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CHAPTER 8
DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION
SOLUTIONS TO PROBLEM MATERIALS
Status: Q/P
Question/ Learning Present in Prior
Problem Objective Topic Edition Edition
1 LO 1 Cost recovery New

2 LO 1 Cost recovery “allowable” Unchanged 2
3 LO 1 Cost recovery of land improvements Unchanged 3
4 LO 2 Eligibility for cost recovery Unchanged 4
5 LO 2 Mid-quarter convention: placed in service New
6 LO 2 Half-year convention Unchanged 6
7 LO 2 Mid-quarter convention: year placed in New
service
8 LO 2 Property eligible for additional first-year New
depreciation
9 LO 2 Mid-quarter convention: year of sale Unchanged 9
10 LO 2 Mid-month convention Unchanged 10
11 LO 2 Straight-line method: applicable convention Unchanged 11
12 LO 2 Farm property Unchanged 12
15 LO 2 Leasehold property owned by lessor Unchanged 15
16 LO 2 Qualified leasehold property owned by lessee Modified 16
17 LO 2 Leasehold property owned by lessee Unchanged 17
18 LO 3 Section 179 expensing New
19 LO 3 Section 179 expensing: effect on MACRS Updated 19
cost recovery
20 LO 3 Section 179 expensing: carryforward Updated 20
21 LO 3 Section 179 expensing: taxable income Unchanged 21
limitation
22 LO 2, 3 Section 179 expensing: eligibility Unchanged 22
23 LO 3, 4 Listed property: passenger auto Unchanged 23
24 LO 4 Listed property: passenger auto and cost Unchanged 24
recovery limit
25 LO 4 Leased passenger automobiles and lease Unchanged 25
inclusion amount
26 LO 7 Amortization: § 197 intangibles Unchanged 26
27 LO 7 Covenant not to compete Unchanged 27
28 LO 7 Start-up expenditures Unchanged 28
8-1
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8-2 2013 Individual Income Taxes/Solutions Manual
Status: Q/P
Question/ Learning Present in Prior
Problem Objective Topic Edition Edition
29 LO 7 Start-up expenditures Unchanged 29

30 LO 8 Cost depletion New
*31 LO 1, 2 Cost recovery allowed and allowable Unchanged 31
32 LO 1, 2 Personal residence converted to rental Unchanged 32
property
*33 LO 2 MACRS for personalty Modified 33
*34 LO 2 MACRS for personalty Modified 34
*35 LO 2 MACRS for personalty: half-year convention Unchanged 35
*36 LO 2 MACRS for personalty: mid-quarter Modified 36
convention
*37 LO 2 MACRS for realty Unchanged 37
41 LO 2 Farm property Modified 41
42 LO 2 Farm property Modified 42
43 LO 2 Leasehold improvement property Modified 43
44 LO 2 Leasehold improvement property Modified 44
*45 LO 2, 3, 10 MACRS and § 179 expensing Modified 45
*46 LO 2, 3 MACRS and § 179 expensing Modified 46
*47 LO 2, 3, 10 MACRS and § 179 expensing New
*48 LO 3, 4 Listed property and § 179 deduction: not Unchanged 48
passenger automobile
*49 LO 2, 4 Listed property: luxury auto Updated 49
*50 LO 4 Listed property: luxury auto Modified 50
*51 LO 2, 3, 4 Listed property: not passenger automobile Unchanged 51
*52 LO 2, 4 Listed property: recapture and luxury auto Unchanged 52
*53 LO 2, 4, 10 Listed property Unchanged 53
*54 LO 2, 4, 10 Listed property: lease versus purchase for Modified 54
luxury auto
55 LO 2, 5 Alternative minimum tax cost recovery Unchanged 55
*56 LO 2, 5, 10 Alternative depreciation system versus Unchanged 56
MACRS
*57 LO 2, 7, 10 Amortization of goodwill versus MACRS Unchanged 57
on building
*58 LO 7 Start-up expenditures Unchanged 58
*59 LO 7 Start-up expenditures Unchanged 59
*60 LO 8 Depletion: cost versus percentage Unchanged 60
*61 LO 8, 10 Intangible drilling costs: capitalized versus Unchanged 61
expensed
*62 Cumulative Updated 62
*63 Cumulative Modified 63
*The solution to this problem is available on a transparency master.
Depreciation, Cost Recovery, Amortization, and Depletion 8-3
Status: Q/P
Research Present in Prior
Problem Topic Edition Edition
1 Depreciation of aircraft parts Unchanged 1

2 Leasing and luxury auto limits Unchanged 2
3 Cost recovery: asset class Unchanged 3
4 Cost recovery availability Unchanged 4
5 Amortization of intangibles New
6 Internet activity Unchanged 6
7 Internet activity Unchanged 7
CHECK FIGURES
31. Loss $11,515. 47. $202,431.

32. $250,000 basis; $7,198 cost 48. $35,000.
recovery. 49. $1,000.
33. $74,289. 50. $11,060 in 2012; $3,200 in 2013.
34.a. $38,839. 51.a. $47,200.
34.b. $6,457. 51.b. $32,400.
35.a. $30,000. 52. Deduction in 2012 $2,448; deduction
35.b. $24,000. in 2013 $2,800; recapture in 2013
36. $83,320. $848.
37.a. $17,120. 53. $174.
37.b. $44,443. 54. Leasing provides a greater tax benefit.
38. $38,640. 55. Regular tax deduction $3,200; AMT
39. 2012 $44,940; 2022 $71,792. deduction $2,400.
40.a. $25,610. 56. $3,192.
40.b. $41,360. 57. The first option produces a $12,617
41. $16,065. greater deduction.
42. $42,000. 58. $3,944.
43. $150,803. 59. $5,828.
44. $65,980 loss. 60. $4,360,000 taxable income.
45.a. $162,007. 61. Capitalized $1,880,000; expensed
45.b. $167,717. $1,024,000.
45.c. Allocate to 7-year class property. 62. Refund due for 2011 $1,992.
46. Cost recovery $155,000; § 179 63. AGI without purchase $393,400; AGI
carryforward $15,593. with purchase $411,340.
DISCUSSION QUESTIONS
1. Property that is classified as personal use property is not used in a trade or business or a
transaction entered into for profit and hence, is not subject to cost recovery. p. 8-3
2. The basis of the property must be reduced by the amount of cost recovery that should have
been deducted (i.e., the cost recovery “allowable”). p. 8-4
3. Land improvements have a class life of 15 years. p. 8-6
4. The relevant issues for Henry are:
• Can a portion of the purchase costs of a ski resort, which are allocated to the construction
costs of the resort’s mountain roads, trails, and slopes, be depreciated?
• If such costs can be depreciated, what is the correct recovery period?

• Can costs incurred subsequent to the purchase, attributable to maintenance of such
mountain roads, trails, and slopes, be depreciated?
pp. 8-3 and 8-4
5. The “placed in service date” and not the purchase date is the critical date in determining
whether the mid-quarter or half-year convention applies. pp. 8-7 and 8-9
6. The actual recovery period is a year longer than the MACRS recovery period (i.e., the cost of
three-year property is recovered over four years). This results from the use of the half-year
convention (i.e., a half-year in the first year and a half-year in the final year). p. 8-7
7. The asset is treated as if it were placed in service in the middle of the quarter. The factors in
the table take this into account and hence, the cost of the asset is multiplied by the factor to
determine the first year’s cost recovery. p. 8-9
8. Qualified property for additional first-year depreciation includes most types of new property
other than buildings. p. 8-7
9. The asset is treated as if it were sold in the middle of the quarter, and hence, one-half quarter
of cost recovery is allowed in the quarter of the sale. If the sale is in the first quarter, the
fraction is 0.5/4; in the second quarter 1.5/4; in the third quarter 2.5/4; and in the fourth
quarter 3.5/4. p. 8-10
10. The mid-month convention applies to real property. The convention provides for a half
month of cost recovery in the month the asset is placed in service and a half month of cost
recovery in the month the asset is sold or otherwise disposed of. p. 8-11
11. Even if MACRS straight-line is elected for the 7-year class assets, the cost recovery on the 5-
year class assets will be computed using regular MACRS with a mid-quarter convention
unless a separate election is made to use MACRS straight-line for the 5-year class assets.
With respect to the mid-quarter convention, the assumption is made that Robert is a calendar
year taxpayer. pp. 8-9 and 8-11
12. The general cost recovery method for new farming equipment is the 150% declining-balance
method. However, the straight-line method is required for any tree or vine bearing fruits or
nuts. The recovery period is 7 years. p. 8-11
13. If an election is made to not have the uniform capitalization rules apply, the straight-line
method is required, but it does not affect the determination of the applicable convention.
p. 8-12
14. The following issues are relevant for Jim:
• What is the cost of a self-produced animal for purposes of computing its cost recovery?
• What is the proper placed in service date relating to self-produced breeding animals?
p. 8-12
15. The recovery methods and periods for lessor owned leasehold improvement property
generally are the same as those used for non-leasehold property. pp. 8-12 and 8-13
16. The cost of qualified leasehold improvement real property can be recovered using additional
first-year depreciation. The remainder of the cost can be recovered using MACRS with the
same recovery method and period as non-leasehold property. pp. 8-12 and 8-13
17. Any unrecovered basis in the leasehold improvement property is written off at the
termination of the lease. p. 8-13
18. Section 179 can only be taken on property used in a trade or business. p. 8-13
19. The basis of the asset is reduced by the § 179 limited expensing deduction (after applying the
$560,000 limitation and before the taxable income limitation) before computing additional
first-year depreciation and MACRS cost recovery. pp. 8-13 and 8-14
20. The § 179 amount eligible for expensing in a carryforward year is limited to the lesser of (1)
the statutory dollar amount of $139,000 (2012) reduced by the cost of § 179 property placed
in service in excess of $560,000 (2012) in the carryforward year or (2) the business income
limitation in the carryforward year. p. 8-14
21. Taxable income, for § 179 purposes, is defined as the aggregate amount of taxable income of
any trade or business of the taxpayer without regard to the amount expensed under § 179.
Therefore, the taxable income computation for purposes of the § 179 limit includes the
deduction for additional first-year depreciation and MACRS. p. 8-14
22. The following issues are relevant to John:
• Is John entitled to a § 179 deduction?

• How much, if any, can John deduct under § 179 on his own tax return?
pp. 8-13 and 8-14
23. An automobile is listed property and consequently must pass the predominantly business use
test to be eligible for MACRS statutory percentage cost recovery. However, by weighing
more than 6,000 pounds, the automobile is not subject to the statutory dollar limits on cost
recovery. However, legislation enacted in 2004 provides that SUVs with a GVW between
6,000 pounds and 14,000 pounds are subject to a $25,000 ceiling in calculating the § 179
expense rather than the normal ceiling for 2012 of $139,000. p. 8-18
24. The cost of listed property that does not pass the more-than-50% business usage test must be
recovered using the straight-line method. If the listed property is an automobile, the cost
recovery is further limited by the cost recovery limitations. pp. 8-17 and 8-19
25. The purpose of the lease inclusion amount is to prevent taxpayers from circumventing the
cost recovery dollar limitations by leasing instead of purchasing an automobile. The dollar
amount is taken from an IRS table and is prorated for the number of days of the lease term
included in the taxable year. This amount is then adjusted to reflect the business and income
producing use of the automobile. p. 8-20
26. The amortization period for a § 197 intangible is 15 years regardless of the actual useful life.
p. 8-23
27. The following issues are relevant for Orange Motors:
• Does the noncompete agreement come under § 197 for intangibles?

• Was the noncompete agreement in connection with the acquisition of a trade or business?
• Can the cost of the noncompete agreement be amortized over a period other than the
normal statutory period if the noncompete agreement is legally enforceable for a shorter
period of time?
• What is the normal statutory period for amortizing intangibles?
p. 8-23
28. The elective treatment for start-up expenditures allows the taxpayer to deduct the lesser of:
(1) the amount of start-up expenditures with respect to the trade or business or (2) $5,000,
reduced, but not below zero, by the amount by which the start-up expenditures exceed
$50,000. Any start-up expenditures not deducted may be amortized ratably over a 180-month
period beginning in the month in which the trade or business begins. pp. 8-24 and 8-25
29. The following issues are relevant for George.
• Are all of the expenditures qualifying expenditures?

• Which of the expenditures must be capitalized?
• Which of the expenditures will qualify for amortization under § 195?
• What is the amount that may be deducted under § 195 for the year 2012?
pp. 8-24 and 8-25
30. The cost basis is divided by the estimated recoverable units of the asset to arrive at the
depletion per unit. The depletion per unit then is multiplied by the number of units sold
during the year to arrive at the cost depletion allowed. p. 8-27
PROBLEMS
31. Cost of asset $200,000
Less: Greater of allowed and allowable cost recovery:

2010 $ 910
2011 7,272 (8,182)
Basis at the end of 2011 $191,818
Less: Cost recovery for 2012 ($200,000 × 3.636% × .5/12) (303)
Basis on date of sale $191,515
Loss on sale of asset ($180,000 – $191,515) ($11,515)

p. 8-4 and Table 8.6
32. José’s basis for cost recovery is $250,000 because the fair market value of the house at the
date of the conversion from personal use to rental property ($250,000) is less than the
$300,000 adjusted basis. The cost recovery is $7,198 [$250,000 × 2.879% (Table 8.6)].
p. 8-4
33. The office furniture qualifies for additional first-year depreciation. So part of the $130,000
cost can be deducted as additional first-year depreciation. The property is 7-year class
property. Recovery would be calculated as follows:
Additional first-year depreciation
($130,000 × .50) $65,000
MACRS cost recovery
[($130,000 – $65,000) × .1429 (Table 8.1)] 9,289
Total cost recovery $74,289
pp. 8-5 to 8-8
34. a. The mid-quarter convention must be used. The office machine is 7-year class
property.
2012
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 – $37,500) × .0357 (Table 8.2)] 1,339
b. 2013
MACRS cost recovery {$37,500 × [.2755 × (2.5/4)]} $6,457
pp. 8-5 to 8-9
35. a. 2012
MACRS cost recovery ($150,000 × 20%) (Table 8.1) $30,000
b. 2013
MACRS cost recovery [$150,000 × 32% (Table 8.1) × 1/2] $24,000
pp. 8-5 to 8-8
36. The mid-quarter convention must be used because the cost of the computers acquired in the
4th quarter exceeds 40% of the cost of all the personal property acquired during the year
($70,000/$150,000 = 47%).
Furniture (7-year class)
($40,000 × .50) $20,000
MACRS cost recovery
[($40,000 – $20,000) × .1785 (Table 8.2)] 3,570
Trucks (5-year class)
($40,000 × .50) 20,000
MACRS cost recovery
[($40,000 – $20,000) × .15 (Table 8.2)] 3,000
Computers (5-year class)
($70,000 × .50) 35,000
MACRS cost recovery
[($70,000 – $35,000) × .05 (Table 8.2)] 1,750
pp. 8-5 to 8-9
37. a. The building was placed in service in October.
2012: $3,200,000 × .00535 (Table 8.6) = $17,120
b. 2016: $3,200,000 × [.02564 × (6.5/12)] = $44,443
p. 8-10
38. The building meets the 80% gross receipts from dwelling units test. Therefore, it is classified
as residential real property. The building’s depreciable basis is $1,500,000 [$2,000,000 (cost)
– $500,000 (land)].
$1,500,000 × 2.576% (Table 8.6) = $38,640
pp. 8-10 and 8-11
39. 2012: $2,800,000 × .01605 (Table 8.6) = $44,940
2022: $2,800,000 × .02564 (Table 8.6) = $71,792
pp. 8-10 and 8-11
40. The building’s depreciable basis is $1,300,000 [$1,600,000 (cost) – $300,000 (land)].
a. 2012: $1,300,000 × .0197 (Table 8.6) = $25,610
b. 2018: $1,300,000 × .03636 (Table 8.6) × 10.5/12 = $41,360

pp. 8-10 and 8-11
41. The 150% declining-balance method must be used under these circumstances with a 7-year
cost recovery period.
MACRS cost recovery ($150,000 × .1071) (Table 8.4) $16,065
p. 8-11
42. Additional first-year depreciation ($80,000 × .50) $40,000
MACRS cost recovery (straight-line method)
[($80,000 – $40,000) × .05 (Table 8.5)] 2,000
pp. 8-11 and 8-12
43. This is a qualified leasehold improvement.

Additional first-year depreciation ($300,000 × .50) $150,000
MACRS cost recovery
[($300,000 – $150,000) × .00535 (Table 8.6)] 803
pp. 8-12 and 8-13
44. Cost of leasehold improvement $80,000

Less: Cost recovery
2006 (.02247 × $80,000) (1,798)
2007-2011 (.02564 × $80,000 × 5) (10,256)
2012 [.02564 × (11.5/12) × $80,000] (1,966)
Loss (unrecovered cost) $65,980
pp. 8-12, 8-13, and Table 8.6
45. a. 5-year class property

Immediate expense deduction under § 179 $100,000
7-year class property

Immediate expense deduction under § 179 39,000
($139,000 – $100,000)
MACRS cost recovery
[($200,000 – $39,000) × .1429] 23,007
Total deduction $162,007
b. 7-year class property
Immediate expense deduction under § 179 $139,000
MACRS cost recovery [($200,000 – $139,000) × .1429] 8,717
5-year class property
Immediate expense deduction under § 179 –0–
MACRS cost recovery ($100,000 × .20) 20,000
c. The deduction for the year would be $5,710 ($167,717 – $162,007) larger if § 179
expense is first allocated to the 7-year class property (i.e., the longer lived asset).
pp. 8-5 to 8-14 and Table 8.1
46. Section 179 limit [$139,000 – ($600,000 – $560,000)] $99,000

Cost recovery for 7-year class assets
[($600,000 – $99,000) × .1429] $71,593
Income limitation
Income before § 179 and cost recovery $250,000
Cost recovery ($95,000 + $71,593) (166,593)
Income before § 179 amount $ 83,407
Section 179 amount of $99,000 (limited to $83,407) 83,407

Total deduction with respect to the 7-year assets in 2012 $155,000
Section 179 carryforward ($99,000 – $83,407) $15,593
pp. 8-13 and 8-14
47. Section 179 expense $139,000
[($250,000 – $139,000) × .50] 55,500
MACRS cost recovery
[($250,000 – $139,000 – $55,500) × .1429] 7,931
pp. 8-8 to 8-14
48. Hoffman and Smith, CPAs
5191 Natorp Boulevard
Mason, OH 45040
December 20, 2011
Mr. John Johnson
100 Morningside Drive
Clinton, MS 39058
Dear Mr. Johnson:

I am responding to your inquiry concerning the amount of cost recovery you may deduct in
the first year of operation of a new taxi. If the automobile is purchased at the beginning of
2012 for $35,000, the total recovery in the first year would be $35,000.
Because the car will be used as a taxi, it is not subject to the cost recovery limitations
imposed on passenger automobiles. This $35,000 recovery assumes that your income from
your taxi business before considering this recovery would be at least $35,000 and an election
is made under § 179 to expense the maximum allowable amount.
If you need additional information or need clarification of our calculations, please contact me.
Sincerely yours,
John J. Jones, CPA

Partner
TAX FILE MEMORANDUM
December 20, 2011
FROM: John J. Jones
SUBJECT: John Johnson: Calculations for cost recovery in year of acquisition
Facts. John Johnson is considering purchasing an automobile at the beginning of 2012 to be

used 100% as a taxi. The cost of the automobile is $35,000. John wants to know the total
recovery for the year of acquisition of the car.
Calculations. Because the automobile will be used as a taxi, it is not subject to the cost
recovery limitations for passenger automobiles. Therefore, John can elect § 179 expensing.
In deducting the §179 amount of $35,000, the assumption is made that John’s income from
the taxi business before considering the § 179 expense will equal or exceed $35,000.
pp. 8-16 to 8-18
49. Since the car is a used car, it is not eligible for additional first-year depreciation.
MACRS cost recovery:
Cost $25,000
Statutory percentage (mid-quarter convention) × 5%
Cost recovery but subject to the limitation $ 1,250
Recovery limit (limited to $3,060*) $ 1,250

Less: Personal usage (20% × $1,250) (250)
Cost recovery $ 1,000
*These cost recovery limits are indexed annually. The 2011 amounts are used.
pp. 8-16 to 8-18 and Table 8.2
50. Deduction for 2012

Additional first-year depreciation ($20,000 × 50%) $10,000
MACRS cost recovery [($20,000 – $10,000) × 20%] 2,000
Limited to $11,060* ($3,060 + $8,000) $12,000
Deduction for 2013
($10,000 × 32%) = $3,200 (limited to $4,900*) $3,200
So the deduction for 2012 is $11,060 and for 2013 is $3,200.
pp. 8-15 to 8-17, Example 6, and Table 8.1
51. a. Because the Escalade has a GVW rating in excess of 6,000 pounds, it is not a
passenger automobile and hence is not subject to the cost recovery limitations.
However, since the vehicle is an SUV with a GVW between 6,000 and 14,000
pounds, the § 179 expense amount is limited to $25,000.
§ 179 expense $25,000

Additional first-year depreciation [($62,000 – $25,000) × 50%] 18,500
MACRS cost recovery [$62,000 – $25,000 – $18,500) × .20] 3,700
b. If Helen elected not to take additional first-year depreciation, the total deductions
would be as follows:
§ 179 expense $25,000
MACRS cost recovery [($62,000 – $25,000) × 20%] 7,400
p. 8-18
52. Deduction for 2012
MACRS cost recovery ($20,000 × 20%) = $4,000
(limited to $3,060*) × 80% $2,448
Deduction for 2013
Straight-line ($20,000 × 20%) = $4,000 (limited to $4,900*) × 70% $2,800
Cost recovery recapture in 2013
2012 deduction $2,448
Straight-line ($20,000 × 10%) = $2,000
(limited to $3,060*) × 80% (1,600)
Excess $ 848
pp. 8-19, 8-20, and Tables 8.1 and 8.5
53. 100% business use
[$4,000 × 20% (Table 8.1)] × 100% $800
45% business use
[($4,000 × 10%) (Table 8.5)] × 45% (180)
Reduced cost recovery if personal use occurs $620
Tax cost ($620 × 28%) $174
pp. 8-16 to 8-19
Mason, OH 45040
December 20, 2011
Mr. Dennis Harding
150 Avenue I
Memphis, TN 38112
Dear Mr. Harding:
I am writing in response to your request concerning the tax consequences of purchasing
versus leasing an automobile. Our calculations are based on the data you provided in our
telephone conversation.
If the automobile is purchased, the total cost recovery deductions for the five years would be
$14,460. If the automobile is leased, lease payment deductions would total $22,500. In
addition, you also would have to include $286 in your gross income.
If you need additional information or need clarification of our calculations, please contact us.
Sincerely yours,
John J. Jones, CPA

Partner
TAX FILE MEMORANDUM
December 20, 2011
FROM: John J. Jones
SUBJECT: Dennis Harding: Calculation of lease versus purchase
Facts. Dennis Harding is considering purchasing or leasing an automobile on January 1,
2012. The purchase price of the automobile is $35,000. The lease payments for five years
would be $375 per month. The inclusion dollar amounts for the next five years would be $19,
$42, $63, $75, and $87. Dennis wants to know the effect on his adjusted gross income for the
purchase versus the lease of the automobile for five years.
Calculations
Purchase: cost recovery deductions
2012 ($35,000 × 20%) = $7,000 (limited to $3,060*) $ 3,060
2013 [$35,000 × 32% (limited to $4,900*)] 4,900
2014 [$35,000 × 19.2% (limited to $2,950*)] 2,950
2015 [$35,000 × 11.52% (limited to $1,775*)] 1,775
2016 [$35,000 × 11.52% (limited to $1,775*)] 1,775
Total cost recovery deductions $14,460
Lease:
Lease payments ($375 × 60) $22,500
Inclusion dollar amounts ($19 + $42 + $63 + $75 + $87) $ 286
pp. 8-16 to 8-21
55. For regular income tax liability
MACRS cost recovery ($16,000 × .20) $3,200
For AMT liability
($16,000 × .15) $2,400
pp. 8-22, 8-23, and Tables 8.1 and 8.4
56. MACRS:
Year 1 [$100,000 × 14.29% (Table 8.1)] $14,290
Year 2 ($100,000 × 24.49%) 24,490
Year 3 ($100,000 × 17.49%) 17,490
ADS:
Year 1 [$100,000 × 10.71% (Table 8.4)] $10,710
Year 2 ($100,000 × 19.13%) 19,130
Year 3 ($100,000 × 15.03%) 15,030
Total cost recovery (44,870)
Cost recovery lost by electing ADS $11,400
Tax cost of election ($11,400 × 28%) $ 3,192
pp. 8-5 to 8-7, 8-22, 8-23, and Tables 8.1 and 8.4
Mason, OH 45040
October 15, 2012
Mr. Mike Saxon
200 Rolling Hills Drive
Shavertown, PA 18708
Dear Mr. Saxon:
This letter is in response to your request concerning the tax consequences of allocating the
purchase price of a business between the two assets purchased: a warehouse and goodwill.
If the purchase price of $2,000,000 is allocated $1,200,000 to the warehouse and $800,000 to
goodwill, the total recovery in the first year of operations would be $82,865. Cost recovery
on the warehouse would be $29,532 and amortization of the goodwill would be $53,333. If
the purchase price is allocated $1,500,000 to the warehouse and $500,000 to goodwill, the
total recovery in the first year of operations would be $70,248. Cost recovery on the
warehouse would be $36,915 and amortization of the goodwill would be $33,333.
Therefore, under the first option, your deductions in the first year would be $12,617 greater
($82,865 – $70,248). The building is written off over 39 years, while the goodwill is written
off over 15 years. Thus, the higher the allocation to goodwill, the faster the write-off will be.
Should you need more information or clarification of calculations, please contact us.
Sincerely yours,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM
October 15, 2012
FROM: John J. Jones
SUBJECT: Mike Saxon: Calculations of amount of recovery depending on the allocation of
purchase price between a warehouse and goodwill
Facts. Mike is negotiating the purchase of a business. The final purchase price ($2 million)
has been determined, but the allocation of the purchase price between a warehouse and
goodwill is still subject to discussion. Two alternatives are being considered. The first
alternative would allocate $1,200,000 to the warehouse and $800,000 to goodwill. The
second alternative would allocate $1,500,000 to the warehouse and $500,000 to goodwill.
Mike wants to know the total recovery during the first year of operations from the two
alternatives.
Calculations
Alternative 1
Warehouse [$1,200,000 × 2.461% (Table 8.6)] $29,532
Goodwill ($800,000/15 years) 53,333
Total recovery $82,865
Alternative 2
Warehouse [$1,500,000 × 2.461% (Table 8.6)] $36,915
Goodwill ($500,000/15 years) 33,333
Total recovery $70,248
Additional deductions in first year under alternative 1
($82,865 – $70,248) $12,617
pp. 8-10, 8-22, and 8-23
58. Deductible amount ($5,000 – $4,000) $1,000
Amortizable amount [($53,000/180) × 10 months] 2,944
Total deduction for startup expenditures $3,944
pp. 8-23 and 8-24
59. Deductible amount [$5,000 – ($51,000 – $50,000)] $4,000
Amortizable amount {[($51,000* – $4,000)/180] × 7 months} 1,828
Total deduction for startup expenditures $5,828
*Startup expenses do not include interest expense.
pp. 8-23 and 8-24
60. Gross income $12,000,000
Less: Expenses (5,000,000)
Taxable income before depletion $ 7,000,000
Cost depletion ($10,000,000/250,000 × 45,000) = $1,800,000
Percentage depletion (22% × $12,000,000 = $2,640,000, limited
to 50% × $7,000,000 = $3,500,000) (2,640,000)
Taxable income $ 4,360,000
pp. 8-25 to 8-28
61. Not expensed
Gross income $3,840,000
Less: Expenses (1,240,000)
Taxable income before depletion $2,600,000
Cost depletion ($6* × 120,000) $720,000
Percentage depletion (15% × $3,840,000) $576,000
Greater of cost or percentage depletion (720,000)
Taxable income $1,880,000
Expensed
Gross income $3,840,000
Less: Expenses, including IDC (2,240,000)
Taxable income before depletion $1,600,000

Cost depletion ($4** × 120,000) $480,000
Percentage depletion (15% × $3,840,000) $576,000
Greater of cost or percentage depletion (576,000)
Taxable income $1,024,000
*Oil interest cost plus IDC ($2,000,000 plus $1,000,000) ÷ 500,000 equals $6.
**Oil interest cost of $2,000,000 ÷ 500,000 equals $4.
pp. 8-25 to 8-27 and Example 39
CUMULATIVE PROBLEMS
62. Net income from Writers Anonymous (Note 1) $60,471
Interest income 5,000
Self-employment tax (Note 2) (4,271)
Adjusted gross income $61,200
Less: Itemized deductions (Note 3) (11,700)
Personal exemption (3,700)
Taxable income $45,800
Tax on $45,800 from 2011 Tax Table $ 7,581
Self-employment tax 7,427
Less: Estimated tax payments (17,000)
Net tax payable (or refund due) for 2011 ($ 1,992)
See the tax return solution beginning on page 8-23 of the Solutions Manual.
Notes
(1) The net income of Writers Anonymous is calculated as follows:
Income from sales $105,000
Less: Rent $16,500
Utilities 7,900
Supplies 1,800
Insurance 5,000
Travel excluding meals ($3,500 – $1,200) 2,300
Meals ($1,200 – $600) 600
Depreciation (Note 4) 10,429 (44,529)
Net income $ 60,471
(2) The self-employment tax is calculated as follows (see Ch. 13):
1. Net earnings from self-employment $60,471
2. Multiply line 1 by 92.35% 55,845
3. If the amount on line 2 is $106,800 or less,
multiply the line 2 amount by 13.3%.
This is the self-employment tax. $ 7,427
Part of the self-employment tax, or $4,271 ($7,427 × 57.51%), is a

deduction for AGI.
(3) The itemized deductions are as follows:

State income tax $ 3,000
Home mortgage interest 6,000
Property taxes on home 1,500
Charitable contributions 1,200
Total itemized deductions $11,700
(4) Furniture and fixtures:
MACRS [$17,000 × 14.29% (Table 8.1)] $ 2,429
Computer equipment:
MACRS [$40,000 × 20% (Table 8.1)] 8,000
Mason, OH 45040
December 21, 2012
Mr. John Smith
1045 Center Street
Lindon, UT 84042
Dear Mr. Smith:
I am writing in response to your request concerning the effects on your 2012 adjusted gross
income of selling IBM stock and using some of the proceeds to purchase an automobile to be
used in your business.
If the stock is not sold and the car is not purchased, your adjusted gross income would be
$393,400. If the stock is sold and the car purchased, your adjusted gross income would be
$411,340. The supporting calculations follow:
No sale of stock and no purchase of car
Fees for services $912,000
Less: Business expenses
Building rental $ 36,000
Office furniture and equipment rental 9,000
Office supplies 2,500
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Cost recovery (Note 3):
Front-end loaders 216,600
Dump truck 27,000
Total business expenses (399,100)
Business income before § 179 deduction $512,900
Less: § 179 deduction (Note 1) (139,000)
Business income $373,900
Dividend income 9,500
Notes
(1) Section 179 deduction of $139,000.
(2) The inheritance of IBM stock worth $110,000 from Aunt Mildred is excludible under
§ 101.
(3) Cost recovery
Front-end loaders
[($500,000 – $139,000) × .50] $180,500
MACRS cost recovery
[($500,000 – $139,000 – $180,500) × .20] 36,100
Dump truck
($45,000 × .50) $22,500
MACRS cost recovery
[($45,000 – $22,500) × .20] 4,500
Sale of stock and purchase of car

Building rental $36,000
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Dump truck 27,000
Car 11,060
Gain on stock sale (Note 2) 5,000
Notes
(1) Section 179 deduction of $79,000 {$139,000 – [($500,000 + $45,000 + $75,000) –
$560,000]}.
§ 101. John’s recognized gain on the sale of the IBM stock is $5,000 ($115,000 amount
realized – $110,000 adjusted basis) and is automatically classified as a long-term
capital gain.
(3) Cost recovery

Front-end loaders
[($500,000 – $79,000) × .50] $210,500
MACRS cost recovery
[($500,000 – $79,000 – $210,500) × .20] 42,100
Dump truck
($45,000 × .50) $22,500
MACRS cost recovery
[($45,000 – $22,500) × .20] 4,500
Total $27,000
Car
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 – $37,500) × .20] 7,500
Total potential deduction $45,000
Limited to ($3,060* + $8,000) $11,060
*The cost recovery limits are indexed annually. The 2011 amounts are used.
Should you need more information or need for us to clarify our calculations, please contact us.
Sincerely,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM
December 20, 2012
FROM: John J. Jones
SUBJECT: John Smith: Calculation of adjusted gross income for (1) no sale of stock or
purchase of car versus (2) sale of stock and purchase of car
Facts. John is considering selling inherited IBM stock with an adjusted basis to him of
$110,000 for $115,000 on December 29, 2012. He would use $75,000 of the proceeds to
purchase a car that would be used 100% for business. John wants to know the effect these
transactions would have on his adjusted gross income.
No sale of stock and no purchase of car
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000

Payroll taxes 7,000
Fuel and oil 21,000
Dump truck 27,000
Notes
(1) Section 179 deduction of $139,000.
§ 101.
(3) Cost recovery
Front-end loaders
[($500,000 – $139,000) × .50] $180,500
MACRS cost recovery
[($500,000 – $139,000 – $180,500) × .20] 36,100
Dump truck
($45,000 × .50) $22,500
MACRS cost recovery
[($45,000 – $22,500) × .20] 4,500
Sale of stock and purchase of car
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Dump truck 27,000
Car 11,060

Gain on stock sale (Note 2) 5,000
Notes
(1) Section 179 deduction of $79,000 {$139,000 – [($500,000 + $45,000 + $75,000) –
$560,000]}.
§ 101. John’s recognized gain on the sale of the IBM stock is $5,000 ($115,000 amount
realized – $110,000 adjusted basis) and is automatically classified as a long-term
capital gain.
(3) Cost recovery
Front-end loaders
[($500,000 – $79,000) × .50] $210,500
MACRS cost recovery
[($500,000 – $79,000 – $210,500) × .20] 42,100
Dump truck
($45,000 × .50) $22,500
MACRS cost recovery
[($45,000 – $22,500) × .20] 4,500
Total $27,000
Car
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 – $37,500) × .20] 7,500
Total potential deduction $45,000
Limited to ($3,060* + $8,000) $11,060
*The cost recovery limits are indexed annually. The 2011 amounts are used.
Proposed solutions to the Research Problems are found at the Instructor Companion Site for the
textbook (www.cengage.com/taxation/swft). Previously, these items were a part of the Instructor’s
Guide, but now they are available online at this site as free-standing documents, as well as on the
Instructor’s Resource CD.
62.
62. continued
62. continued
62. continued
62. continued
62. continued
62. continued
NOTES
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The Project Gutenberg eBook of A year in
Russia
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eBook.
Title: A year in Russia
Author: Maurice Baring
Release date: December 9, 2023 [eBook #72360]
Language: English
Original publication: London: Methuen & Co, 1907
Credits: Richard Tonsing, Peter Becker, and the Online

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*** START OF THE PROJECT GUTENBERG EBOOK A YEAR IN

RUSSIA ***
Transcriber’s Note:
New original cover art included with this eBook is
granted to the public domain.
A YEAR IN RUSSIA
BY
MAURICE BARING
AUTHOR OF “WITH THE RUSSIANS IN MANCHURIA,” ETC.
METHUEN & CO.

36 ESSEX STREET W.C.
LONDON
First Published in 1907
DEDICATED
TO
LADY CONSTANCE LYTTON
“Vieni a veder Montecchi e Cappelletti,

Monaldi e Filippeschi, uom senza cura;
Color già tristi e costor con sospetti.
Vien, crudel, vieni e vedi la pressura
De’ tuoi gentili, e cura lor magagne:
E vedrai Santafior come si cura.
Vieni a veder la tua Roma, che piagne,
Vedova, sola, e dì e notte chiama:
Cesare mio, perchè non m’ accompagne?”
Dante (Purg. VI.)
“Une nation ne se sépare jamais de son passé sans de cruels déchirements.”

“Why, Sir, absolute princes seldom do any harm. But they who are governed by
them are governed by chance. There is no security for good government.”
Dr. Johnson
PREFACE
The basis of most of these chapters is composed of letters

contributed during the current year to the Morning Post, by whose
kind permission they are here republished. They reflect the fleeting
ideas, the passing moods of the moment; but as the various moments
of which they reflect some kind of image form part of what must
constitute an eventful chapter of Russian history, I have thought that
it would be worth while to republish them, so as to furnish some kind
of record of what people were thinking and saying while the
interesting things—which history will relate—were happening, and so
as to give a few sidelights showing the attitude of “the man in the
street,” during the hours of crisis. Such sidelights tend to show how
little even the greatest crises in the lives of States affect the daily life
of the average man. The people who cry out that the state of things is
intolerable and not to be borne are, for the most part, well-to-do
people who work up their indignation towards the end of a good
dinner. The people who to the far-off looker-on seem to be
undergoing intolerable oppression are themselves lookers-on, and
they scarcely look, hardly realise and seldom say anything.
I have endeavoured in these chapters to present impartially the
widely divergent points of view of various people; at the same time I
have made no attempt to disguise the whereabouts of my
sympathies, being mindful of the sage, who, as Renan translates him,
says: “Ne sois pas trop juste, et n’affecte pas trop de sagesse de peur
d’être un niais.”
These sidelights being the reflections of fugitive phases, I have
made no attempt to introduce an element of consistency into them,
nor have I in the light of subsequent events tried to modify the effect
of the hopes which proved to be illusory or of the fears which were
groundless—hopes and fears which I myself shared with those by
whom I heard them expressed.
To those who take a serious interest in the Russian evolution I
would suggest two valuable books, “The Crisis in Russia,” by
Professor Milioukov (London: Fisher Unwin, 1905), and “La Crise
Russe,” by Maxime Kovalevsky (Paris: Giard & E. Brière, 16, Rue
Souflot, 1906).
“Modern Customs and Ancient Laws of Russia,” by the same
author (Nutt, 1891), will be useful to the student of the past history of
Russia. Nor can one too often recommend “L’Empire des Tsars,” by
M. Leroy-Beaulieu. Sir Donald Mackenzie Wallace’s work on Russia
needs no recommendation. All these books, which deal with the past
of Russia, will help the student to understand what is happening at
present; for without some knowledge of the past history of Russia,
what is now taking place cannot but be incomprehensible.
St. Petersburg
CONTENTS
PAGE
PREFACE ix
INTRODUCTION xiii
CHAPTER
I. ST. PETERSBURG TO GODZIADAN 1
II. JEN-TZEN-TUNG 11
III. THE STRIKE AND THE MANIFESTO OF OCTOBER 21
(30TH) 17TH
IV. MOSCOW AFTER THE MANIFESTO 31
V. ST. PETERSBURG BEFORE THE SECOND STRIKE 39
VI. MOSCOW—THE DECEMBER RISING 43
VII. MOSCOW—AFTER THE RISING 63
VIII. THE “INTELLIGENZIA” 75
IX. THE BEGINNING OF THE REACTION 84
X. CURRENT IDEAS IN ST. PETERSBURG 97
XI. DOSTOIEVSKI’S ANNIVERSARY 121
XII. THE POLITICAL PARTIES 128
XIII. IN THE COUNTRY 137
XIV. THE ELECTIONS 152
XV. EASTER AT MOSCOW—THE FOREIGN LOAN 162
XVI. THE AGRARIAN QUESTION—ON THE EVE OF THE 178
DUMA
XVII. THE OPENING OF THE DUMA 191
XVIII. FURTHER IMPRESSIONS OF THE DUMA 202
XIX. THE DEADLOCK 212
XX. CURRENT IDEAS ON THE DUMA 225
XXI. THE BEGINNING OF DISORDER 233
XXII. PRINCE URUSSOFF’S SPEECH 250
XXIII. NAZARENKO, AND OTHER PEASANT MEMBERS 258
XXIV. THE DISSOLUTION OF THE DUMA 281
XXV. IN THE COUNTRY AFTER THE DISSOLUTION 288
INDEX 309
INTRODUCTION
This book is nothing else but a collection of notes, a bundle of

impressions gathered during a year’s stay in Russia. It lays no claim
to be either exhaustive or even of any practical use to the serious
student of the Russian Evolution. It is written for the ignorant, and
with the object of helping them to decide whether they wish to take
an interest in what is now happening in Russia, or not. I cannot take
them into the house and show them all over it from floor to ceiling
with the knowledge and authority of a master-builder; all I can do is
to open a small window and ask them to look through it and observe
certain things, pointing out how far these things are typical of the
whole; and my hope is that the glimpses I have given them will
enable them to decide whether they wish to go and knock at the front
door and investigate for themselves.
This book consists solely of a record of things I have seen and
heard myself in Russia during an interesting year of the history of
that country. My experience of English opinion on Russian things
has convinced me that in order to make such a record as intelligible
as possible, a great deal of introduction and explanation would be
necessary. The reason of this is that the ignorance in England about
Russia is extraordinary; and most of the current literature—I mean
the books published on Russian affairs—instead of dispelling that
ignorance, succeed rather in increasing it. Russia and Russian affairs
are so little known in England that the country has proved a happy
hunting ground for sensational writers of fiction and still more
sensational purveyors of facts. Leaving the writers of fiction out of
the question, the chief bar which seems to separate writers about
Russia from a just estimate and a valuable appreciation of that
country is the language. It is possible to convey information about
Russia if you are ignorant of the Russian language; and such
information may prove to be not only useful, but of surprising
interest to people who are totally ignorant of the country. But unless
you are acquainted with the Russian language it is impossible to
acquire an intimate knowledge of the Russian people, and it is
difficult to understand many things which happen in Russia.
I had, therefore, the intention, before proceeding to a record of any
things I had seen myself, to collect and convey the impressions I had
received of the Russian character and of Russian life in various
classes, correcting and illustrating my impressions by those of others
who have worked in the same field, and by evidence drawn from
Russian literature. I meant to try and illustrate books by examples
taken from life, and throw light on events and people by examples
taken from literature; but I found when I began to do this that the
writing of such an introduction was equivalent to the writing of two
large books, one on the Russian people and one on Russian
literature, a task which I still hope to accomplish some day, but for
which I do not at present feel sufficiently equipped. Moreover, even
were I sufficiently equipped, the writing of two such books cannot be
accomplished in a hurry in a country which is in a state of political
effervescence. I have therefore sadly resigned myself to work
backwards, and give to the public my record of raw facts first and the
explanation at a later date.
Nevertheless in giving this collection of scraps to the public I still
have an aim and a purpose. As I have said, Englishmen are
amazingly ignorant of Russia; not only because they deliberately
prefer the works of sensation-mongers to those of really well-
informed writers like Sir D. M. Wallace or M. Leroy-Beaulieu, but
also because, when they honestly seek for truth in the newspapers
which are by way of being serious, they are almost invariably misled.
On the other hand Englishmen who live in Russia, even if only for a
short period—such as officers from the Indian Army who come out
on leave to learn the language—find no difficulty in forming a just
appreciation of the country and its people. It has always struck me
that if any such person were to write a record of what he saw and
thought, that record would have a real value because it would
constitute an aspect of the truth and not an aspect of the lie. This is
therefore my aim, and it is the only merit I claim for this work. It
contains aspects of things, seen by some one whose object was to try
and understand the ordinary and not to invent the extraordinary.
And therefore, although my work has no sort of claim to be taken
seriously, either as history, or as a manual of useful information, it
will have the negative merit of being free from any attempt at
sensationalism, and, I hope, the positive merit of containing some
aspects of the truth, some unvarnished record of la chose vue.
If what I have written leads others to take an interest in Russia and
to go and see for themselves, and to treat exhaustively in a masterly
fashion the things at which I have hinted incompletely and haltingly,
I shall feel amply rewarded.
Somebody might object that even if we are totally ignorant of
Russia in England there is no great harm done, that Russia is a far-
off country with an impossibly difficult language; why should we
bother about it? To this I would reply that the British people have
shown themselves to be gravely concerned about the increasing
competition with which the Englishman has to contend in all
branches of life, and at the alarming improvement in the methods of
his neighbours, which is met by no similar improvement at home.
British trade, British influence, are rapidly, it is said, being
outstripped. Remedies, such as protection, are suggested. As to
whether such a remedy would prove efficacious or not I have no idea;
but one practical reason of our stagnation in certain matters cannot
fail to strike the most indolent observer. Our neighbours are well and
practically educated. We are not. Is not this fact the cause of a great
many things? If we want to remedy an evil we must look for the
cause. I firmly believe that the unpractical education which is given
to so many of us is largely responsible for the comparative stagnation
of Englishmen in matters of trade and enterprise, compared with the
sedulous efforts of the citizens of other countries. I am not
advocating the introduction of a purely continental system of
education, nor would I like to see our system of athletics disappear;
but it is obvious that there is not and never will be any danger of
either of these two things happening. But I never mean to lose an
opportunity of advocating a radical reform in the old-fashioned
strictly classical education given and received at our public schools
and rendered necessary by the obstinacy of our universities, owing to
which Greek and Latin are taught (but no longer learned except by a
slender minority), to the exclusion of all other useful knowledge.
The mass of boys who now learn nothing because Greek and Latin
mean nothing to them, would gladly assimilate something which
would be useful to them in after life: for instance, some smattering of
their own history, some mastery of the English tongue, or the
knowledge of a modern language.
There is no country where the disadvantage at which an
Englishman finds himself compared to his continental rivals is made
so plain as in Russia. In Russia there is, and there will be even more
in the future, an immense field for foreign enterprise. The Germans
have taken, are taking, and will take the utmost advantage of this
fact. The English are content to send advertisements here, written in
the English language, and never dream of trying to learn Russian
themselves.
A working knowledge of the Russian language is acquired here by
the average British officer, working for an examination, in the course
of six months. Therefore this difficulty, though serious, is not
insurmountable. This, then, is the practical reason which I advance
for the furthering of knowledge about Russia. I say that such
knowledge is useful and advantageous to Englishmen. I have another
reason for wishing such knowledge to be propagated, which is
personal and moral, but not sentimental. It is this. I confess that I
entertain perhaps a foolish desire for goodwill among nations. Of
course I know very well that rivalries and conflicts must exist.
Sometimes such rivalries and conflicts are the result of a
fundamental antagonism and of the struggle for existence. But
sometimes they are merely the outcome of misunderstanding and
prejudice.
One of the wickedest things which shelters itself under the holy
name of patriotism is the spirit which stirs up such prejudice and
incites one country against another groundlessly by playing on
ignorance and popular passion. With regard to Russia this has been
done with considerable success. So far from considering such action
to be patriotic, I consider it to be criminal; and although it may not
be of the slightest interest to any one to hear this opinion expressed,
to express it is a pleasure which I cannot deny myself. Whatever
faults this book may contain, I mean to make up for the
disappointments which it has caused me by indulging to the full in
the luxury of saying exactly what I think in its pages. I cannot,
unfortunately, hope to be among those masters who, speaking with
inspired authority and unerring skill, compel the crowd to listen to
their message, and at the sound of whose clarion-like utterance the
“forts of folly” fall to the ground like the walls of Jericho. Mine is a
humbler task, a more inglorious ambition. I hope to be like an
obscure mouse who nibbles in the darkness at the net which holds
the lion captive. The mouse in his lifelong effort succeeds perhaps
only in gnawing away a little; and I shall be content if I succeed in
nibbling through the most tenuous thread of this great net of error,
misunderstanding, and falsehood. There are other mice who will
come after me, and who knows? perhaps one day the lion will be set
free.
Finally, if it be asked from what point of view I approach my study
of Russia, I would answer that I have no political views whatever in
the matter; I have tried to make it my business to discover,
understand, and explain the points of view of the people with whom I
have met; with some of these views I sympathise, with others I do
not. I have already said that I have not disguised my sympathies, but
I have attempted to understand even what repelled me; my attitude
is that of a sympathetic friend, for whether the Frenchman who said
“L’intelligence est presque toujours la sympathie” was right or
wrong, I am convinced that the converse is true, and that the spirit of
carping is nearly related to stupidity.
A YEAR IN RUSSIA
CHAPTER I
ST. PETERSBURG TO GODZIADAN
August 8, 1905.
I left St. Petersburg this evening for Manchuria. The one absorbing
discussion in St. Petersburg is the question of the peace negotiations.
Will there be peace or not?
In the train on the way to Irkutsk,
August 11th.
I started for Irkutsk on the 9th from Moscow. The train is crowded
with people—officers going to the war, men of business going to
Siberia, women and children. It is exceedingly hot. The last time I
travelled in this Trans-Siberian express the winter had just given way
to the leafless and bare aspect of early spring. Now we travel through
great stretches of green plains, past huge fir-woods which are burnt
and browned by the heat. The topic of the peace negotiations
continues to prevail above all other topics. I am constantly asked my
opinion. We have just received the latest telegrams from Portsmouth.
A man of business asked me if I thought there would be peace. I said
“Yes.” “There won’t be,” he replied. The railway line is fringed all the
way with pink flowers, which, not being a botanist, I take to be
ragged robin. At night the full moon shines spectral and large over
the dark trees and marshes, and every now and then over stretches of
shining water. The officers discuss the war from morning till night.
They abuse their generals mercilessly. They say that it is impossible
for Russians to look foreigners in the face. In my compartment there
is an army doctor. He assisted at the battle of Mukden and is now
returning for the second time to the war. He tells me that he wrote a
diary of his experiences during the battle and that he is unable to re-
read it now, so poignantly painful is the record. He trusts there will
not be peace. He is sanguine as to the future. He loathes the liberal
tendencies in Russia and detests Maxim Gorki. Yet he is no Jingo.
A gentleman from Moscow, and his wife, on the contrary, inveigh
bitterly against the Government and the war. (I saw these same
people again at Moscow after the December rising. Their house was
situated in a street where the firing had been heavy and abundant.
They had had enough of revolution and blamed the revolutionaries
as severely then as they now blamed the Government.) We
constantly pass trains full of troops going to the war. The men all ask
the same question: “When is peace going to be?” They ask for
newspapers and cigarettes. I gave some of them some bottles of
whisky, which they drank off then and there out of the bottle. An
amusing incident happened last evening. We had stopped at a siding.
Everybody had got out of the train. I was walking up and down the
platform with one of the passengers. We saw a soldier throwing big
stones at the window of the washing compartment.
“What are you doing that for?” we asked.
“I want to speak to his Honour,” the soldier said; “he is washing
his face in the washing-room.” And through the window of the
compartment, lit by electric light, we could see the silhouette of an
officer washing his face.
“Why don’t you go and knock at the door?” we asked.
“They are” (to speak of a person in the third person plural is
respectful in Russian, and is always done by inferiors of their
superiors)—“they are ‘having taken drink’ (Oni Vipimshi),” he
replied, and then he added, lest we should receive a false impression,
“His Honour is very good.”
As we passed train after train of troops I reflected on the rashness
of prophecy. How often I had heard it said in London, when the war
broke out, that the line would break down immediately. Even when I
reached Mukden I heard people say that the line could not possibly
last through the summer, and here it is supporting gaily train after
train in the second year of the war.
On the way to Chita, August 20th.
We arrived at Irkutsk on the morning of the 17th and took the train
for Baikal. At Irkutsk station there was a train of sick soldiers
returning from the war. They begged for newspapers. The tedium of
their long journey is, they say, intolerable. They say there has been a
good deal of typhus in Manchuria.
We crossed the lake in the steamer. Its summer aspect is far less
striking than the strange glory which it wears when it is frozen, and
the distant mountains seem like “a sunny pleasure dome with caves
of ice.” In summer the waters are blue, the nearer hills grey and the
distant mountains blue, but with nothing strange or unreal about
them. Yet when the sunset silvered the grey tints and spread a ragged
golden banner in the sky, the lake was extremely beautiful in another
way. At Baikal station there was the usual struggle for places in the
train. How well I remembered the desperate struggle I had gone
through to get a seat in a third-class carriage at this same place last
year! This time it was in the first-class carriage that the conflict took
place. An engineer got into the same carriage as I did. He occupied
one of the lower berths and I the other. Presently a lady arrived,
bound for Chita, and looking for a place. She came into our carriage
and asked to be allowed to have one of the lower berths. The
engineer flatly refused and said that he had occupied his seat and
had a right to keep it. I told her I would let her have mine with
pleasure. She occupied it and went out. I moved my things into the
upper berth. “Why on earth did you give up your seat?” the engineer
asked. “You had a right to keep it.” When the lady came back she
said to me: “Ah! you are evidently not a Russian; no Russian would
have given up his place.” The engineer turned out to be quite a good-
natured sort of person, but there is something about trains which
makes people who are by nature mild and good-natured turn into
savages, and instils into them a passionate determination to cleave to
their rights. The next morning another man arrived in our carriage,
with a large basket and a second-class ticket. This upset the engineer,
who complained to the “Controller” of the train, and the poor man
was turned out. The engineer snorted and said: “There’s an insolent
fellow for you.” The lady was the wife of an engineer who was
employed at Chita; and she told me much about life in Chita: how
hard times were, owing to the war, how scarce food was getting—
“Und wie so teuer der Kaffee,
Und wie so rar das Geld!”

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South Western Federal Taxation 2012 Individual Income

South-Western Federal Taxation 2017 Individual Income

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DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION

SOLUTIONS TO PROBLEM MATERIALS

1 LO 1 Cost recovery New

29 LO 7 Start-up expenditures Unchanged 29

*The solution to this problem is available on a transparency master.

1 Depreciation of aircraft parts Unchanged 1

31. Loss $11,515. 47. $202,431.

3. Land improvements have a class life of 15 years. p. 8-6

4. The relevant issues for Henry are:

• If such costs can be depreciated, what is the correct recovery period?

pp. 8-3 and 8-4

14. The following issues are relevant for Jim:

• Is John entitled to a § 179 deduction?

27. The following issues are relevant for Orange Motors:

• Does the noncompete agreement come under § 197 for intangibles?

29. The following issues are relevant for George.

• Are all of the expenditures qualifying expenditures?

31. Cost of asset $200,000

Less: Greater of allowed and allowable cost recovery:

Loss on sale of asset ($180,000 – $191,515) ($11,515)

b. 2018: $1,300,000 × .03636 (Table 8.6) × 10.5/12 = $41,360

43. This is a qualified leasehold improvement.

44. Cost of leasehold improvement $80,000

pp. 8-12, 8-13, and Table 8.6

45. a. 5-year class property

7-year class property

46. Section 179 limit [$139,000 – ($600,000 – $560,000)] $99,000

Section 179 amount of $99,000 (limited to $83,407) 83,407

Dear Mr. Johnson:

John J. Jones, CPA

TAX FILE MEMORANDUM

December 20, 2011

FROM: John J. Jones

SUBJECT: John Johnson: Calculations for cost recovery in year of acquisition

Facts. John Johnson is considering purchasing an automobile at the beginning of 2012 to be

Recovery limit (limited to $3,060*) $ 1,250

50. Deduction for 2012

So the deduction for 2012 is $11,060 and for 2013 is $3,200.

pp. 8-15 to 8-17, Example 6, and Table 8.1

§ 179 expense $25,000

John J. Jones, CPA

Taxable income before depletion $1,600,000

Part of the self-employment tax, or $4,271 ($7,427 × 57.51%), is a

(3) The itemized deductions are as follows:

Sale of stock and purchase of car

(3) Cost recovery

Salaries ($34,000 + $42,000) 76,000

Interest income 10,000

Title: A year in Russia

Author: Maurice Baring

Release date: December 9, 2023 [eBook #72360]

Original publication: London: Methuen & Co, 1907

Credits: Richard Tonsing, Peter Becker, and the Online