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Exam 8: Depreciation, Cost Recovery, Amortization, and Depletion

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Question 31

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On June 1, 2012, Gabriella purchased a computer and peripheral equipment (five-year property) for $25,000.She used the assets 40% for business, 50% for the production of income, and 10% for personal use.These are the only assets Gabriella purchased during the current year.Determine her total cost recovery deduction for the current year.

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A computer and peripheral equipment are ...

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Question 32

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

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Question 33

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Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.

Barry purchased a used business asset (seven-year property) on September 30, 2012, at a cost of $200,000.This is the only asset he purchased during the year.Barry did not elect to expense any of the asset under § 179, nor did he elect straight-line cost recovery.Barry sold the asset on July 17, 2013.Determine the cost recovery deduction for 2013.

Norm purchases a new sports utility vehicle (SUV) on October 12, 2012, for $50,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2012.Compute the maximum deduction with respect to the SUV for 2012. Norm does take additional first-year depreciation.

Audra acquires the following new five-year class property in 2012: Audra elects § 179 for Asset C.Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction. Audra takes additional first-year depreciation.Determine her total cost recovery deduction (including the § 179 deduction) for the year.

If a taxpayer uses regular MACRS for all property, an alternative minimum tax adjustment is made with respect to the depreciation on all property, regardless of the class life.

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

The cost of a covenant not to complete for 20 years incurred in connection with the acquisition of a business is amortized over 20 years.

Doug purchased a new factory building on January 15, 1988, for $400,000.On March 1, 2012, the building was sold.Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight-line method.

On August 20, 2011, May signed a 10-year lease on a building for her business.On November 28, 2012, May paid $80,000 for a qualified leasehold improvement to the building.She takes additional first-year depreciation.What is May's cost recovery deduction for the improvement in 2012?

If 150% declining-balance is used, there is no straight-line switchover.

Diane purchased a factory building on November 15, 1993, for $5,000,000.She sells the factory building on February 2, 2012.Determine the cost recovery deduction for the year of the sale.

Tom acquired a used five-year class asset on November 5, 2012 for $20,000. This was the only asset Tom acquired in 2012. He placed the asset in service on January 20, 2013. However, because the asset was purchased in 2012, Tom deducted regular MACRS cost recovery on the asset for the year 2012.He did not elect to expense any of the asset under § 179. In 2013, Tom purchased no assets and because he had no taxable income, he did not deduct any cost recovery. In 2014, Tom sold the five-year asset on September 25th. Determine the basis of the five-year asset at the time of the sale.

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.

Cora purchased a hotel building on May 17, 2012, for $3,000,000.Determine the cost recovery deduction for 2013.

On April 15, 2012, 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. Sam elected not to take additional first-year depreciation. Determine Sam's cost recovery from these two items for 2012.

Orange Corporation begins business on April 2, 2012.The corporation has startup expenditures of $54,000.If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2012.

On February 20, 2012, Susan paid $200,000 for a qualified leasehold improvement to an office building that she is going to lease to John.The lease will begin on June 1, 2012, and terminate on May 31, 2022.At the termination of the lease, the improvement will be worthless.Susan did not elect to treat the leasehold improvement property as § 179 property.She does not take additional first-year depreciation. Determine Susan's deductible loss as a result of the termination of the lease.

Hans purchased a new passenger automobile on August 17, 2012, for $30,000.During the year the car was used 40% for business and 60% for personal use.Determine his cost recovery deduction for the car for 2012.