HW#3-1

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University of Illinois, Urbana Champaign *

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Accounting

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Feb 20, 2024

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ACCY 312 -- Homework #3 (15 points) Due: 5:00 PM (CDT) Friday, March 31st Submit Answer via Canvas SHOW ALL WORK TO RECEIVE FULL CREDIT! AND LABEL. Problem 1 (10 Points) ABC Co. has acquired various types of assets recently. Below is a list of assets acquired between 2019 and 2022. ABC elected out of §179 expense in all years. ABC elected out of bonus depreciation in 2021 and 2022 but took bonus depreciation in 2019 and 2020. Calculate ABC’s depreciation expense for 2022, rounded to the nearest whole dollar. First, calculate if the company’s convention: Half-year or Mid-quarter for each calendar year. Asset Cost Basis Date Placed in Service Convention Year Warehouse $800,000 May 1, 2019 Mid-month 2019 Machinery 250,000 December 24, 2019 Half-year 2019 Luxury Sedan 90,000 October 24, 2020 Mid-quarter 2020 Computers 18,000 January 10, 2021 Half-year 2021 Office Furniture (1) 90,000 June 15, 2021 Half-year 2021 Office Building 560,000 April 15, 2022 Mid-month 2022 Office Furniture (2) 280,000 December 15, 2022 Mid-month 2022 Work: Warehouse: Original Basis * MACRS rate for year 4, placed in service month 5 800,000 * 0.002564 = $20,512 Machinery: Fully depreciated in 2019 Luxury Sedan: Year 3 depreciation expense lessor of MACRS 22.8% (year 3) – 90,000 * 0.228 = 20,520. Max allowed is 9,700. Computers: 18,000 * 0.32(year 3) = 5,760 Office furniture: 90,000 * 0.2449(year 2, 7-year) = 22,041 Office building: 0.01819(year 1, placed in service in 4 th month) * 560,000 = 10,186 * 8.5/12- year left = 7,215 Office furniture: 0.0357(year 1, 7-year) * 280,000 = $9996 Second, complete the schedule below to compute the 2022 depreciation expense:

Asset Cost Basis Less: §179 or Bonus Remaining Basis MACRS Rate MACRS Deprec Exp Warehouse 800,000 $0 $800,000 2.564% $20,512 Machinery 250,000 $250,000 $0 $0 Luxury Sedan 90,000 $0 $90,000 22.8% $9,700 Computers 18,000 $0 $18,000 32% $5,760 Furniture (1) 90,000 $0 $90,000 24.49% $22,041 Office Building 560,000 $0 $560,000 1.819% $7,215 Furniture (2) 280,000 $0 $280,000 3.57% $9996 Total Deprec $75,224 Problem 2 (2 Points) DEF Co. (calendar year business) acquired a Luxury Vehicle for $100,000 (used 75% for business) in April 2022. Assume DEF would like to take bonus depreciation but elect out of the IRC §179 deduction. What is DEF’s 2022 deprecation deduction? Lessor of 20% of 100,000 = 20,000 or 19,200 Calculation: 19,200 * 0.75 = 14,400 depreciation deduction Problem 3 (3 Points) GHI Co. (calendar year business) formed on February 1, 2022 and began operations on March 1, 2022. GHI incurred $51,000 in legal and accounting fees related to organization during the month of February. During the month of February, GHI also incurred $80,000 in employee expenses and other costs associated with starting up the business. If GHI

Co. properly elects to deduct and amortize their organization and start-up costs in a timely manner, how much of these costs can be deducted on the 2022 tax return? Organization fees Initial deduction of first $5000 of organizational fees. (51000 – 50000) = 1000 Initial deduction = 5000 – 1000 = $4000 Remaining amortization: $51000 – 4000 = $47000 / 180 = 261.11 * 10 months remaining = $2,611.1 Startup costs: 80,000/180 = 444.44 * 10 months remaining = $4,444.4 Costs to be deducted on the 2022 tax return = $4000 + $2611.10 + $4444.40 = $11,055.50

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