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Exam 8: Depreciation Cost Recovery Amortization and Depletion

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Question 31

True/False

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Under the MACRS straight-line election for personalty,only the half-year convention is applicable.

A) True
B) False

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Question 32

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Doug purchased a new factory building on January 15,1990,for $400,000.On March 1,2016,the building was sold.Determine the cost recovery deduction for the year of the sale;Doug did not use the MACRS straight-line method.

A) $0
B) $1,587
C) $2,645
D) $12,696
E) None of the above

F) B) and E)
G) B) and D)

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Question 33

Multiple Choice

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On July 10,2016,Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds.The SUV is used 100% for business.Determine Ariff's maximum deduction for 2016,assuming Ariff's § 179 business income is $110,000.Ariff does not take additional first-year depreciation (if available) .

MACRS depreciation is used to compute earnings and profits.

Rick purchased a uranium interest for $10,000,000 on January 3,2016,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2016 and 7,000 units were sold in 2016.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine the depletion deduction for 2016.

Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.

Joe purchased a new five-year class asset on June 1,2016.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.

On August 20,2016,May placed in service a building for her business.On November 28,2016,May paid $80,000 for improvements to the building.What is May's cost recovery deduction for the building improvements in 2016?

Hans purchased a new passenger automobile on August 17,2016,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 2016.

Cora purchased a hotel building on May 17,2016,for $3,000,000.Determine the cost recovery deduction for 2017.

Hazel purchased a new business asset (five-year asset) on September 30,2016,at a cost of $100,000.On October 4,2016,Hazel placed the asset in service.This was the only asset Hazel placed in service in 2016.Hazel did not elect § 179 or additional first-year depreciation if available.On August 20,2017,Hazel sold the asset.Determine the cost recovery for 2017 for the asset.

On May 2,2016,Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine the cost recovery for 2016.Karen wants to maximize her deductions.

On July 15,2016,Mavis paid $275,000 for improvements on a commercial building she owns.Determine the maximum total cost recovery from the improvements in 2016.

The maximum cost recovery method for all personal property under MACRS is 150% declining balance.

Bonnie purchased a new business asset (five-year property) on March 10,2016,at a cost of $30,000.She also purchased a new business asset (seven-year property) on November 20,2016,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 2016 for these assets.

Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.

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

On June 1,2016,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 2017.

White Company acquires a new machine (seven-year property) on January 10,2016,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 2016 assuming White has taxable income of $800,000.

Jim acquires a new seven-year class asset on September 20,2016,for $80,000.He placed the asset in service on October 5,2016.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 25,2017.This is the only asset he acquires in 2016.Determine Jim's cost recovery in 2016 and 2017.