Che While completing undergraduate school work in information systems, Dallin Bo
ID: 2569220 • Letter: C
Question
Che While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the following assets and incurred the following start-up fees: (Use MACRS Table 1. Table 2. Iable 3. Iable 4 and Jable 5) (Do not round intermediate calculations. Round your answers to the neerest whole doller amount.) Year 1 Assets Computers (5-year) office equipeent (7-year) Furniture (7-year) Start-up costs Purchase Date October e, Y1 October 3, Yi October 38,Y October e, Y Basis 15,000 1e,eee 3,600 . 17,eee In April of Year 2, they decided to purchase a customer list from a $10,000 and the sale was completed on April 30th graduation. In the summer, they purchased a smell van (for transportation, not considered a lu preparing to graduate who provided virtually the same services. The customer list cost s . During their summer break, Dallin and Michael passed on e xury auto) and a hip opportunities in an attempt to really grow their business into something they could do full time after pinball machine tto $3,000 getting it ready to put into service. The pinbell machine cost $4,000 and was placed in service on July 1 help attract new employees). They bought the van on June 15, Y2, for $15,000 and spent Year 2 Assets Purchase Date Bais 3 4 of :N @ 5 6 7 8 BACK FG HK ENTER BNM ALT CTRExplanation / Answer
a) Maximum cost recovery cost deduction for year 2010: Asset Original basis Expenses Remaining basis Quarter Rate Dep. Exp. Computer Equipment. $ 15,000.00 $ 15,000.00 4 5% $ 750.00 Office Equipment $ 10,000.00 $ 10,000.00 4 3.57% $ 357.00 Furniture $ 3,000.00 $ 3,000.00 4 3.57% $ 107.10 Star-Up-Costs $ 17,000.00 $ 5,000.00 $ 12,000.00 WN $ 200.00 Star-Up-immediate exp. $ 5,000.00 Total Recovery exp. $ 6,414.10 Working Note (WN): Start up cost year 2010 Description Amount Explanation Maximum immditate exp. (a) $ 5,000.00 sec.195 Total stat up costs (b) $ 17,000.00 Given Phase out threshold (C ) $ 50,000.00 sec.195 Immediate exp. Phase out (d) $ - (b)-(c) Allowable immediate exp. (e) $ 5,000.00 (a) - (d) Remaining start up cost (f) $ 12,000.00 (b) - (e) Recovery period in months (g) 180 days 15 years Sec.195 Monthly straight line amortization (h) $ 66.67 (f) / (g) Isys business months during year 1 (i) $ 3.00 Oct to Dec. 1 year Straight line amortization for start up costs $ 200.00 (h)*(i) Maximum cost recovery cost deduction for year 2011: Asset Original basis Expenses Remaining basis Quarter Rate Dep. Exp. Computer Equipment. $ 15,000.00 $ 15,000.00 4 38% $ 5,700.00 Office Equipment $ 10,000.00 $ 10,000.00 4 27.55% $ 2,755.00 Furniture $ 3,000.00 $ 3,000.00 4 27.55% $ 826.50 Star-Up-Costs $ 17,000.00 $ 5,000.00 $ 12,000.00 66.67*12 $ 800.04 Delivery van $ 18,000.00 Half year 20.00% $ 3,600.00 Pinball Machine $ 4,000.00 Half year 14.29% $ 571.60 Customer list $ 10,000.00 WN1 $ 500.00 Total Recovery exp. $ 14,753.14 Working Note (WN1): Description Amount Explanation Customer list (section 197 Intangible) (a) $ 10,000.00 Given Recovery period in months (b) 180 days Sec.197 Monthly straight line amortization (c) $ 55.56 (a)/(b) April thorugh Dec. (d) 9 1 year Straight line amortization for customer list $ 500.00 (c)/(d) b) Isys answer basis as follows: Asset Original basis Expenses Year 1 cost recovery Year 2 cost recovery 2011 ending Computer Equipment. $ 15,000.00 $ 750.00 $ 5,700.00 $ 8,550.00 Office Equipment $ 10,000.00 $ 357.00 $ 2,755.00 $ 6,888.00 Furniture $ 3,000.00 $ 107.10 $ 826.50 $ 2,066.40 Star-Up-Costs $ 17,000.00 $ 5,000.00 $ 200.00 $ 800.04 $ 10,999.96 Delivery van $ 18,000.00 $ 3,600.00 $ 14,400.00 Pinball Machine $ 4,000.00 $ 571.60 $ 3,428.40 Customer list $ 10,000.00 $ 500.00 $ 9,500.00 Total $ 77,000.00 $ 1,414.10 $ 14,753.14 $ 55,832.76