Reference no: EM132336115

Question No. 1
Jose purchased a delivery van for his business through an online auction. His winning bid for the van was $43,000. In addition, Jose incurred the following expenses before using the van: shipping costs of $1,610; paint to match the other fleet vehicles at a cost of $1,330; registration costs of $3,534, which included $3,300 of sales tax and a registration fee of $234; wash and detailing for $74; and an engine tune-up for $303.

What is Jose's cost basis for the delivery van?

Cost basis--------------------?

Question No. 2

Emily purchased a building to store inventory for her business. The purchase price was $640,000. Emily also paid legal fees of $390 to acquire the building. In March, Emily incurred $2,000 to repair minor leaks in the roof (from storm damage earlier in the month) and $3,900 to make the interior suitable for her finished goods.

What is Emily's cost basis in the new building?

Cost basis-----------------------?

Question No. 3

In January, Prahbu purchases a new machine for use in an existing production line of his manufacturing business for $80,000. Assume that the machine is a unit of property and is not a material or supply. Prahbu pays $2,575 to install the machine, and after the machine is installed, he pays $1,350 to perform a critical test on the machine to ensure that it will operate in accordance with quality standards. On November 1, the critical test is complete, and Prahbu places the machine in service on the production line. On December 3, Prahbu pays another $3,400 to perform periodic quality control testing after the machine is placed in service.

How much will Prahbu be required to capitalize as the cost of the machine?

Cost Basis-----------------------?

Question No. 4

Dennis contributed business assets to a new business in exchange for stock in the company. The exchange did not qualify as a nontaxable exchange. The fair market value of these assets was $298,000 on the contribution date. Dennis's original basis in the assets he contributed was $163,000, and the accumulated depreciation on the assets was $102,250.

a. What is the business's adjusted basis in the assets it received from Dennis?
b. What would be the business's adjusted basis if the transaction qualified as a nontaxable exchange?

a. Business's adjusted basis---------------------?
b.Business's adjusted basis-----------------------??

Question No. 5

Brittany started a law practice as a sole proprietor. She owned a computer, printer, desk, and file cabinet she purchased during law school (several years ago) that she is planning to use in her business.

			FMV at Time
	Purchase		Converted to
Asset	Price		Business Use
Computer	$	6,700	$	5,000
Printer		4,500		4,350
Desk		5,400		5,200
File cabinet		4,400		4,425

Using the above information, what is the depreciable basis that Brittany should use in her business for each asset?

Asset: Depreciable Basis

Computer ---------------?
Printer ----------------?
Desk -----------------?
File Cabinet ---------------->?

Question No. 6

At the beginning of the year, Poplock began a calendar-year dog boarding business called Griff's Palace. Poplock bought and placed in service the following assets during the year:

	Date	Cost
Asset	Acquired	Basis
Computer equipment	3/23	$	6,000
Dog-grooming furniture	5/12	$	8,000
Pickup truck	9/17	$	10,000
Commercial building	10/11	$	280,000
Land (one acre)	10/11	$	90,000

Assuming Poplock does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Round your answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. What is Poplock's year 1 depreciation deduction for each asset?

Asset Depreciation Expense

Computer Equipment --------------------?
Dog grooming furniture --------------------?
Pickup truck --------------------?
Commercial Building -------------------?
Land -------------------?

Total -------------------?

b. What is Poplock's year 2 depreciation deduction for each asset?

Asset Depreciation Expense

Computer Equipment --------------------?
Dog grooming furniture --------------------?
Pickup truck --------------------?
Commercial Building -------------------?
Land -------------------?

Total -------------------?

Question No. 7

DLW Corporation acquired and placed in service the following assets during the year:

	Date	Cost
Asset	Acquired	Basis
Computer equipment	2/20	$	19,200
Furniture	4/24		19,500
Commercial building	10/18		350,000

Assuming DLW does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. What is DLW's year 1 cost recovery for each asset?

Asset Year 1 Cost Recovery

Computer Equipment -------------------------?
Furniture ----------------------?
Commercial building -----------------------?

Total ------------------?

b. What is DLW's year 3 cost recovery for each asset if DLW sells all of these assets on 3/20 of year 3?

Asset Year 1 Cost Recovery

Computer Equipment -------------------------?
Furniture ----------------------?
Commercial building -----------------------?

Total ------------------?

Question No. 8

At the beginning of the year, Dee began a calendar-year business and placed in service the following assets during the year:

	Date	Cost
Asset	Acquired	Basis
Computer equipment	3/23	$	39,500
Furniture	5/12	$	41,500
Pickup truck	9/15	$	44,500
Commercial building	10/11	$	316,000

Assuming Dee does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Round your answers to the nearest whole dollar amount.)

a. What is Dee's year 1 cost recovery for each asset? Screen shot for answer

b. What is Dee's year 2 cost recovery for each asset?

Question No. 9

Evergreen Corporation (calendar-year-end) acquired the following assets during the current year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1 and Table 2.)

	Date Placed		Original
Asset	in Service		Basis
Machinery	October 25	$	118,000
Computer equipment	February 3		46,000
Used delivery truck*	August 17		59,000
Furniture	April 22		210,000

*The delivery truck is not a luxury automobile.
rev: 03_25_2019_QC_CS-163961

a. What is the allowable MACRS depreciation on Evergreen's property in the current year assuming Evergreen does not elect §179 expense and elects out of bonus depreciation? (Round your intermediate calculations to the nearest whole dollar amount.)

MACRS Depreciation --------------------------?

b. What would be the allowable MACRS depreciation on Evergreen's property in the current year if Evergreen does not elect out of bonus depreciation?

MACRS Depreciation --------------------------?

Question No. 10

Convers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1, Table2,and Table 5.)

	Date Placed		Original
Asset	in Service		Basis
Machinery	25-Oct	$	100,000
Computer equipment	03-Feb	$	40,000
Used delivery truck*	17-Mar	$	53,000
Furniture	22-Apr	$	180,000
Total		$	373,000

*The delivery truck is not a luxury automobile.

In addition to these assets, Convers installed new flooring (qualified improvement property) to its office building on May 12 at a cost of $600,000.

a. What is the allowable MACRS depreciation on Convers's property in the current year assuming Convers does not elect §179 expense and elects out of bonus depreciation? (Round your intermediate calculations to the nearest whole dollar amount.)

MACRS Depreciation --------------------------?

b. What is the allowable MACRS depreciation on Convers's property in the current year assuming Convers does not elect out of bonus depreciation (but does not take §179 expense)

MACRS Depreciation --------------------------?

Question No. 11

Harris Corp. is a technology start-up and is in its second year of operations. The company didn't purchase any assets this year but purchased the following assets in the prior year:

	Placed in
Asset	Service		Basis
Office equipment	August 14	$	14,200
Manufacturing equipment	April 15		110,000
Computer system	June 1		58,000
Total		$	182,200

Harris did not know depreciation was tax deductible until it hired an accountant this year and didn't claim any depreciation deduction in its first year of operation. (Use MACRS Table 1 and Table 2.) (Round your intermediate dollar calculations and final answer to the nearest whole dollar amount.)

a. What is the maximum amount of depreciation deduction Harris Corp. can deduct in its second year of operation?

Depreciation expenses-------------------------?

b. What is the basis of the office equipment at the end of the second year?

Basis of office equipment -----------------?

Question No. 12

Phil owns a ranch business and uses four-wheelers to do much of his work. Occasionally, though, he and his boys will go for a ride together as a family activity. During year 1, Phil put 1,348 miles on the four-wheeler that he bought on January 15 for $11,000. Of the miles driven, only 268 miles were for personal use. Assume four-wheelers qualify to be depreciated according to the five-year MACRS schedule and the four-wheeler was the only asset Phil purchased this year. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. Calculate the allowable depreciation for year 1 (ignore the §179 expense and bonus depreciation).

Depreciation deduction -------------------------?

b. Calculate the allowable depreciation for year 2 if total miles were 1,365 and personal use miles were 485 (ignore the §179 expense and bonus depreciation).

Depreciation deduction ----------------------------?

Question No. 13

After several profitable years running her business, Ingrid decided to acquire the assets of a small competing business. On May 1 of year 1, Ingrid acquired the competing business for $426,000. Ingrid allocated $71,000 of the purchase price to goodwill. Ingrid's business reports its taxable income on a calendar-year basis. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

a. How much amortization expense on the goodwill can Ingrid deduct in year 1, year 2, and year 3?

b. In lieu of the original facts, assume that Ingrid purchased only a phone list with a useful life of 5 years for $20,500. How much amortization expense on the phone list can Ingrid deduct in year 1, year 2, and year 3?

Question No. 14

Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including the portion of the expenditures that are amortized over 180 months) this year in the following alternative scenarios. (Leave no answer blank. Enter zero if applicable.)

a. She incurred start-up costs of $3,800.

Amount of start up costs immediately expensed---------------?

b. She incurred start-up costs of $44,250.

Amount of start up costs immediately expensed---------------?

c. She incurred start-up costs of $53,050.

Amount of start up costs immediately expensed---------------?

d. She incurred start-up costs of $64,500.

Amount of start up costs immediately expensed---------------?

e. How would you answer parts (a) through (d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)?

Question No. 15

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: (Leave no answer blank. Enter zero if applicable.)

Expense Date Amount
Attorney fees for articles of incorporation February 10 $ 33,000
March 1 - March 30 wages March 30 4,150
March 1 - March 30 rent March 30 2,100
Stock issuance costs April 1 39,000
April 1 - May 30 wages May 30 10,375

a. What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation?

Start up cost-------------------?
Organizational expenditure----------------?

b. What amount of the start-up costs and organizational expenditures may the corporation immediately expense in year 1 (excluding the portion of the expenditures that are amortized over 180 months)?

Start up cost expensed--------------------?
Organizational expenditure expensed---------------?

c. What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 (not including the amount determined in part b)? (Round intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.)

Start up cost amortized----------------------?
Organizational expenditure amortized--------------------?

d. What would be the total allowable organizational expenditures if Nicole started a sole proprietorship instead of a corporation?
Allowable organizational expenditure-------------------?

Question No. 16

Last Chance Mine (LC) purchased a coal deposit for $2,465,000. It estimated it would extract 17,000 tons of coal from the deposit. LC mined the coal and sold it, reporting gross receipts of $1.43 million, $5.45 million, and $3.5 million for years 1 through 3, respectively. During years 1-3, LC reported net income (loss) from the coal deposit activity in the amount of ($17,800), $625,000, and $560,000, respectively. In years 1-3, LC actually extracted 18,000 tons of coal as follows: (Leave no answer blank. Enter zero if applicable. Enter your answers in dollars and not in millions of dollars.)

(1)	(2)	Depletion (2)/(1)	Tons Extracted per Year
Tons of Coal	Basis	Rate	Year 1	Year 2	Year 3
17,000	$2,465,000	$145.00	4,400	9,450	4,150

a. What is Last Chance's cost depletion for years 1, 2, and 3?

Year Cost Depletion.
1 ---------------------?
2 ----------------?
3 ---------------------?

b. What is Last Chance's percentage depletion for each year (the applicable percentage for coal is 10 percent)?

Year Percentage Depletion.
1 ---------------------?
2 ----------------?
3 ---------------------?

c. Using the cost and percentage depletion computations from parts (a) and (b), what is Last Chance's actual depletion expense for each year?

Year Depletion Expense.
1 ---------------------?
2 ----------------?
3 ---------------------?