Question 1

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2017: $\begin{array}{lcr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { February 18 } & \text { Warehouse Building } & \$ 2,450,000 \
\text { June 2 } & \text { Used Automobile } & 30,000 \
\text { August 18 } & \text { New Computer Equipment } & 220,000 \
\text { September 20 } & \text { New Machinery } & 1,050,000 \
\text { December 15 } & \text { Used Office Equipment } & 885,000
\end{array}$ All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000. The corporation has $3,000,000 income from operations before calculating depreciation deductions. Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2017. To maximize its total cost recovery deduction, what was Sanjuro Corporation's cost recovery deduction for the used office equipment for 2017?

Accepted Answer

Sanjuro Corporation can use the Section 179 deduction and bonus depreciation to maximize its cost recovery. For used office equipment, the corporation can take 50% bonus depreciation and the remaining balance can be depreciated using MACRS. The calculation is: $885,000 * 50% = $442,500 (bonus depreciation) + ($885,000 - $442,500) * 20% (MACRS rate for 5-year property) = $442,500 + $88,237 = $530,737. However, the correct choice is $430,737, which suggests a different interpretation or calculation adjustment.

Question 2

Momee Corporation, a calendar-year corporation, bought only one asset in 2012, a crane it purchased for $700,000 on November 24. It disposed of the asset in April, 2017. What is its depreciation deduction for this asset in 2017 if cost recovery was determined using only regular MACRS?

Accepted Answer

($700,000 x .0873 x 4.5/12)

Question 3

On June 20, 2017 Baker Corporation (a calendar-year taxpayer) acquired 5-year equipment cost $30,000 and on October 28, 2017, it acquired 7-year equipment cost $160,000. Baker did not elect Section 179 expensing and no other assets were acquired during the year. Baker's depreciation for 2017 is:

Accepted Answer

($30,000 x .25 = $7,500) + ($160,000 x .0357 = $5,712) = $13,212

Question 4

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2017. It purchased and placed in service the following assets during 2017: $\begin{array}{ccr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30,000
\end{array}$ All assets are used 100% for business use. The office building does not include the cost of the land on which it is located that was an additional $300,000. The corporation had $900,000 income from operations before calculating depreciation deductions. If YumYum does not apply Section 179 expensing or bonus depreciation, but elects to use straight-line depreciation on all of its assets, how much is its 2017 depreciation deduction?

Accepted Answer

The answer of YumYum Corporation (a calendar-year corporation) moved into...

Question 5

What is the maximum amount that can be spent on depreciable personalty in the last quarter of 2016 to avoid the mid-quarter convention if $240,000 of equipment was purchased in the first three quarters ?

Accepted Answer

$240,000/.6 = $400,000; $400,000 x .4 = $160,000.

Question 6

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2017. It purchased and placed in service the following assets during 2017: $\begin{array}{ccr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30,000
\end{array}$ All assets are used 100% for business use. The office building does not include the cost of the land on which it is located that was an additional $300,000. The corporation had $900,000 income from operations before calculating depreciation deductions. If YumYum Corporation made all elections available to maximize its overall depreciation deduction for 2017, what is YumYum's maximum depreciation deduction for the office building in 2017?

Accepted Answer

The office building is a nonresidential real property with a 39-year recovery period under the Modified Accelerated Cost Recovery System (MACRS). The mid-month convention applies, and the depreciation rate for the first year is approximately 2.033%. Therefore, the maximum depreciation deduction for the office building is $850,000 * 2.033% = $17,281.

Question 7

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2017. It purchased and placed in service the following assets during 2017: $\begin{array}{ccr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30,000
\end{array}$ All assets are used 100% for business use. The office building does not include the cost of the land on which it is located that was an additional $300,000. The corporation had $900,000 income from operations before calculating depreciation deductions. If YumYum Corporation made all elections available to maximize its overall depreciation deduction for 2017, what would its maximum cost recovery deduction be for 2017?

Accepted Answer

The answer of YumYum Corporation (a calendar-year corporation) moved into...

Question 8

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2017 : $\begin{array}{lcr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { February 18 } & \text { Warehouse Building } & \$ 2,450,000 \
\text { June 2 } & \text { Used Automobile } & 30,000 \
\text { August 18 } & \text { New Computer Equipment } & 220,000 \
\text { September 20 } & \text { New Machinery } & 1,050,000 \
\text { December 15 } & \text { Used Office Equipment } & 885,000
\end{array}$ All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000. The corporation has $3,000,000 income from operations before calculating depreciation deductions. Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2017.
What would be Sanjuro Corporation's maximum cost recovery deduction for the warehouse for 2018?

Accepted Answer

The warehouse building is a nonresidential real property with a 39-year recovery period. The cost recovery deduction for 2018 is calculated using the straight-line method over 39 years. The cost of the warehouse is $2,450,000, so the annual depreciation is $2,450,000 / 39 = $62,818.

Question 9

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2017. It purchased and placed in service the following assets during 2017: $\begin{array}{ccr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30,000
\end{array}$ All assets are used 100% for business use. The office building does not include the cost of the land on which it is located that was an additional $300,000. The corporation had $900,000 income from operations before calculating depreciation deductions. What is the maximum Section 179 deduction YumYum can claim for 2017?

Accepted Answer

The answer of YumYum Corporation (a calendar-year corporation) moved into...

Question 10

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2017: $\begin{array}{lcr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { February 18 } & \text { Warehouse Building } & \$ 2,450,000 \
\text { June 2 } & \text { Used Automobile } & 30,000 \
\text { August 18 } & \text { New Computer Equipment } & 220,000 \
\text { September 20 } & \text { New Machinery } & 1,050,000 \
\text { December 15 } & \text { Used Office Equipment } & 885,000
\end{array}$ All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000. The corporation has $3,000,000 income from operations before calculating depreciation deductions. Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2017.
What would be Sanjuro Corporation's cost recovery deduction for the used office equipment for 2018?

Accepted Answer

The answer of Sanjuro Corporation (a calendar-year corporation) purchased and...

Question 11

On November 7, 2017, Wilson Corporation, a calendar-year taxpayer, acquires 7-year property for $600,000. This is the only property acquired this year and Section 179 expensing is elected. What is Wilson's total depreciation deduction for 2017?

Accepted Answer

[$510,000 + ($600,000 - $510,000 x .03570] = $513,213

Question 12

Chipper, a calendar-year corporation, purchased new machinery for $1,135,000 in February, 2017. In October, it purchased $1,105,000 of used machinery. What was Chipper's maximum cost recovery deduction for 2017?

Accepted Answer

Sec. 179 expensing was limited to $300,000 [$510,000 - ($1,135,000 + $1,105,000 - $2,030,000)] applied to the used machinery as it was not eligible for bonus depreciation. The mid-quarter MACRS convention was required as more than 40% was invested in the last quarter [$1,105,000 - $300,000)/($1,135,000 + $1,105,000 - $300,000) = 41.5%]; MACRS: ($1,105,000 - $300,000) x .0357 = $28,739. Bonus depreciation: $1,135,000 x .5 = $567,500; MACRS: [($1,135,000 - $567,500 bonus) x .25 = $141,875). Total cost recovery = $1,038,114 (300,000 + $28,739 + $567,500 + $141,875).

Question 13

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2017: $\begin{array}{lcr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { February 18 } & \text { Warehouse Building } & \$ 2,450,000 \
\text { June 2 } & \text { Used Automobile } & 30,000 \
\text { August 18 } & \text { New Computer Equipment } & 220,000 \
\text { September 20 } & \text { New Machinery } & 1,050,000 \
\text { December 15 } & \text { Used Office Equipment } & 885,000
\end{array}$ All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000. The corporation has $3,000,000 income from operations before calculating depreciation deductions. Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2017.
What would be Sanjuro Corporation's cost recovery deduction for the warehouse for 2018 if it is sold in November of 2018?

Accepted Answer

The answer of Sanjuro Corporation (a calendar-year corporation) purchased and...

Question 14

Sanjuro Corporation (a calendar-year corporation) purchased and placed in service the following assets during 2017: $\begin{array}{lcr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { February 18 } & \text { Warehouse Building } & \$ 2,450,000 \
\text { June 2 } & \text { Used Automobile } & 30,000 \
\text { August 18 } & \text { New Computer Equipment } & 220,000 \
\text { September 20 } & \text { New Machinery } & 1,050,000 \
\text { December 15 } & \text { Used Office Equipment } & 885,000
\end{array}$ All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional $1,000,000. The corporation has $3,000,000 income from operations before calculating depreciation deductions. Sanjuro Corporation made whatever elections were necessary to maximize its overall depreciation deduction for 2017. What was Sanjuro Corporation's cost recovery deduction for the warehouse in 2017?

Accepted Answer

The warehouse building is a nonresidential real property with a 39-year recovery period. The cost recovery deduction for 2017 is calculated using the mid-month convention and straight-line method: $2,450,000 / 39 years * 10.5/12 months = $55,052.

Question 15

Coralbay, a calendar-year corporation, purchased used office furniture for $240,000 and new machines for $1,880,000 in July 2017. What is Coralbay's maximum cost recovery deduction for 2017?

Accepted Answer

Sec. 179 expensing is limited to $420,000 [$510,000 - ($2,120,000 - $2,030,000)] and can be applied to either asset; but bonus depreciation can only be applied to the new machines. Office furniture: $240,000 Sec. 179 applied to the office furniture leaves $180,000 for the machines. Machines: [.5 x ($1,880,000 - $180,000) = $850,000 bonus depreciation; $850,000 x .1429 = $121,465 MACRS depreciation. Total depreciation = $240,000 + $180,000 + $850,000 + $121,465 = $1,391,465.

Question 16

Rodriguez Corporation acquired 7-year property costing $450,000 on October 1, 2017. This is the only property acquired this year and Rodriguez elects to expense the maximum amount under Section 179. Rodriguez's income before deducting depreciation is $320,000. What is the maximum amount that Rodriguez can deduct in 2017 for Section 179 expensing?

Accepted Answer

$450,000 is the maximum potential Section 179 deduction but is limited to Rodriguez's income of $320,000.

Question 17

Allen Corporation acquired 5-year property costing $150,000 on September 10, 2017. This is the only property acquired this year and Allen elects to expense the maximum amount under Section 179. Allen's income before deducting depreciation is $15,000. What is the maximum amount that Allen can deduct in 2017 for Section 179 expensing?

Accepted Answer

$150,000 is the maximum potential Section 179 deduction but is limited to Allen's income of $15,000.

Question 18

Gregory Corporation, a calendar-year corporation, purchased an office building in March of year 1. In September of year 17, it sold the building. What fraction must be applied to the MACRS percentage to determine the year 17 depreciation?

Accepted Answer

The answer of Gregory Corporation, a calendar-year corporation, purchased an...

Question 19

YumYum Corporation (a calendar-year corporation) moved into a new office building adjacent to its manufacturing plant in 2017. It purchased and placed in service the following assets during 2017: $\begin{array}{ccr}\text {Date Acquired }&\text {Asset Description }&\text { Cost }\\hline
\text { March 4 } & \text { New Office Building } & \$ 850,000 \
\text { March 15 } & \text { New Computer Equipment } & 45,000 \
\text { March 25 } & \text { New Office Furniture } & \$ 25,000 \
\text { August 20 } & \text { Used Machinery } & \$ 120,000 \
\text { December 15 } & \text { New Automobile } & \$ 30,000
\end{array}$ All assets are used 100% for business use. The office building does not include the cost of the land on which it is located that was an additional $300,000. The corporation had $900,000 income from operations before calculating depreciation deductions. YumYum Corporation made any elections available to maximize its overall depreciation deduction for 2017. What is its maximum depreciation deduction on the new automobile in 2017?

Accepted Answer

The maximum depreciation deduction for a new automobile in 2017, considering the luxury auto limits and bonus depreciation, is $11,160.

Question 20

Martin Corporation acquired 5-year property costing $2,185,000 on September 10, 2017. This is the only property acquired this year and Martin elects to expense the maximum amount under Section 179. Martin's total cost recovery deduction for 2017 is:

Accepted Answer

[$510,000 - (2,185,000 - $2,030,000) = $335,000 maximum Sec. 179 expense deduction; [($2,185,000 - $335,000 Sec. 179) x .2)] = $370,000 + $335,000 Sec. 179 = $705,000 total cost recovery

Quiz 7: Property Acquisitions and Cost Recovery Deductions

Momee Corporation, a calendar-year corporation, bought only one asset in 2012, a crane it purchased for $700,000 on November 24. It disposed of the asset in April, 2017. What is its depreciation deduction for this asset in 2017 if cost recovery was determined using only regular MACRS?

On June 20, 2017 Baker Corporation (a calendar-year taxpayer) acquired 5-year equipment cost $30,000 and on October 28, 2017, it acquired 7-year equipment cost $160,000. Baker did not elect Section 179 expensing and no other assets were acquired during the year. Baker's depreciation for 2017 is:

What is the maximum amount that can be spent on depreciable personalty in the last quarter of 2016 to avoid the mid-quarter convention if $240,000 of equipment was purchased in the first three quarters ?

On November 7, 2017, Wilson Corporation, a calendar-year taxpayer, acquires 7-year property for $600,000. This is the only property acquired this year and Section 179 expensing is elected. What is Wilson's total depreciation deduction for 2017?

Chipper, a calendar-year corporation, purchased new machinery for $1,135,000 in February, 2017. In October, it purchased $1,105,000 of used machinery. What was Chipper's maximum cost recovery deduction for 2017?

Coralbay, a calendar-year corporation, purchased used office furniture for $240,000 and new machines for $1,880,000 in July 2017. What is Coralbay's maximum cost recovery deduction for 2017?

Gregory Corporation, a calendar-year corporation, purchased an office building in March of year 1. In September of year 17, it sold the building. What fraction must be applied to the MACRS percentage to determine the year 17 depreciation?

Martin Corporation acquired 5-year property costing $2,185,000 on September 10, 2017. This is the only property acquired this year and Martin elects to expense the maximum amount under Section 179. Martin's total cost recovery deduction for 2017 is: