Question

-On May 16, 2017, Ariana bought a computer for $40,000 for business use. This was the only purchase for that year. Ariana used the most accelerated depreciation method available but did not elect Sec. 179. Bonus depreciation was not available. Ariana sells the machine in 2018. The depreciation on the computer for 2018 is

A) $2,400.

B) $3,600.

C) $4,800.

D) $6,400.

-Juan acquires an oil and gas property interest for $500,000. Juan expects to recover 100,000 barrels of oil. Intangible drilling and development costs are $125,000 and are charged to expense. Other expenses are $50,000. During the year, 20,000 barrels of oil are sold for $650,000. Juan's depletion deduction is

A) $100,000.

B) $112,500.

C) $160,000.

D) $600,000.

-Svetlana needs to move her business to a larger facility. She projects a large realized gain on the sale of the old building and prefers not to pay tax on the gain because the sales proceeds are needed to finance the purchase of the new building. In the circumstances, a direct two- or three-party like-kind exchange is not feasible. Svetlana's sale can still qualify for like-kind treatment if she arranges an appropriate nonsimultaneous exchange. Among other criteria, after the transfer of the old building, the replacement property must be

A) identified within 45 days and received within 180 days.

B) identified within 45 days and received by year-end.

C) identified within 60 days and received within 180 days.

D) identified within 90 days and received by year-end.

Answer 1

1. Answer is option D) $6,400.

40000*32%*1/2 = 6400

2.Answer is option A)$100,000

Cost depletion $500,000/100,000 barrels $5 per barrel Total Cost Depletion $5 x 20,000 barrels = $100,000

Percentage depletion calculation: Percentage Depletion: $650,000 x 0.15 = $97,500

but not greater than gross income ceiling: Gross income $650,000

Minus: IDCs and expenses (175,000)

Taxable income before depletion $ 475,000 $97,500

The taxpayer may use the greater of cost or percentage depletion so the $100,000 cost depletion will be deducted

3.)

B) The replacement property must be identified within 45 days of giving up old property & must be received within 180 days or by due date of tax return whichever is earlier.

Hence, basis the above statement, option A, C & D are in-correct.