Audra Acquires the Following New Five-Year Class Property in 2014

question 38

Essay

Audra acquires the following new five-year class property in 2014:
$$\begin{array} { l l r } \text { Asset } & \text { Acquisition Date } & \text { Cost } \\\text { A } & \text { January 10 } & \$ 106,000 \\\text { B } & \text { Juy 5 } & 70,000 \\\text { C} & \text { November 15 } & 300,000 \\\text { Total } & &\$ 470,000\end{array}$$
Audra's taxable income from her business would not create a limitation for purposes of the § 179 deduction. Audra does not take additional first-year depreciation (if available). Determine her total cost recovery deduction (including the § 179 deduction) for the year.

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Definitions:

Capital Lease

A lease agreement that transfers substantially all the risks and rewards of ownership of the asset to the lessee, and is recorded as an asset and liability on the balance sheet.

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards, rules, and procedures used in the compilation of financial statements in the US.

Lease Capitalization Criteria

The standards or requirements used to determine whether a lease should be recorded as an asset and liability on the balance sheet.

Operating Leases

Leasing agreements where the lessor retains ownership of the asset, and the lessee pays for the right to use the asset for a specific period without gaining ownership.