CH2 Homework (ACCT 3510)-Jessel Hidalgo

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Utah State University *

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3510

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Accounting

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Apr 3, 2024

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Jessel Hidalgo ACCT- 3510 CH 2 Homework Given: Purchase price- Building 760,000 Legal fees 300 Interior- Finished(Renovation) 5,000 Basis of Building: 765,300 Repairs is not included 48. At the beginning of the year, Anna began a calendar-year business and placed in service the following assets during the year: Asset Date Acquired Cost Basis Life Year 1 Year 2 Computers 30-Jan 28,000 5 5,600.00 8,960 Office Desks 15-Feb 32,000 7 4,572.80 7,837 Machinery 25-Jul 75,000 7 10,717.50 18,368 Office Building 13-Aug 400,000 35 9,844.000 10,256 535,000 30,734 45,420 Assuming Anna does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: a)What is Anna’s year 1 cost recovery for each asset? 30,734 b)What is Anna’s year 2 cost recovery for each asset? 45,420 39.Emily purchased a building to store inventory for her business. The purchase price was $760,000. Emily also paid legal fees of $300 to acquire the building. In March, Emily incurred $2,000 to repair minor leaks in the roof (from storm damage earlier in the month) and $5,000 to make the interior suitable for her finished goods. What is Emily’s cost basis in the new building?

53.Evergreen Corporation (calendar year-end) acquired the following assets during the current year: Assets Date Place in Service Original Basis Life Rate Current Year Machinery 25-Oct 70,000 7 14.29% 10,003 Computer Equipement 3-Feb 10,000 5 20.00% 2,000 Used delivery truck 17-Aug 23,000 5 20.00% 4,600 Furniture 22-Apr 150,000 7 14.29% 21,435 253,000 38,038 38,038 b)What is the allowable MACRS depreciation on Evergreen’s property in the current year if Evergreen does not elect out of bonus depreciation? Qualified Property 253,000 Bonus Depreciation rate 60% >> current year is 2024 with 60% 151,800 Note: 1,050,000 of tangible personal property can be immediately expense on 2021 Page 2-53 Assets Place in Service Life Basis Machinery 12-Sep 7 470,000 Computer Equipment 10-Feb 5 70,000 Delivery Truck 21-Aug 5 93,000 Qualified Improvement property 2-Apr 1,380,000 Total 2,013,000 a)What is the allowable MACRS depreciation on Evergreen’s property in the current year, assuming Evergreen does not elect §179 expense and elects out of bonus depreciation? 60.Assume that ACW Corporation has 2021 taxable income of $1,500,000 for purposes of computing the §179 expense. The company acquired the following assets during 2021 (assume no bonus depreciation):

a)What is the maximum amount of §179 expense ACW may deduct for 2021? Description: Qualifiying Property 2,013,000 Threshold for 179 phase-out 2,620,000 Phaseout Max 179 expense - >> its negative Maximum 179 expense before phase-out 1,050,000 Maximum 179 expense AFTER phase-out 1,050,000 b)What is the maximum total depreciation that ACW may deduct in 2021 on the assets it placed in service in 2021? Assets Place in Service Life Basis Rate 179 Expensen Remaining Depreciation Machinery 12-Sep 7 470,000 14.29% 470,000 67,163 Computer Equipment 10-Feb 5 70,000 20.00% 70,000 14,000 Delivery Truck 21-Aug 5 93,000 20.00% 93,000 18,600 2-Apr 1,380,000 1.819% 1,050,000 330,000 6,003 Total 2,013,000 105,766 Add: 179 Expense 1,050,000 Maximum Toal Depreciation 1,155,766 a)Calculate the allowable depreciation for year 1 (ignore the §179 expense and bonus depreciation). Four Wheeler 6500 Rates 5 year vehicle 20.00% MACRS Depreciation rate 1,300 Personal use 175 Total 765 Business use 590 % in Business 77.12% Deduction for 4 Wheeler used for Business: 1,003 Qualified Improvement property 65.Phil owns a ranch business and uses four-wheelers to do much of his work. Occasionally, though, he and his boys will go for a ride together as a family activity. During year 1, Phil put 765 miles on the four-wheeler that he bought on January 15 for $6,500. Of the miles driven, only 175 miles were for personal use. Assume four-wheelers qualify to be depreciated according to the five-year MACRS schedule and the four-wheeler was the only asset Phil purchased this year.

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Four Wheeler 6500 Rates 5 32.00% MACRS Depreciation rate 2,080 Personal use 400 Total 930 Business use 530 % in Business 56.99% Deduction for 4 Wheeler used for Business: 1,185 Year Placed in Service 2021 2020 2019 2018 1 10,100 10,100* 10,100* 10,000* 2 16,100 16,100 16,100 16,000 3 9,700 9,700 9,700 9,600 4 and after 5,760 5,760 5,760 5,760 a)The vehicle cost $35,000, and business use is 100 percent (ignore §179 expense). Description 2021 2022 Vehicle cost 35,000 35,000 MACRS Depreciation use 20.00% 32.00% MACRS Depreciation expense 7,000 11,200 Max depreciation per IRS 10,100 16,100 Max Depreciation deduction: 7,000 11,200 18,200 b)The vehicle cost $80,000, and business use is 100 percent. b)Calculate the allowable depreciation for year 2 if total miles were 930 and personal-use miles were 400 (ignore the §179 expense and bonus depreciation). 67.Lina purchased a new car for use in her business during 2021. The auto was the only business asset she purchased during the year, and her business was extremely profitable. Calculate her maximum depreciation deductions (including §179 expense unless stated otherwise) for the automobile in 2021 and 2022 (Lina doesn’t want to take bonus depreciation for 2021 or 2022) in the following alternative scenarios (assuming half-year convention for all): Recovery Year

Description 2021 2022 Vehicle cost 80,000 80,000 MACRS Depreciation use 20.00% 32.00% MACRS Depreciation expense 16,000 25,600 Max depreciation per IRS 10,100 16,100 Max Depreciation deduction: 10,100 16,100 c)The vehicle cost $80,000, and she used it 80 percent for business. Description 2021 2022 Vehicle cost 80,000 80,000 MACRS Depreciation use 20.00% 32.00% MACRS Depreciation expense 16,000 25,600 Max depreciation per IRS 10,100 16,100 Max Depreciation deduction: 10,100 16,100 80% of business used 8,080 12,880 20,960 d)The vehicle cost $80,000, and she used it 80 percent for business. She sold it on March 1 of year 2. 2 months deprect 1,346.67 2,146.67 e)The vehicle cost $80,000, and she used it 20 percent for business. Description 2021 2022 Vehicle cost 80,000 80,000 MACRS Depreciation use 20.00% 32.00% MACRS Depreciation expense 16,000 25,600 Max depreciation per IRS 10,100 16,100 Max Depreciation deduction: 10,100 16,100 20% of business used 2,020 3,220 5,240

f)The vehicle cost $80,000 and is an SUV that weighs 6,500 pounds. Business use was 100 percent. Large Vehicle over 6,000 lbs are excluded. a)How much amortization expense on the goodwill can Ingrid deduct in year 1, year 2, and year 3? Purchase of Small business 300,000 Goodwill 50,000 Years IRS allow max useful life 15 years Months max useful life 180 months Monthly Amortization rate: 278 per month Year Months AmortizationExpense Year 1 (May1- Dec1) 8 2,222 Year 2 12 3,333 Year 3 12 3,333 Phone list 10,000 max useful life 5 years Months max useful life 60 months Monthly Amortization rate: 167 per month Year Months AmortizationExpense Year 1 (May1- Dec1) 8 1,333.33 Year 2 12 2,000.00 Year 3 12 2,000.00 71.After several profitable years running her business, Ingrid decided to acquire the assets of a small competing business. On May 1 of year 1, Ingrid acquired the competing business for $300,000. Ingrid allocated $50,000 of the purchase price to goodwill. Ingrid’s business reports its taxable income on a calendar-year basis. b)In lieu of the original facts, assume that Ingrid purchased only a phone list with a useful life of five years for $10,000. How much amortization expense on the phone list can Ingrid deduct in year 1, year 2, and year 3?

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Notes: 15 Years/ 180 months amortization starting with the month business begin Immediate Expensing 5,000 Phase-out Threshold 50,000 a)She incurred start-up costs of $2,000. Amount Juliette can expense: 2,000 Since its under 5000 Immediate expense rule b)She incurred start-up costs of $45,000. Juliette can expense immediately 5,000 as her start-up cost is below the threshold 50,000 c)She incurred start-up costs of $53,500. Total Cost of Start-up 53,500 Less: Phase floor/Threshold 50,000 Phase-out 3,500 Immediate Expense 5,000 Less : Phase-out 3,500 Expense First Yr 1,500 d)She incurred start-up costs of $63,000. Total Cost of Start-up 63,000 Less: Phase floor/Threshold 50,000 Phase-out 13,000 Immediate Expense 5,000 Less : Phase-out 13,000 Expense First Yr (8,000) Deductable amount is $0 72.Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including the portion of the expenditures that are amortized over 180 months) this year in the following alternative scenarios: >> Since the Start-up cost is greater than 55,000 the immediate expense allowance is completely phase out

Partnership and corp have same amount of Immediate Expensing and Phase-out amortization. Tons Extracted per Year (1) Tons of Coal (2) Basis (2)(1) Depletion Rate Year 1 Year 2 Year 3 12,000 750,000 62.5 2000 7200 3800 a)What is LCM’s cost depletion for years 1, 2, and 3? Tons Extracted Cost of Deplition Year 1 2,000 125,000 Year 2 7,200 450,000 Year 3 3,800 237,500 812,500 b)What is LCM’s percentage depletion for each year (the applicable percentage for coal is 10 percent)? Year1 Year2 Year3 Net Income/Loss (20,000) 500,000 450,000 Gross 1,000,000 3,000,000 2,000,000 Applicable % 10% 10% 10% Allowed Deplition 100,000 300,000 200,000 475000 Year1 Year2 Year3 Cost Deplition 125,000 450,000 237,500 812500 % deplition 100,000 300,000 200,000 Deplition Expense 125,000 450,000 237,500 - e)How would you answer parts (a) through (d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)? 75.Last Chance Mine (LCM) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1–3, LCM extracted 13,000 tons of coal as follows: c)Using the cost and percentage depletion computations from parts (a) and (b), what is LCM’s actual depletion expense for each year?

MACRS 5-year property MACRS 7-year property Mid-Quarter Mid-Quarter Year Half-yr 1st 2nd 3rd 4th Year Half-yr 1st 2nd 3rd 4th 1 20.00% 35.00% 25.00% 15.00% 5.00% 1 14.29% 25.00% 17.85% 10.71% 3.57% 2 32.00% 26.00% 30.00% 34.00% 38.00% 2 24.49% 21.43% 23.47% 25.51% 27.55% 3 19.20% 15.60% 18.00% 20.40% 22.80% 3 17.49% 15.31% 16.76% 18.33% 19.68% 4 11.52% 11.01% 11.37% 12.24% 13.68% 4 12.49% 10.93% 11.97% 13.02% 14.06% 5 11.52% 11.01% 11.37% 11.30% 10.94% 5 8.93% 8.75% 8.87% 9.30% 10.04% 6 57.60% 1.38% 4.26% 7.06% 9.58% 6 8.92% 8.74% 8.87% 8.85% 8.73% 7 8.92% 8.75% 8.87% 8.86% 8.73% 8 4.46% 1.09% 3.34% 5.53% 7.64% MACRS For Nonresidential Real Property (39 Years property) Months placed in Service Year 1 2 3 4 5 6 7 8 9 10 11 12 1 2.461% 2.247% 2.033% 1.819% 1.605% 1.391% 1.177% 0.963% 0.749% 0.535% 0.321% 0.107% 2-39 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 40 0.107% 0.321% 0.535% 0.749% 0.963% 1.170% 1.391% 1.605% 1.819% 2.033% 2.247% 2.461%

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