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CHAPTER 8
DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION
SOLUTIONS TO PROBLEM MATERIALS
DISCUSSION QUESTIONS
1. (LO 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.
2. (LO 1) Personal property is any asset that is not real property. Personal use property is any property
(realty or personalty) that is held for personal use rather than for use in a trade or business or income-
producing activity.
3. (LO 1) Land improvements have a MACRS class life of 15 years.
4. (LO 2) The relevant issues for Henry:

• 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?
5. (LO 2) The three factors the MACRS tables take into account are (1) recovery period, (2) method,
and (3) convention.
6. (LO 2) 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; hence, the cost of the asset is multiplied by the factor to determine the
first year’s cost recovery.
7. (LO 2) The asset is treated as if it were sold in the middle of the quarter; hence, one-half quarter of
cost recovery is allowed in the quarter of the sale. If the sale is in the first quarter, the ratio is .5/4; in
the second quarter, 1.5/4; in the third quarter, 2.5/4; and in the fourth quarter, 3.5/4.
8. (LO 2) Even if MACRS straight-line is elected for the 7-year class assets, the cost recovery on the
5-year class assets is 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 (the mid-quarter
convention also applies to the 7-year class assets). With respect to the mid-quarter convention, the
assumption is made that Robert is a calendar year taxpayer.
9. (LO 2) 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?
8-1
© 2016 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 2016 Individual Income Taxes/Solutions Manual
10. (LO 3) Ordinary income recapture is required anytime property on which an expense has been taken
under § 179 is no longer used predominantly in a trade or business.
11. (LO 3) The basis of the property for cost recovery purposes is reduced by the § 179 amount [after it is
adjusted for property placed in service in excess of the appropriate acquisition limit ($2 million in
2015 and 2014)]. The business income limitation does not affect basis.
12. (LO 3) The § 179 amount eligible for expensing in a carryforward year is limited to the lesser of (1)
the statutory dollar amount ($500,000 in 2015 and 2014) reduced by the cost of § 179 property placed
in service in excess of the appropriate acquisition limit in the carryforward year ($2,000,000 in 2015
and 2014) or (2) the business income limitation in the carryforward year.
13. (LO 3) For § 179 purposes, taxable income 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.
14. (LO 2, 3) 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?
15. (LO 4) 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.
16. (LO 4) The property is subject to cost recovery recapture, which is included in the taxpayer’s income
tax return as ordinary income. The amount of the inclusion is the excess cost recovery, which is the
excess of the cost recovery deduction taken in prior years using the statutory percentage method over
the amount that would have been allowed if the straight-line method had been used since the property
was placed in service.
17. (LO 7) The amortization period for a § 197 intangible is 15 years regardless of the actual useful life.
18. (LO 7) 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?
19. (LO 7) 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 amount may be deducted under § 195 for 2015?
20. (LO 8) 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.
Depreciation, Cost Recovery, Amortization, and Depletion 8-3
COMPUTATIONAL EXERCISES
21. (LO 2) The IRS provides tables that specify cost recovery allowances for personalty and for realty. To
determine the amount of the cost recovery allowances, simply identify the asset by class and go to the
appropriate table for the percentage (or factor).
2015: $80,000 × .1429 = $11,432. 2016: $80,000 × .2449 = $19,592.
22. (LO 2) The mid-quarter convention applies if more than 40% of the value of property other than
eligible real estate is placed in service during the last quarter of the year. Hamlet acquired 100% of
assets in the last quarter of the year. Therefore mid-quarter convention applies.
2015: $100,000 × .0357 = $3,570
2016: $100,000 × .2755 = $27,550
23. (LO 2) The IRS provides tables that specify cost recovery allowances for personalty and for realty.
Under MACRS, the cost recovery period for residential rental real estate is 27.5 years, and the straight-
line method is used for computing the cost recovery allowance. Nonresidential real estate uses a
recovery period of 39 years; it also is depreciated using the straight-line method. Cost recovery is
computed by multiplying the applicable rate by the cost recovery basis.
a. Residential rental real estate: $1,000,000 × .03636 = $36,360.
b. Nonresidential rental real estate: $1,000,000 × .02564 = $25,640.
24. (LO 2) The IRS provides tables that specify cost recovery allowances for personalty and for realty.
The taxpayer may elect to use the straight-line method for depreciable personal property. The
property is depreciated using the class life (recovery period) of the asset with a half-year convention
or a mid-quarter convention, whichever applies. The election is available on a class-by-class and
year-by-year basis (see Concept Summary 8.3). The percentages for the straight-line election with a
half-year convention appear in Exhibit 8.6.
2015: $2,800 × .10 = $280.
2016: $2,800 × .20 = $560.
25. (LO 2) Additional first-year depreciation is taken in the year in which the qualifying property is
placed in service; it may be claimed in addition to the otherwise available depreciation deduction.
After the additional first-year depreciation is calculated, the standard MACRS cost recovery
allowance is calculated by multiplying the cost recovery basis (original cost recovery basis less
additional first-year depreciation) by the percentage that reflects the applicable cost recovery method
and convention. Because the asset was purchased during the last quarter of the year and is the only
asset purchased during the year, the, mid-quarter convention applies.
Diana’s $34,125 ($32,500 + $1,625) deduction is computed as follows.

50% additional first-year depreciation: ($65,000 × 50%) = $32,500.
MACRS cost recovery: ($65,000 − $32,500) × .05 = $1,625.
26. (LO 3) Assuming that Congress extends the 2014 amounts to 2015, § 179 permits the taxpayer to
elect to write off up to $500,000 of the acquisition cost of tangible personal property used in a trade
or business.
Two additional limitations apply to the amount deductible under § 179. First, the ceiling amount on
the deduction is reduced dollar for dollar when § 179 property placed in service during the taxable
year exceeds a maximum amount ($2 million). Second, the § 179 deduction cannot exceed the
taxpayer’s trade or business taxable income, computed without regard to the § 179 amount.
§ 179 deduction before adjustment $212,000
Less: Dollar limitation reduction ($212,000 < $2,000,000) (–0–)
Remaining § 179 deduction $212,000
§ 179 deduction allowed due to business income limitation $ 5,600
§ 179 deduction carryforward ($212,000 − $5,600) $206,400
27. (LO 4) The law places special limitations on cost recovery deductions for passenger automobiles. The
luxury auto limits are imposed before any percentage reduction for personal use. The cost recovery
limitations are maximum amounts. If the regular MACRS calculation produces a lesser amount of
cost recovery, the lesser amount is used.
Year MACRS Amount Recovery Limitation Deduction Allowed

2015 $5,040 $2,212 $2,212
($36,000 × .20 × 70%) ($3,160 × 70%)
2016 $8,064 $3,570 $3,570
($36,000 × .32 × 70%) ($5,100 × 70%)
28. (LO 7) Taxpayers can claim an amortization deduction on intangible assets called “amortizable § 197
intangibles.” The amount of the deduction is determined by amortizing the adjusted basis of such
intangibles ratably over a 15-year period beginning in the month in which the intangible is acquired.
The 2015 § 197 amortization deduction of $ $7,250 ($1,000 + $6,250) is computed as follows.
Patent: $60,000/15 years = $4,000 × 3/12 = $1,000.
Goodwill: $375,000/15 years × 3/12 = $6,250.
29. (LO 8) Cost depletion is determined using the adjusted basis of the asset. The basis is divided by the
estimated recoverable units of the asset (e.g., barrels and tons) to arrive at the depletion per unit. This
amount is then multiplied by the number of units sold (not the units produced) during the year to
arrive at the cost depletion allowed.
Parscale’s depletion per ton is $16 ($8,000,000 adjusted basis/500,000 estimated recoverable tons). If
75,000 tons are sold this year, the cost depletion is $1,200,000 ($16 depletion per ton × 75,000 tons
sold).
30. (LO 8) Percentage depletion (also referred to as statutory depletion) uses a specified percentage
provided by the Code. The percentage varies according to the type of mineral interest involved. The
rate is applied to the gross income from the property, but in no event may percentage depletion
exceed 50% of the taxable income from the property before the allowance for depletion.
Gross income $340,000
Less: Other expenses (229,000)
Taxable income before depletion $111,000
Depletion allowance $ 47,6001
1
[The lesser of $47,600 (14% × $340,000) or $55,500 (50% × $111,000)].
PROBLEMS
31. (LO 1, 2)
Cost of asset $200,000
Less: Greater of allowed and allowable cost recovery:
2013 $ 910
2014 7,272 (8,182)
Basis at the end of 2014 $191,818
Less: Cost recovery for 2015 ($200,000 × .03636 × .5/12) (303)
Basis on date of sale $ 191,515
Loss on sale of asset ($180,000 − $191,515) ($ 11,515)
32. (LO 1, 2) José’s basis for cost recovery is $300,000 because the basis of the house at the date of the
conversion from personal use to rental property ($300,000) is less than the $400,000 fair market
value. The cost recovery is $8,637 [$300,000 × .02879 (Exhibit 8.9)].
33. (LO 2) 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. Cost
recovery would be calculated as follows.
Additional first-year depreciation:
($130,000 × .50) $65,000
MACRS cost recovery:
[($130,000 − $65,000) × .1429 (Exhibit 8.4)] 9,289
Total cost recovery $74,289
34. (LO 2)
a. The mid-quarter convention must be used. The office machine is 7-year class property.
2014
Additional first-year depreciation
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 − $37,500) × .0357 (Exhibit 8.5)] 1,339
b. 2015
MACRS cost recovery [$37,500 × (.2755 × 2.5/4)] $6,457
35. (LO 2)
a. 2015
MACRS cost recovery ($200,000 × 20%) (Exhibit 8.4) $40,000
b. 2016
MACRS cost recovery [$200,000 × 32% (Exhibit 8.4) × 1/2] $32,000
36. (LO 2) The mid-quarter convention must be used because the cost of the computers acquired in the
fourth quarter exceeds 40% of the cost of all the personal property acquired during the year
($70,000/$150,000 = 47%).
Furniture (7-year class property)

MACRS cost recovery
[$40,000 × .1785 (Exhibit 8.5)] $ 7,140
Trucks (5-year class property)
MACRS cost recovery
[$40,000 × .15 (Exhibit 8.5)] 6,000
Computers (5-year class property)

MACRS cost recovery
[$70,000 × .05 (Exhibit 8.5)] 3,500
37. (LO 2)
a. The building was placed in service in October.
2015: $3,800,000 × .00535 (Exhibit 8.9) = $20,330
b. 2019: $3,800,000 × .02564 (Exhibit 8.9) × 6.5/12 = $52,776
38. (LO 2) 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% (Exhibit 8.9) = $38,640
39. (LO 2)
2015: $10,800,000 × .01605 (Exhibit 8.9) = $173,340
2025: $10,800,000 × .02564 (Exhibit 8.9) = $276,912
40. (LO 2) The building’s depreciable basis is $1,300,000 [$1,600,000 (cost) − $300,000 (land)].
a. 2015: $1,300,000 × .0197 (Exhibit 8.9) = $25,610
b. 2021: $1,300,000 × .03636 (Exhibit 8.9) × 10.5/12 = $41,360
41. (LO 2) The 150% declining-balance method must be used under these circumstances with a 7-year
cost recovery period.
MACRS cost recovery ($150,000 × .1071) (Exhibit 8.7) $16,065
42. (LO 2) MACRS cost recovery (straight-line method)

[$80,000 × .05 (Exhibit 8.8)] $4,000
43. (LO 2, 3, 9)
a. 5-year class property
Immediate expense deduction under § 179 $200,000
7-year class property
Immediate expense deduction under § 179 300,000
($500,000 − $200,000)
MACRS cost recovery
[($400,000 − $300,000) × .1429] 14,290
Total deduction $514,290
b. 7-year class property

Immediate expense deduction under § 179 $400,000
5-year class property
Immediate expense deduction under § 179 100,000
[($200,000 − $100,000) × .20] 20,000
c. The deduction for the year would be $5,710 ($520,000 − $514,290) larger if § 179 expense
was first allocated to the 7-year class property (i.e., the longer lived asset). Therefore, she
should elect to expense the 7-year property (the furniture) first.
44. (LO 2, 3)
Section 179 limit $500,000
Cost recovery for 7-year class assets
[($600,000 − $500,000) × .1429] $14,290
Income limitation
Income before § 179 and cost recovery $250,000
Cost recovery ($95,000 + $14,290) (109,290)
Income before § 179 amount $140,710
Section 179 amount of $500,000 (limited to $140,710) 140,710

Total deduction with respect to the 7-year assets in 2015 $155,000
Section 179 carryforward ($500,000 − $140,710) $359,290
45. (LO 2, 3, 9)
2014:
Section 179 expense $500,000
[($550,000 − $500,000) × .50] 25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .1429] 3,573
2015:
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .2449] $ 6,123
Total deduction $ 6,123
46. (LO 3, 4) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

5191 Natorp Boulevard
Mason, OH 45040
December 20, 2015
Mr. Jabari Johnson
100 Morningside
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 2015 for $35,000,
the total cost recovery deductions in the first year will be $35,000 (via an expense election under
§ 179).
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 cost recovery assumes that your income from your taxi business
before consideration of this cost recovery will 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, 2015
FROM: John J. Jones
SUBJECT: Jabari Johnson: Calculations for cost recovery in year of acquisition
Facts. Jabari Johnson is considering purchasing an automobile at the beginning of 2015 to be used
100% as a taxi. The cost of the automobile is $35,000. Jabari 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, Jabari can elect § 179 expensing and expense the
entire cost of the automobile (which is less than the $500,000 maximum § 179 election amount). In
deducting the full § 179 amount of $35,000, the assumption is made that John’s income from the taxi
business before consideration of the § 179 expense will equal or exceed $35,000.
47. (LO 2, 4) Because the car is a used car, it is not eligible for additional first-year depreciation, if
available.
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 $3,160*) $ 1,250
Less: Personal usage (20% × $1,250) (250)
Cost recovery $ 1,000
*These cost recovery limits are indexed annually. The 2014 amounts are used.
48. (LO 4)
Deduction for 2014
Additional first-year depreciation ($20,000 × 50%) $10,000
MACRS cost recovery [($20,000 − $10,000) × 20%] 2,000
Limited to $11,160* ($3,160 + $8,000) $12,000
Deduction for 2015

($10,000 × .32) = $3,200 (limited to $5,100*) $3,200
So the deduction for 2014 is $11,160; for 2015, it is $3,200.

49. (LO 2, 3, 4)
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, because the vehicle is an SUV
with a GVW between 6,000 and 14,000 pounds, the § 179 expense amount is limited to $25,000.
The total MACRS deductions would be computed, including the first-year amount, as follows.
§ 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
50. (LO 2, 4)
Deduction for 2015
MACRS cost recovery ($20,000 × 20%) = $4,000
(limited to $3,160*) × 80% $2,528
Deduction for 2016

Straight-line ($20,000 × 20%) = $4,000 (limited to $5,100*) × 70% $2,800
Cost recovery recapture in 2016

2015 deduction $2,528
Straight-line ($20,000 × 10%) = $2,000
(limited to $3,160*) × 80% (1,600)
Excess $ 928
51. (LO 2, 4, 9)
100% business use
[$4,000 × 20% (Exhibit 8.4)] × 100% $800
45% business use
[($4,000 × 10%) (Exhibit 8.8)] × 45% (180)
Reduced cost recovery if personal use occurs $620
Tax cost ($620 × 28%) $174
52. (LO 2, 4, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
December 20, 2014
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 will be $15,060. If
the automobile is leased, lease payment deductions will total $22,500. In addition, you also must
include $421 in your gross income.
If you need additional information or clarification of our calculations, please contact us.
Sincerely yours,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM

December 20, 2014
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, 2015. The
purchase price of the automobile is $48,500. The lease payments for five years would be $375 per
month. The inclusion dollar amounts for the next five years would be $28, $62, $93, $111, and $127.
Dennis wants to know the effect on his adjusted gross income for purchasing versus leasing the
automobile for five years.
Calculations
Purchase: Cost recovery deductions
2015 ($48,500 × 20%) = $9,700 (limited to $3,160*) $ 3,160
2016 [$48,500 × 32% (limited to $5,100*)] 5,100
2017 [$48,500 × 19.2% (limited to $3,050*)] 3,050
2018 [$48,500 × 11.52% (limited to $1,875*)] 1,875
2019 [$48,500 × 11.52% (limited to $1,875*)] 1,875
Total cost recovery deductions $15,060
Lease:
Lease payments ($375 × 60) $22,500
Inclusion dollar amounts ($28 + $62 + $93 + $111 + $127) $ 421
53. (LO 2, 5)
For regular income tax liability
MACRS cost recovery ($16,000 × .20) $3,200
For AMT liability
($16,000 × .15) $2,400
54. (LO 2, 5, 9)
MACRS:
Year 1 [$100,000 × 14.29% (Exhibit 8.4)] $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% (Exhibit 8.7)] $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
55. (LO 2, 7, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
October 15, 2015
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 will be $82,865. Cost recovery on the
warehouse will be $29,532, and amortization of the goodwill will 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 will be $70,248. Cost recovery on the warehouse will be $36,915, and amortization of the
goodwill will be $33,333.
Therefore, under the first option, your deductions in the first year will be $12,617 greater ($82,865 −
$70,248). The building is written off over 39 years, whereas the goodwill is written off over 15 years.
Thus, the higher the allocation to goodwill, the faster the write-off. Should you need more
information or clarification of calculations, please contact us.
Sincerely yours,
John J. Jones, CPA

Partner
TAX FILE MEMORANDUM
October 15, 2015
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 allocates $1,200,000 to the
warehouse and $800,000 to goodwill. The second alternative allocates $1,500,000 to the warehouse
and $500,000 to goodwill. Mike wants to know the total recovery during the first year of operation
from each alternative.
Calculations
Alternative 1
Warehouse [$1,200,000 × 2.461% (Exhibit 8.9)] $29,532
Goodwill ($800,000/15 years) 53,333
Total recovery $82,865
Alternative 2
Warehouse [$1,500,000 × 2.461% (Exhibit 8.9)] $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
56. (LO 7)
Deductible amount [$5,000 − ($64,000 −$50,000)] $ –0–
Amortizable amount [($64,000/180) × 10 months] 3,556
Total deduction for startup expenditures $3,556
57. (LO 7)
Deductible amount [$5,000 − ($53,000 − $50,000)] $2,000
Amortizable amount {[($53,000* − $2,000)/180] × 6 months} 1,700
Total deduction for startup expenditures $3,700
*Startup expenses do not include interest expense.
58. (LO 8)
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
59. (LO 8, 9)
Not expensed
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
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 + $1,000,000) ÷ 500,000 = $6.
**Oil interest cost of $2,000,000 ÷ 500,000 = $4.
CUMULATIVE PROBLEMS
60. Net income from Writers Anonymous (Note 1) $ 17,500

Interest income 4,000
Self-employment tax deduction (Note 4) (1,237)
Adjusted gross income $ 20,263
Less: Itemized deductions (11,700)
Personal exemption (3,950)
Taxable income $ 4,613
Tax on $4,613 from 2014 Tax Table $ 463

Self-employment tax (Note 4) 2,473
Less: Estimated tax payments (3,000)
Net tax payable (or refund due) for 2014 ($ 64)
See the tax return solution beginning on p. 8-24 of this Solutions Manual.
Notes
(1) The net income of Writers Anonymous is calculated as follows.

Income from sales $85,000
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 and § 179 deduction (Note 3) 33,400 (67,500)
Income from business $17,500
(2) The itemized deductions include:
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
(3) Furniture and fixtures:

§ 179 limited expensing $21,000
Cost recovery ($21,000 − $21,000) × .1429 –0– $21,000
Computer equipment:
§179 limited expensing $12,400
Cost recovery ($12,400 − $12,400) × .2000 –0– 12,400
All the assets acquired by Ms. Morgan can be expensed in 2014. If all assets cannot be expensed,
the § 179 limited expensing election would be allocated to the longest-lived assets first. In this
case, it would be first associated with the furniture and fixtures ($21,000) and then with the
computer equipment ($12,400). The furniture and fixtures have a 7-year recovery period,
whereas the computer equipment uses a 5-year recovery period.
(4) The self-employment tax is calculated as follows (see Chapter 13).
1. Net earnings from self-employment. $17,500

2. Multiply line 1 by 92.35%. 16,161
3. If the amount on line 2 is $117,000 or less,
multiply the line 2 amount by 15.3%. This is
the self-employment tax. $ 2,473
One-half of the self-employment tax, or $1,237, is a deduction for AGI.
61. Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
December 21, 2015
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 2015 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 was not sold and the car was not purchased, your adjusted gross income would be
$198,000. If the stock was sold and the car was purchased, your adjusted gross income would be
$201,840. 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 30,000
Dump truck 48,000
Total business expenses (233,500)
Business income before § 179 deduction $678,500
Less: § 179 deduction (Note 1) (500,000)
Business income $178,500
Dividend income 9,500
Adjusted gross income $198,000
Notes
(1) Section 179 deduction of $500,000.
(2) The inheritance of IBM stock worth $110,000 from Aunt Mildred is excludible under § 101.
(3) Cost recovery

Front-end loaders
[($550,000 − $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
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 48,000
Car 11,160
Gain on stock sale (Note 2) 15,000
Notes
John’s recognized gain on the sale of the IBM stock is $15,000 ($125,000 amount realized −
$110,000 adjusted basis) and is automatically classified as a long-term capital gain.
(3) Cost recovery
Front-end loaders
[($550,000 − $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
Total $48,000
Car
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 − $37,500) × .20] 7,500
Total potential deduction $45,000
Limited to ($3,160* + $8,000) $11,160

*The cost recovery limits are indexed annually. The 2014 amounts are used.
Should you want more information or need us to clarify our calculations, please contact us.
Sincerely,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM
December 20, 2015
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
$125,000 on December 29, 2015. 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
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 48,000

Notes
(3) Cost recovery
Front-end loaders
[($550,000 – $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
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 48,000
Car 11,160
Gain on stock sale (Note 2) 15,000
Notes
John’s recognized gain on the sale of the IBM stock is $15,000 ($125,000 amount realized −
$110,000 adjusted basis) and is automatically classified as a long-term capital gain.
(3) Cost recovery
Front-end loaders
[($550,000 − $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
Total $48,000
Car
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 − $37,500) × .20] 7,500
Total potential deduction $45,000
Limited to ($3,160* + $8,000) $11,160
*The cost recovery limits are indexed annually. The 2014 amounts are used.
RESEARCH PROBLEMS
1. CLIENT LETTER
Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
April 1, 2016
Ms. Cassandra Martin, CFO

Dave’s Sport Shop
867 Broadway
New York, NY 10003
Dear Ms. Martin:

This letter is in response to your request to provide Dave’s Sport Shop with tax advice regarding the
tax treatment of the inventory management software purchased in 2015.
Generally, tax law provides that the cost of off-the-shelf software is recovered over 36 months, which
would mean that the full cost of the software could not be deducted in the year of purchase. However,
software is eligible for IRC Sec. 179 expensing. In 2015, this provision allows for up to $500,000 of
the cost of property other than real estate placed in service in the year to be immediately expensed. As
long as Dave’s Sport Shop has not exceeded this limit with other property acquired in 2015 and
expensed under Sec. 179, the full cost of the software can be deducted under the provisions of
Sec. 179.
If we can be of assistance in helping you to maximize your cost recovery deductions, please let me
know.
Sincerely,
Gayle B. Anders, CPA

Partner
TAX FILE MEMORANDUM
DATE: March 30, 2015
FROM: Gayle B. Anders
SUBJECT: Amortization of software costs

Cassandra Martin, CFO of Dave’s Sport Shop, has requested that we provide tax advice regarding the
immediate deduction of the cost of inventory management software purchased in the 2015 tax year.
Per IRC Sec. 167(a), off-the-shelf software that has not been substantially modified is amortized
over 36 months. (Note that software acquired as part of the purchase of a trade or business is an
IRC Sec. 197 intangible, subject to 15 year amortization. The client has not indicated that the
software was acquired as a part of the acquisition of a business.)
However, software is eligible for IRC Sec. 179 expensing as well as additional first year depreciation.
As long as Dave’s has not exceeded the maximum Sec. 179 limit in 2015 ($500,000) with other
property acquired, the full cost of the software can be deducted in 2015. I did not mention the
additional first year depreciation provisions to the client. If acquisitions qualifying for Sec. 179
exceed $500,000 for the year, we should contact the client to make her aware of this additional
benefit.
I have notified Cassandra Martin of the amortization and Sec. 179 provisions.
2. The facts of the case are similar to Chief Counsel Advice Memorandum 201234024, May 9, 2012. In
the memorandum, it was determined that a vineyard constituted § 179 property. Hence, taxpayers
were entitled to elect to expense the costs incurred when the vineyard was planted on the current
year’s income tax return. Therefore, Jed should be able to deduct the costs incurred in planting the
vineyard in 2011 on his 2015 income tax return. This is assuming that all of the other requirements
under Section 179 have been satisfied.
3. The facts of the case are similar to Bruce Selig, 70 TCM 1125, T.C. Memo. 1995–519. In this case,
the court ruled that a deduction was allowable. The Court found that over time, the exotic
automobiles would, because of those exotic features, become obsolete in the petitioner’s business.
The fact that petitioner failed to show the useful lives of the automobiles was irrelevant to the
decision.
Research Problems 4 and 5
The Internet Activity research problems require that students utilize online resources to research and answer
the questions. As a result, solutions may vary among students and courses. You should determine the skill and
experience levels of the students before assigning these problems, coaching where necessary. Encourage
students to explore all parts of the Web in this research process, including tax research databases, as well as
the websites of the IRS, newspapers, magazines, businesses, tax professionals, other government agencies,
and political outlets. Students should also work with resources such as blogs, Twitter feeds, and other
interest-oriented technologies to research their answers.
4. Market Watch provides such a calculator: www.marketwatch.com/tools/carleaseorbuy. Edmunds.com

also provides a helpful discussion of the costs and benefits of leasing versus buying:
www.edmunds.com/car-buying/should-you-lease-or-buy-your-car.html.
5. In a November 2013, tax reform proposal released by Max Baucus (formerly a senator from Montana
and the Chair of the Senate Finance Committee), a change to the current system of depreciation was
proposed. In theory, this change would generate additional tax revenue that would allow the corporate
tax rate to be lowered. Search on www.finance.senate.gov to find this proposal.
CHECK FIGURES
21. $11,432; $19,592. 43.a. $514,290.

22. $3,570; $27,550. 43.b. $520,000.
23. $36,360; $25,640. 44. Cost recovery $155,000; § 179
24. $280; $560. carryforward $359,290.
25. $34,125. 45. 2014: $528,573; 2015: $6,123.
26. $5,600; $206,400. 46. $35,000.
27. $2,212; $3,570. 47. $1,000.
28. $7,250. 48. $11,160 in 2014; $3,200 in 2015.
29. $1,200,000. 49. $47,200.
30. $47,600. 50. Deduction in 2015 $2,528; deduction in
31. Loss $11,515. 2016 $2,800; recapture in 2016 $928.
32. $300,000 basis; $8,637 cost recovery. 51. $174.
33. $74,289. 53. Regular tax deduction $3,200; AMT
34.a. $38,839. deduction $2,400.
34.b. $6,457. 54. $3,192.
35.a. $40,000. 55. The first option produces a $12,617
35.b. $32,000. greater deduction.
36. $16,640. 56. $3,556.
37.a. $20,330. 57. $3,700.
37.b. $52,776. 58. $4,360,000 taxable income.
38. $38,640. 59. Capitalized $1,880,000; expensed
39. 2015: $173,340; 2025: $276,912. $1,024,000.
40.a. $25,610. 60. Refund for 2014 $64.
40.b. $41,360. 61. AGI without purchase $198,000; AGI
41. $16,065. with stock sale and car purchase $201,840.
42. $4,000.
SOLUTION TO ETHICS & EQUITY FEATURE
Section 179 Limitation (p. 8-13). Joe can expense $25,000 of the cost of the truck under §179. The income
limitation is the aggregate amount of taxable income derived from the conduct of any trade or business.
Although Joe reported a net operating loss from one business, the sale of his other business had a profit of
$300,000. Therefore, taxable income is not a limitation.
SOLUTIONS TO ROGER CPA REVIEW QUESTIONS
Detailed answer feedback for Roger CPA Review questions is available on the instructor companion site
(www.cengage.com/login).
1. a 4. b
2. c 5. d
3. b
60.
60. continued
60. continued
60. continued
60. continued
60. continued
60. continued
NOTES
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left near the trap standing up against a tree, and
Dave ran up and grabbed it and struck the animal on
the head and cut his throat. How we did laugh and
dance around that defunct porker. Exciting sport this
trapping for fresh pork. In half an hour Dave and Eli
had the pig skinned and dressed. Is not a large one
probably weighs ninety pounds or so, and is fat and
nice. Have sliced up enough for about a dozen men
and are now cooking it on sticks held up before the
fire. Also frying some in a skillet which we are the
possessor of. When the hogs run wild and eat
acorns, roots and the like, the meat is tough and
curly but is sweet and good. We fry out the grease
and then slice up the potatoes and cook in it. Thanks
to Mr. Kimball we have plenty of salt to season our
meat with. The buzzards are after their share which
will be small. And now it is most night again and the
“Astor House” larder is full. Seems too bad to go to
bed with anything to eat on hand, but must. That is
the feeling with men who have been starved so long,
cannot rest in peace with food laying around. My two
comrades are not so bad about that as I am, having
been well fed for a longer period. Have sat up three
or four hours after dark, talking over what we will do
when we get home, and will now turn in for a sound
sleep. It’s a clear moonlight night, and we can hear
very plain a long distance. Can also see the light
shining from camp fires in many directions, or what
we take to be such.
Dec. 22.—As Dan Rice used to say in the circus
ring: “Here we are again.” Sleep so sound that all the
battles in America could not wake me up. Are just
going for that fresh pork to-day. Have three kinds of
meat—fried pig, roast pork and broiled hog. Good
any way you can fix it. Won’t last us three days at
this rate, and if we stay long enough will eat up all
the hogs in these woods. Pretty hoggish on our part,
and Dave says for gracious sake not to write down
how much we eat, but as this diary is to be a record
of what takes place, down it goes how much we eat.
Tell him that inasmuch as we have a preacher along
with us, we ought to have a sermon occasionally.
Says he will preach if I will sing, and I agree to that if
Eli will take up a collection. One objection Eli and I
have to his prayers is the fact that he wants the
rebels saved with the rest, yet don’t tell him so.
Mutually agree that his prayers are that much too
long. Asked him if he thought it stealing to get those
potatoes as I did, and he says no, and that he will go
next time. We begin to expect the Yankees along. It’s
about time. Don’t know what I shall do when I again
see Union soldiers with guns in their hands, and
behold the Stars and Stripes. Probably go crazy, or
daft, or something. This is a cloudy, chilly day, and
we putter around gathering up pine knots for the fire,
wash our duds and otherwise busy ourselves. Have
saved the hog skin to make moccasins of, if the
Union army is whipped and we have to stay here
eight or ten years. The hair on our heads is getting
long again, and we begin to look like wild men of the
woods. One pocket comb does for the entire party;
two jack knives and a butcher knife. I have four keys
jingling away in my pocket to remind me of olden
times. Eli has a testament and Dave has a bible, and
the writer hereof has not. Still, I get scripture quoted
at all hours, which will, perhaps, make up in a
measure. Am at liberty to use either one of their
books, and I do read more or less. Considerable
travel on the highways, and going both ways as near
as we can judge. Dave wants to go out to the road
again but we discourage him in it, and he gives it up
for to-day at least. Are afraid he will get caught, and
then our main stay will be gone. Pitch pine knots
make a great smoke which rises among the trees
and we are a little afraid of the consequences; still,
rebels have plenty to do now without looking us up.
Many boats go up and down the river and can hear
them talk perhaps fifty rods away. Rebel paper that
Dave got spoke of Savannah being the point aimed
at by Sherman, also of his repulses; still I notice that
he keeps coming right along. Also quoted part of a
speech by Jefferson Davis, and he is criticised
unmercifully. Says nothing about any exchange of
prisoners, and our old comrades are no doubt
languishing in some prison. Later.—Considerable
firing up in vicinity of the bridge. Can hear volleys of
musketry, and an occasional boom of cannon.
Hurrah! It is now four o’clock by the sun and the
battle is certainly taking place. Later.—Go it Billy
Sherman, we are listening and wishing you the best
of success. Come right along and we will be with
you. Give ’em another—that was a good one. We
couldn’t be more excited if we were right in the midst
of it. Hurrah! It is now warm for the Johnnies. If we
had guns would go out and fight in their rear;
surround them, as it were. Troops going by to the
front, and are cavalry, should think, also artillery. Can
hear teamsters swearing away as they always do.
Later.—It is now long after dark and we have a good
fire. Fighting has partially subsided up the river, but
of course we don’t know whether Yankee troops
have crossed the river or not. Great deal of travel on
the road, but can hardly tell which way they are
going. Occasional firing. No sleep for us to-night. In
the morning shall go out to the road and see how
things look. Every little while when the battle raged
the loudest, all of us three would hurrah as if mad,
but we ain’t mad a bit; are tickled most to death.
SAFE AND SOUND.
ONCE MORE SEE THE OLD FLAG AND THE BOYS IN BLUE—MR.
KIMBALL AND MRS. DICKINSON RECOMPENSED—FIND THE
NINTH MICHIGAN CAVALRY—INTERVIEWED BY GEN’L
KILPATRICK—ALL RIGHT AT LAST.
Dec. 23.—It is not yet daylight in the morning, and

are anxiously awaiting the hour to arrive when we
may go out to the road. Slept hardly any during the
night. More or less fighting all night, and could hear
an army go by toward Savannah, also some shouting
directly opposite us. Between the hours of about
twelve and three all was quiet, and then again more
travel. We conjecture that the rebel army has
retreated or been driven back, and that the Yankees
are now passing along following them up. Shall go
out about nine o’clock. Later.—Are eating breakfast
before starting out to liberty and safety. Must be very
careful now and make no mistake. If we run into a
rebel squad now, might get shot. We are nervous,
and so anxious can hardly eat. Will pick up what we
really need and start. Perhaps good bye, little house
on the banks of the Ogechee, we shall always
remember just how you look, and what a happy time
we have had on this little island. Dave says: “Pick up
your blanket and that skillet, and come along.” Night.
—Safe and sound among our own United States
Army troops, after an imprisonment of nearly
fourteen months. Will not attempt to describe my
feelings now. Could not do it. Staying with the 80th
Ohio Infantry, and are pretty well tired out from our
exertions of the day. At nine o’clock we started out
toward the main road. When near it Eli and I stopped,
and Dave went ahead to see who was passing. We
waited probably fifteen minutes, and then heard
Dave yell out: “Come on boys, all right! Hurry up!” Eli
and I had a stream to cross on a log. The stream was
some fifteen feet wide, and the log about two feet
through. I tried to walk that log and fell in my
excitement. Verily believe if the water had been a
foot deeper I would have drowned. Was up to my
arms, and I was so excited that I liked never to have
got out. Lost the axe, which Dave had handed to me,
and the old stand-by coverlid which had saved my
life time and again floated off down the stream, and I
went off without securing it—the more shame to me
for it. Dave ran out of the woods swinging his arms
and yelling like mad, and pretty soon Eli and myself
appeared, whooping and yelling. The 80th Ohio was
just going by, or a portion of it, however, and when
they saw first one and then another and then the
third coming toward them in rebel dress, with clubs
which they mistook for guns, they wheeled into line,
thinking, perhaps, that a whole regiment would
appear next. Dave finally explained by signs, and we
approached and satisfied them of our genuineness.
Said we were hard looking soldiers, but when we
came to tell them where we had been and all the
particulars, they did not wonder. Went right along
with them, and at noon had plenty to eat. Are the
guests of Co. I, 80th Ohio. At three the 80th had a
skirmish, we staying back a mile with some wagons,
and this afternoon rode in a wagon. Only came about
three or four miles to-day, and are near Kimball’s,
whom we shall call and see the first opportunity. The
soldiers all look well and feel well, and say the whole
confederacy is about cleaned out. Rebels fall back
without much fighting. Said there was not enough to
call it a fight at the bridge. Where we thought it a
battle, they thought it nothing worth speaking of.
Believe ten or so were killed, and some wounded.
Hear that some Michigan cavalry is with Kilpatrick off
on another road, but they do not know whether it is
the 9th Mich. Cav., or not. Say they see the cavalry
every day nearly, and I must keep watch for my
regiment. Soldiers forage on the plantations, and
have the best of food; chickens, ducks, sweet
potatoes, etc. The supply wagons carry nothing but
hard-tack, coffee, sugar and such things. Tell you,
coffee is a luxury, and makes one feel almost drunk.
Officers come to interview us every five minutes, and
we have talked ourselves most to death to-day. They
say we probably will not be called upon to do any
fighting during this war, as the thing is about settled.
They have heard of Andersonville, and from the
accounts of the place did not suppose that any lived
at all. New York papers had pictures in, of the scenes
there, and if such was the case it seems funny that
measures were not taken to get us away from there.
Many rebels are captured now, and we look at them
from a different stand point than a short time since.
Dec. 24.—This diary must soon come to an end.
Will fill the few remaining pages and then stop. Co.
“I” boys are very kind. They have reduced soldiering
to a science. All divided up into messes of from three
to five each. Any mess is glad to have us in with
them, and we pay them with accounts of our prison
life. Know they think half we tell them is lies. I regret
the most of anything, the loss of my blanket that
stood by me so well. It’s a singular fact that the first
day of my imprisonment it came into my possession,
and the very last day it took its departure, floating off
away from me after having performed its mission.
Should like to have taken it North to exhibit to my
friends. The infantry move only a few miles each day,
and I believe we stay here all day. Went and saw Mr.
Kimball. The officers commanding knew him for a
Union man, and none of his belongings were
troubled. In fact, he has anything he wants now.
Announces his intention of going with the army until
the war closes. Our good old friend Mrs. Dickinson
did not fare so well. The soldiers took everything she
had on the place fit to eat; all her cattle, pork,
potatoes, chickens, and left them entirely destitute.
We went and saw them, and will go to head-quarters
to see what can be done. Later.—We went to Gen.
Smith, commanding 3d Brigade, 2d Division, and told
him the particulars. He sent out foraging wagons,
and now she has potatoes, corn, bacon, cattle,
mules, and everything she wants. Also received pay
for burned fences and other damages. Now they are
smiling and happy and declare the Yankees to be as
good as she thought them bad this morning. The
men being under little restraint on this raid were often
destructive. Nearly every citizen declared their
loyalty, so no distinction is made. Gen. Smith is a
very kind man, and asked us a great many
questions. Says the 9th Michigan Cavalry is near us
and we may see them any hour. Gen. Haun also
takes quite an interest in us, and was equally
instrumental with Gen. Smith in seeing justice done
to our friends the Kimballs and Dickinsons. They
declare now that one of us must marry the daughter
of Mrs. Dickinson, the chaplain performing the
ceremony. Well, she is a good girl, and I should judge
would make a good wife, but presume she would
have something to say herself and will not pop the
question to her. They are very grateful, and only
afraid that after we all go away the rebel citizens and
soldiers will retaliate on them. Many officers have
read portions of my diary, and say such scenes as
we have passed through seem incredible. Many
inquire if we saw so and so of their friends who went
to Andersonville, but of course there were so many
there that we cannot remember them. This has been
comparatively a day of rest for this portion of the
Union army, after having successfully crossed the
river. We hear the cavalry is doing some fighting on
the right, in the direction of Fort McAllister. Evening.
—We marched about two or three miles and are
again encamped for the night, with pickets out for
miles around. Many refugees join the army prepared
to go along with them, among whom are a great
many negroes.
Dec. 25.—Christmas day and didn’t hang up my
stocking. No matter, it wouldn’t have held anything.
Last Christmas we spent on Belle Island, little
thinking long imprisonment awaiting us. Us escaped
men are to ride in a forage wagon. The army is
getting ready to move. Are now twenty-four miles
from Savannah and rebels falling back as we press
ahead. Night.—At about nine o’clock this morning as
we sat in the forage wagon top of some corn riding in
state, I saw some cavalry coming from the front.
Soon recognized Col. Acker at the head of the 9th
Michigan Cavalry. Jumped out of the wagon and
began dancing and yelling in the middle of the road
and in front of the troop. Col. Acker said: “Get out of
the road you —— lunatic!” Soon made myself known
and was like one arisen from the dead. Major
Brockway said: “Ransom, you want to start for home.
We don’t know you, you are dead. No such man as
Ransom on the rolls for ten months.” All remember
me and are rejoiced to see me back again. Lieut.
Col. Way, Surgeon, Adjutant, Sergeant-Major, all
shake hands with me. My company “A” was in the
rear of the column, and I stood by the road as they
moved along, hailing those I recognized. In every
case had to tell them who I was and then would go
up and shake hands with them at the risk of getting
stepped on by the horses. Pretty soon Co. “A”
appeared, and wasn’t they surprised to see me. The
whole company were raised in Jackson, Mich., my
home, and I had been regarded as dead for nearly a
year. Could hardly believe it was myself that
appeared to them. Every one trying to tell me the
news at home all at the same time—how I was
reported as having died in Richmond and funeral
sermon preached. How so and so had been shot and
killed, &c., &c. And then I had to tell them of who of
our regiment had died in Andersonville—Dr. Lewis,
Tom McGill and others. Although Jimmy Devers did
not belong to our regiment, many in our company
knew him, and I told them of his death. Should have
said that as soon as I got to the company, was given
Capt. Johnson’s lead horse to ride, without saddle or
bridle and nothing but a halter to hang on with. Not
being used to riding, in rebel dress—two or three
pails hanging to me—I made a spectacle for them all
to laugh at. It was a time of rejoicing. The Buck boys
did not get out of the wagon with me and so we
became separated without even a good bye. Before I
had been with the company half an hour Gen.
Kilpatrick and staff came riding by from the rear, and
says to Capt. Johnson: “Captain, I hear one of your
company has just joined you after escaping from the
enemy.” Capt. Johnson said, “Yes, sir,” and pointed
to me as a Sergeant in his company. General
Kilpatrick told me to follow him and started ahead at
a break neck pace. Inasmuch as the highway was
filled with troops, Gen. Kilpatrick and staff rode at the
side, through the fields, and any way they could get
over the ground. The horse I was on is a pacer and a
very hard riding animal and it was all I could do to
hang on. Horse would jump over logs and come
down an all fours ker-chug, and I kept hoping the
general would stop pretty soon; but he didn’t. Having
no saddle or anything to guide the brute, it was a
terrible hard ride for me, and time and again if I had
thought I could fall off without breaking my neck
should have done so. The soldiers all along the line
laughed and hooted at the spectacle and the staff
had great sport, which was anything but sport for me.
After a while and after riding five or six miles,
Kilpatrick drew up in a grove by the side of the road
and motioning me to him, asked me when I escaped,
etc. Soon saw I was too tired and out of breath. After
resting a few minutes I proceeded to tell him what I
knew of Savannah, the line of forts around the city,
and of other fortifications between us and the city, the
location of the rivers, force of rebels, etc. Asked a
great many questions and took down notes, or rather
the chief of staff, Estes by name, did. After an
extended conversation a dispatch was made up and
sent to Gen. Sherman who was a few miles away,
with the endorsement that an escaped prisoner had
given the information and it was reliable. General
Kilpatrick told me I would probably not be called upon
to do any more duty as I had done good service as a
prisoner of war. Said he would sign a furlough and
recommend that I go home as soon as
communication was opened. Thanked me for
information and dismissed me with congratulations
on my escape. Then I waited until our company, “A,”
came up and joined them, and here I am encamped
with the boys, who are engaged in getting supper.
We are only twelve or fourteen miles from Savannah
and the report in camp is to the effect that the city
has been evacuated with no fight at all. Fort
McAllister was taken to-day, which being the key to
Savannah, leaves that city unprotected, hence the
evacuation. Communication will now be opened with
the gunboats on the coast and I will be sent home to
Michigan. I mess with Capt. Johnson and there is
peace and plenty among us. I go around from mess
to mess this pleasant night talking with the boys,
learning and telling the news. O. B. Driscoll, Al.
Williams, Sergt. Smith, Mell Strickland, Sergt.
Fletcher, Teddy Fox, Lieut. Ingraham and all the rest
think of something new every few minutes, and I am
full. Poor Robt. Strickland, a boy whom I enlisted,
was shot since starting out on this march to the sea.
Others too, whom I left well are now no more. The
boys have had a long and tedious march, yet are all
in good health and have enjoyed the trip. They never
tire of telling about their fights and skirmishes, and
anecdotes concerning Kilpatrick, who is well liked by
all the soldiers. Am invited to eat with every mess in
the company, also at regimental head-quarters, in
fact, anywhere I am a mind to, can fill. And now this
Diary is finished and is full. Shall not write any more,
though I hardly know how I shall get along, without a
self-imposed task of some kind.
END OF DIARY.
THE FINIS.
A BRIEF DESCRIPTION OF WHAT BECAME OF THE BOYS—

REFUSED PERMISSION TO GO HOME—A REFERENCE TO
CAPT. WIRTZ—RETURN HOME AT THE END OF THE WAR.
It may interest some one to know more of many

who have been mentioned at different times in this
book, and I will proceed to enlighten them.
George W. Hendryx came to the regiment in
March, 1865, when we were near Goldsboro, N. C.
He says that after running away from Andersonville
at the time of the discovery of a break in which all
intended to get away in the summer of 1864, he
traveled over one hundred and fifty miles and was
finally retaken by bushwhackers. He represented
himself as an officer of the 17th Michigan Infantry,
escaped from Columbia, S. C., and was sent to that
place and put with officers in the prison there,
changing his name so as not to be found out as
having escaped from Andersonville. In due time he
was exchanged with a batch of other officers and
went home North. After a short time he joined his
regiment and company for duty. He was both
delighted and surprised to see me, as he supposed
of course I had died in Andersonville, it having been
so reported to him at the North. He did valiant service
until the war was over, which soon happened. He
went home with the regiment and was mustered out
of service, since when I have never seen or heard of
him for a certainty. Think that he went to California.
Sergt. Wm. B. Rowe was exchanged in March,
1865, but never joined the regiment. His health was
ruined to a certain extent from his long confinement.
Is still alive, however, and resides at Dansville, Mich.
Sergt. Bullock was also exchanged at the same
time, but never did service thereafter. He is now an
inmate of a Michigan insane asylum, and has been
for some years, whether from the effects of prison life
I know not, but should presume it is due to his
sufferings there. His was a particularly sad case. He
was taken sick in the early days of Andersonville and
was sick all the time while in that place, a mere
walking and talking skeleton. There is no doubt in my
mind that his insanity resulted from his long
imprisonment.
E. P. Sanders arrived home in Michigan in April,
1865, and made me a visit at Jackson that Summer.
He was the only one of all my comrades in prison
that I came in contact with, who fully regained health,
or apparently was in good health. He was a
particularly strong and healthy man, and is now
engaged in farming near Lansing, Michigan.
Lieut. Wm. H. Robinson, who was removed from
Belle Isle, from our mess, it having been discovered
that he was an officer instead of an orderly sergeant,
was exchanged early in 1864, from Richmond, and
immediately joined his regiment, doing duty all the
time thereafter. Soon after my escape and while with
company “A,” a note was handed me from Capt.
Robinson, my old friend, he having been promoted to
a captaincy. The note informed me that he was only
a few miles away, and asked me to come and see
him that day. You may rest assured I was soon on
the road, and that day had the pleasure of taking my
dinner with him. He was on his general’s staff, and I
dined at head-quarters, much to my discomfiture, not
being up with such distinguished company. We had a
good visit, I remember, and I went to camp at night
well satisfied with my ride. Told me that a pipe which
I engraved and presented to him on Belle Isle was
still in his possession, and always should be. Was a
favorite with every one, and a fine looking officer. He
is now a resident of Sterling, Whiteside Co., Ill. Is a
banker, hardware dealer, one of the City Fathers, and
withal a prominent citizen. It was lucky he was an
officer and taken away from us on Belle Isle, for he
would undoubtedly have died at Andersonville, being
of rather a delicate frame and constitution.
My good old friend Battese, I regret to say, I have
never seen or heard of since he last visited me in the
Marine Hospital at Savannah. Have written many
letters and made many inquiries, but to no effect. He
was so reticent while with us in the prison, that we
did not learn enough of him to make inquiries since
then effective. Although for many months I was in his
immediate presence, he said nothing of where he
lived, his circumstances, or anything else. I only
know that his name was Battese, that he belonged to
a Minnesota regiment and was a noble fellow. I don’t
know of a man in the world I would rather see to-day
than him, and I hope some day when I have got rich
out of this book (if that time should ever come,) to go
to Minnesota and look him up. There are many
Andersonville survivors who must remember the tall
Indian, and certainly I shall, as long as life shall last.
Michael Hoare tells his own story farther along, in
answer to a letter written him for information
regarding his escape from the Savannah hospital.
Mike, at the close of the war re-enlisted in the regular
army and went to the extreme west to fight Indians,
and when his term of service expired again re-
enlisted and remained in the service. In 1878 he was

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DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION

SOLUTIONS TO PROBLEM MATERIALS

3. (LO 1) Land improvements have a MACRS class life of 15 years.

4. (LO 2) The relevant issues for Henry:

9. (LO 2) The following issues are relevant for Jim.

19. (LO 7) The following issues are relevant for George.

• Are all of the expenditures qualifying expenditures?

2015: $2,800 × .10 = $280.

2016: $2,800 × .20 = $560.

Diana’s $34,125 ($32,500 + $1,625) deduction is computed as follows.

Year MACRS Amount Recovery Limitation Deduction Allowed

Furniture (7-year class property)

Computers (5-year class property)

2015: $3,800,000 × .00535 (Exhibit 8.9) = $20,330

b. 2019: $3,800,000 × .02564 (Exhibit 8.9) × 6.5/12 = $52,776

$1,500,000 × 2.576% (Exhibit 8.9) = $38,640

2015: $10,800,000 × .01605 (Exhibit 8.9) = $173,340

2025: $10,800,000 × .02564 (Exhibit 8.9) = $276,912

b. 2021: $1,300,000 × .03636 (Exhibit 8.9) × 10.5/12 = $41,360

42. (LO 2) MACRS cost recovery (straight-line method)

b. 7-year class property

Section 179 amount of $500,000 (limited to $140,710) 140,710

46. (LO 3, 4) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

TAX FILE MEMORANDUM

MACRS cost recovery:

Deduction for 2015

So the deduction for 2014 is $11,160; for 2015, it is $3,200.

§ 179 expense $25,000

Deduction for 2016

Cost recovery recapture in 2016

52. (LO 2, 4, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

TAX FILE MEMORANDUM

55. (LO 2, 7, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

October 15, 2015

Mr. Mike Saxon

Dear Mr. Saxon:

John J. Jones, CPA

October 15, 2015

FROM: John J. Jones

SUBJECT: Mike Saxon: Calculations of amount of recovery depending on the allocation of

Additional deductions in first year under alternative 1

*Startup expenses do not include interest expense.

60. Net income from Writers Anonymous (Note 1) $ 17,500

Tax on $4,613 from 2014 Tax Table $ 463

(1) The net income of Writers Anonymous is calculated as follows.

(3) Furniture and fixtures:

(4) The self-employment tax is calculated as follows (see Chapter 13).

1. Net earnings from self-employment. $17,500

One-half of the self-employment tax, or $1,237, is a deduction for AGI.