Income Tax Chp. 8 – Flashcards
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51. 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:
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d. In the following year using a half-year convention.
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52. Which of the following assets would be subject to cost recovery?
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c. Landscaping around the doctor's office.
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53. On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?
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b. $90,000
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54. Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are as follows: Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $ 8,000 Year 2 9,600 12,800 Year 3 5,760 7,680 If Tara sells the machine after three years for $15,000, how much gain should she recognize?
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d. $11,480
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55. Hazel purchased a new business asset (five-year asset) on September 30, 2014, at a cost of $100,000. On October 4, 2014, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2014. Hazel did not elect § 179 or additional firstyear depreciation if available. On August 20, 2015, Hazel sold the asset. Determine the cost recovery for 2015 for the asset.
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c. $23,750
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56. Tan Company acquires a new machine (ten-year property) on January 15, 2014, at a cost of $200,000. Tan also acquires another new machine (seven-year property) on November 5, 2014, at a cost of $40,000. No election is made to use the straightline method. The company does not make the § 179 election and elects to not take additional first-year depreciation if available. Determine the total deductions in calculating taxable income related to the machines for 2014.
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b. $25,716
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57. James purchased a new business asset (three-year personalty) on July 23, 2013, at a cost of $40,000. James takes additional first-year depreciation Determine the cost recovery deduction for 2013.
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b. $26,666
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58. Alice purchased office furniture on September 20, 2013, for $100,000. On October 10, 2013, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2014. Alice did not elect to expense any of the assets under § 179, did not elect straightline cost recovery, and did not take additional firstyear depreciation (if available). Determine the cost recovery deduction for the business assets for 2014.
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d. $30,290
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59. Barry purchased a used business asset (seven-year property) on September 30, 2014, 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, did not take additional first-year depreciation (if available), and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2015. Determine the cost recovery deduction for 2015.
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b. $24,490
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60. Bonnie purchased a new business asset (five-year property) on March 10, 2013, at a cost of $30,000. She also purchased a new business asset (seven-year property) on November 20, 2013, at a cost of $13,000. Bonnie did not elect to expense either of the assets under § 179, nor did she elect straightline cost recovery. Bonnie takes additional first-year depreciation. Determine the cost recovery deduction for 2013 for these assets.
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e. None of these
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61. Doug purchased a new factory building on January 15, 1989, for $400,000. On March 1, 2014, 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.
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c. $2,645
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62. Cora purchased a hotel building on May 17, 2014, for $3,000,000. Determine the cost recovery deduction for 2015.
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d. $76,920
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63. Carlos purchased an apartment building on November 16, 2014, for $3,000,000. Determine the cost recovery for 2015.
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e. None of these
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64. Diane purchased a factory building on April 15, 1994, for $5,000,000. She sells the factory building on February 2, 2014. Determine the cost recovery deduction for the year of the sale.
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b. $19,838
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65. Howard's business is raising and harvesting peaches. On March 10, 2014, Howard purchased 10,000 new peach trees at a cost of $60,000. Howard does not make an election to expense assets under § 179 and does not take additional first-year depreciation (if available). Determine the cost recovery deduction for 2014.
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b. $3,000
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66. On May 15, 2014, Brent purchased new farm equipment for $200,000. Brent used the equipment in connection with his farming business. Brent does not elect to expense assets under § 179. Brent does not take additional firstyear depreciation (if available). Determine the cost recovery deduction for 2014.
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b. $21,420
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67. On June 1, 2014, Sam purchased used farm machinery for $150,000. Sam used the machinery in connection with his farming business. Sam does not elect to expense assets under § 179. Sam has, however, made an election to not have the uniform capitalization rules apply to the farming business. Determine the cost recovery deduction for 2014.
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b. $7,500
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68. On May 30, 2014, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2014. In August 2014, Jane paid $300,000 for leasehold improvements to the building. Determine Jane's total deduction with respect to the leasehold improvements for 2014.
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a. $2,889
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69. On February 20, 2014, Susan paid $200,000 for a leasehold improvement to an office building that she is going to lease to John. The leasehold improvement is not a qualified leasehold improvement. The lease will begin on June 1, 2014, and terminate on May 31, 2024. At the termination of the lease, the improvement will be worthless. Determine Susan's deductible loss as a result of the termination of the lease. a. $0
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e. None of these
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70. White Company acquires a new machine (seven-year property) on January 10, 2013, at a cost of $600,000. White makes the election to expense the maximum amount under § 179. No election is made to use the straightline method. White does take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machine for 2013 assuming White has taxable income of $800,000.
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e. None of these
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71. Augie purchased one new asset during the year (five-year property) on November 10, 2014, at a cost of $650,000. She would like to use the § 179 election if available. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the total cost recovery deduction with respect to the asset for 2014.
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a. $32,500
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72. In 2013, Gail had a § 179 deduction carryover of $30,000. In 2014, she elected § 179 for an asset acquired at a cost of $115,000. Gail's § 179 business income limitation for 2014 is $140,000. Determine Gail's § 179 deduction for 2014.
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a. $25,000
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73. The only asset Bill purchased during 2014 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under § 179 whenever it is applicable. The net income from the business before the § 179 deduction is $100,000. Determine Bill's maximum deduction with respect to the property for 2014.
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b. $2,499
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74. Mary purchased a new five-year class asset on March 7, 2014. The asset was listed property (not an automobile). It was used 60% for business and the rest of the time for personal use. The asset cost $90,000. Mary made the § 179 election. The income from the business before the § 179 deduction was $60,000. Mary does not take additional first-year depreciation (if available). Determine the total deductions with respect to the asset for 2014.
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c. $30,800
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75. Hans purchased a new passenger automobile on August 17, 2014, 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 2014.
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e. None of these
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76. On June 1, 2014, 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 2015
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c. $3,570
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77. On June 1, 2014, James places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) James does not take additional first-year depreciation (if available). Determine the cost recovery deduction for 2014.
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b. $1,896
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78. On May 2, 2014, 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 2014. Karen wants to maximize her deductions.
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c. $26,800
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79. On July 17, 2014, Kevin places in service a used automobile that cost $25,000. The car is used 80% for business and 20% for personal use. In 2015, he used the automobile 40% for business and 60% for personal use. Determine the cost recovery recapture for 2015.
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b. $528
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80. On July 10, 2014, 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 2014, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation (if available).
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c. $34,000
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81. On March 1, 2014, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2014, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table is $20, determine Lana's inclusion as a result of the lease.
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b. $10
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82. On June 1, 2014, 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 is $241, determine Norm's inclusion amount.
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a. $0
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83. Bhaskar purchased a new factory building on September 10, 2014, for $3,700,000. Five hundred thousand of the purchase price was allocated to the land. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2015.
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b. $80,000
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84. Pat purchased a used five-year class asset on March 15, 2014, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2014 for earnings and profits purposes.
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c. $6,000
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85. George purchases used sevenyear class property at a cost of $200,000 on April 20, 2014. Determine George's cost recovery deduction for 2014 for alternative minimum tax purposes, assuming George does not elect § 179.
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e. None of these
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86. 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
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e. None of these
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87. On June 1, 2014, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2014 for the patent.
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c. $11,667
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88. Orange Corporation begins business on April 2, 2014. The corporation has startup expenditures of $64,000 which it incurred last year. If Orange Corporation elects § 195, determine the total amount that Orange may deduct in 2014.
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b. $3,200
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89. On January 15, 2014, 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 2014 of $500,000. The percentage depletion rate is 22%. Determine Vern's depletion deduction for 2014.
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b. $175,000
