Reference no: EM132770043

Question 1:

(a) Ahmed LLC placed in service on April 29, 2019, machinery and equipment (seven-year property) with a basis of $1,600,000. Assume that Ahmed has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus expensing) (Use MACRS Table 1).

(b) Dubai LLC placed in service on May 19, 2019, machinery and equipment (seven-year property) with a basis of $3,200,000. Assume that Dubai has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation) (Use MACRS Table 1).

(c) Sharjah purchased a used camera (five-year property) for use in her sole proprietorship. The basis of the camera was $2,400. Sharjah used the camera in her business 60 percent of the time and used it for personal purposes the rest of the time during the first year. Calculate Sharjah's depreciation deduction during the first year, assuming the sole proprietorship had a loss during the year. (Sharjah did not place the property in service in the last quarter) (Use MACRS Table 1).

(d) UAE LLC purchased a warehouse and land during the current year for $350,000. The purchase price was allocated as follows: $275,000 to the building and $75,000 to the land. The property was placed in service on August 12. Calculate UAE's maximum depreciation for this first year. (Use MACRS Table 5) (Round final answer to the nearest whole number).

(e) Ajman LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Ajman's maximum depreciation for this first year. (Use MACRS Table 3.)

Question 2:

(a) Lax LLC purchased only one asset during the current year (a full 12-month tax year). On August 26 Lax placed in service computer equipment (five-year property) with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.)

(b) Sairra LLC purchased only one asset during the current year (a full 12-month tax year). On April 16 Sairra placed in service furniture (seven-year property) with a basis of $25,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

(c) Deirdre's business purchased two assets during the current year (a full 12-month tax year). On January 20 Deirdre placed in service computer equipment (five-year property) with a basis of $15,000 and on September 1 placed in service machinery (seven-year property) with a basis of $15,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

(d) Suvi, Inc. purchased two assets during the current year (a full 12-month tax year). On August 10 Suvi placed in service computer equipment (five-year property) with a basis of $20,000 and on November 18 placed in service machinery (seven-year property) with a basis of $10,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 1.) (Round final answer to the nearest whole number.)

(e) Safe Windpower recently installed 50 wind turbines at a cost of $100 million. They started operations on 30 May 2009. Calculate the depreciation under MACRS method for the turbines assuming the half-year convention is relevant. Assume that the company's year-end is 31 December. (Use formula or table.)

(f) Beth's business purchased only one asset during the current year (a full 12-month tax year). On December 1 Beth placed in service machinery (seven-year property) with a basis of $50,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.)

(g) Wheeler LLC purchased two assets during the current year (a full 12-month tax year). On November 16 Wheeler placed in service computer equipment (five-year property) with a basis of $15,000 and on April 20 placed in service furniture (seven-year property) with a basis of $11,000. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Table 2.) (Round final answer to the nearest whole number.)

(h) Tasha LLC purchased furniture (seven-year property) on April 20 for $20,000 and used the half-year convention to depreciate it. Tasha did not take §179 or bonus depreciation in the year it acquired the furniture. During the current year, which is the fourth year Tasha LLC owned the property, the property was disposed of on December 15. Calculate the maximum depreciation expense. (Use MACRS Table 2 and Exhibit 10-6.) (Round final answer to the nearest whole number.)

(i) Anne LLC purchased computer equipment (five-year property) on August 29 for $30,000 and used the half-year convention to depreciate it. Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment. During the current year, which is the fourth year Anne LLC owned the property, the property was disposed of on January 15. Calculate the maximum depreciation expense. (Use MACRS Table 1.)

(j) Crouch LLC placed in service on May 19, 2019, machinery and equipment (seven-year property) with a basis of $3,200,000. Assume that Crouch has sufficient income to avoid any limitations. Calculate the maximum depreciation deduction including §179 expensing (but ignoring bonus depreciation). (Use MACRS Table 1.)

Question 3:

(a) Wabel is considering using the accrual method for his next business venture. Explain to Wabel the conditions for recognizing income for tax purposes under the accrual method.

(b) What are the relative advantages of the cash and accrual methods of accounting?

(c) This year Jamal and his son purchased real estate for an investment. The price of the property was $500,000, and the title named Jamal and his son as joint tenants with the right of survivorship. Jamal provided $320,000 of the purchase price and his son provided the remaining $180,000. Has Jamal made a taxable gift and, if so, in what amount?

(d) This year, Mohammed by himself purchased season baseball tickets in the exclusive sky club. The price of the tickets was $60,000, and Mohammed divided the tickets equally with his two brothers (Brent gave one-third of the tickets to each brother). Has Mohammed made a taxable gift and, if so, in what amount?

(e) Jasem transferred $90,000 of cash to a trust this year for the benefit of Zainab, age 10. The trustee has the discretion to distribute income or corpus (principal) for Zainab's benefit and is required to distribute all assets to Zainab (or her estate) not later than Zainab's 21st birthday. What is the amount of the taxable gift?

Question 4:

(a) Discuss the objectives of federal tax system.

(b) (i) Riley operates a plumbing business, and this year the three-year-old van he used in the business was destroyed in a traffic accident. The van was originally purchased for $20,000 and the adjusted basis was $5,800 at the time of the accident. Although the van was worth $6,000 at the time of accident, insurance only paid Riley $1,200 for the loss. What is the amount of Riley's casualty loss deduction?

(ii) Mike started a calendar-year business on September 1st of this year by paying 12 months of rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method; cash and accrual methods?

(iii) Littman LLC placed in service on July 29, 2019, machinery and equipment (seven-year property) with a basis of $600,000. Littman's income for the current year before any depreciation deduction was $100,000. Which of the following statements is true to maximize Littman's total depreciation deduction for 2019? (Use MACRS Table 1.)

(iv) Roth LLC purchased only one asset during the current year. On August 1st Roth placed in service office equipment (seven-year property) with a basis of $42,500. Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation). (Use MACRS Half-Year Convention Table.) (Round final answer to the nearest whole number.)

(v) Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period. Santa Fe paid $300,000 for extraction rights. A geologist estimates that Santa Fe will recover 5,000 pounds of turquoise. During the current year, Santa Fe extracted 1,500 pounds of turquoise, which it sold for $200,000. What is Santa Fe's cost depletion deduction for the current year?