Ten Accounting Questions

1. Jim acquires a new seven-year class asset on September 20, 2016, for $80,000. He placed the asset in service on October 5, 2016. He does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. He takes additional first-year depreciation. He sells the asset on August 25, 2017. This is the only asset he acquires in 2016. Determine Jim's cost recovery in 2016 and 2017.

2. Joe purchased a new five-year class asset on June 1, 2016. The asset is listed property (not an automobile). It was used 55% for business and 45% for the production of income. The asset cost $1,000,000. Joe made the § 179 election. Joe's taxable income would not create a limitation for purposes of the § 179 deduction. Joe does not take additional first-year depreciation (if available). Determine Joe's total cost recovery (including the § 179 deduction) for the year.

3. Norm purchases a new sports utility vehicle (SUV) on October 12, 2016, for $60,000. The SUV has a gross vehicle weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm during 2016. Compute the maximum deduction with respect to the SUV for 2016. Norm does not take additional first-year depreciation (if available).

Rod paid $1,950,000 for a new warehouse on April 14, 2016. He sold the warehouse on September 29, 2021. Determine the cost recovery deduction for 2016 and 2021.

4. On August 20, 2016, May placed in service a building for her business. On November 28, 2016, May paid $80,000 for improvements to the building. What is May's cost recovery deduction for the building improvements in 2016?

5. In 2016, Marci is considering starting a new business. Marci incurs the following costs associated with this venture.

Marci started the new business on January 5, 2017. Determine the deduction for Marci's startup costs for 2016.

6. Rick purchased a uranium interest for $10,000,000 on January 3, 2016, when recoverable reserves were estimated at 200,000 units. A total of 10,000 units were extracted in 2016 and 7,000 units were sold in 2016. Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000. Determine the depletion deduction for 2016.

7. On April 5, 2016, Orange Corporation purchased, and placed in service, seven-year class assets costing $540,000 and five-year class assets costing $140,000. Orange elects to expense the maximum amount under § 179. Orange does not take additional first-year depreciation (if available). Assume taxable income is not a limitation. Determine Orange Corporation's cost recovery with respect to the assets for 2016.

8. Tom purchased and placed in service used office furniture on January 3, 2016, for $40,000. Tom's accountant depreciated the furniture using straight-line depreciation over 10 years for financial reporting purposes. The accountant also used the same depreciation amounts when filing Tom's income tax returns. On January 10, 2021, Tom sold the furniture. Determine the tax basis of the furniture at the time of the sale.

9. Nora purchased a new automobile on July 20, 2015, for $29,000. The car was used 60% for business and 40% for personal use. In 2016, the car was used 30% for business and 70% for personal use. Nora elects not to take additional first-year depreciation. Determine the cost recovery recapture and the cost recovery deduction for 2016.