CHAPTER 8 DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION

1. 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?

a. $3,480.

b. $6,360.

c. $9,240.

d. $11,480.

e. None of the above.

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2. 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.

a. $14,250.

b. $19,000.

c. $23,750.

d. $38,000.

e. None of the above.

3. 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.

a. $24,000.

b. $25,716.

c. $102,000.

d. $132,858.

e. None of the above.

4. 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.

a. $8,333.

b. $26,666.

c. $33,333.

d. $41,665.

e. None of the above.

5. 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.

a. $6,426.

b. $14,710.

c. $25,722.

d. $30,290.

e. None of the above.

6. 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.

a. $19,133.

b. $24,490.

c. $34,438.

d. $55,100.

e. None of the above.

7. 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.

a. $5,858.

b. $7,464.

c. $9,586.

d. $19,429.

e. None of the above.

8. 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.

a. $0.

b. $1,587.

c. $2,645.

d. $12,696.

e. None of the above.

9. Cora purchased a hotel building on May 17, 2014, for $3,000,000. Determine the cost recovery deduction for 2015.

a. $48,150.

b. $59,520.

c. $69,000.

d. $76,920.

e. None of the above.

10.Carlos purchased an apartment building on November 16, 2014, for $3,000,000. Determine the cost recovery for 2015.

a. $9,630.

b. $11,910.

c. $13,950.

d. $22,740.

e. None of the above.

11.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.

a. $16,025.

b. $19,838.

c. $26,458.

d. $158,750.

e. None of the above.

12.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.

a. $1,532.

b. $3,000.

c. $12,000.

d. $31,500.

e. None of the above.

13.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.

a. $12,852.

b. $21,420.

c. $30,000.

d. $36,000.

e. None of the above.

14.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.

a. $5,000.

b. $7,500.

c. $10,000.

d. $78,750.

e. None of the above.

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