the cost recovery allowable.

Once the more-than-50% business usage test is passed for listed property,it still matters if the business usage for the property drops to 50% or less during the recovery period.

Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in January of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:

White Company acquires a new machine (seven-year property) on January 10,2015,at a cost of $600,000.White makes the election to expense the maximum amount under § 179.No election is made to use the straight-line method.White does take additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machine for 2015 assuming White has taxable income of $800,000.

For personal property placed in service in 2015,the § 179 maximum deduction is limited to $500,000.

Discuss the requirements in order for startup expenditures to be amortized under § 195.

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.

An election to use straight-line under ADS is made on an asset-by-asset basis for property other than eligible real estate.

In a farming business,if the uniform capitalization rules are not used,cost is recovered using the ADS straight-line method.

The amortization period for $58,000 of startup expenses is 180 months.

On June 1,2015,Irene places in service a new automobile that cost $21,000.The car is used 70% for business and 30% for personal use.(Assume this percentage is maintained for the life of the car. ) She does not take additional first-year depreciation (if available) .Determine the cost recovery deduction for 2016.

Alice purchased office furniture on September 20,2014,for $100,000.On October 10,2014,she purchased business computers for $80,000.Alice placed all of the assets in service on January 15,2015.Alice did not elect to expense any of the assets under § 179,did not elect straight-line cost recovery,and did not take additional first-year depreciation (if available) .Determine the cost recovery deduction for the business assets for 2015.

Bonnie purchased a new business asset (five-year property) on March 10,2015,at a cost of $30,000.She also purchased a new business asset (seven-year property) on November 20,2015,at a cost of $13,000.Bonnie did not elect to expense either of the assets under § 179,nor did she elect straight-line cost recovery.Bonnie takes additional first-year depreciation.Determine the cost recovery deduction for 2015 for these assets.

Taxpayers may elect to use the straight-line method under MACRS for personalty.