Question

In: Accounting

Burbank Corporation (calendar-year end) acquired the following property this year: Asset Placed in Service Basis Used...

Burbank Corporation (calendar-year end) acquired the following property this year:

Asset Placed in Service Basis
Used copier February 12 $ 7,800
New computer equipment June 6 14,000
Furniture July 15 32,000
New delivery truck October 28 19,000
Luxury auto December 31 70,000
Total $ 142,800

a. Assuming no bonus or §179 expense, what is Burbank’s maximum cost recovery deduction for this year?

b. Assuming Burbank would like to maximize its cost recovery deductions by electing bonus and §179 expense, which assets should Burbank immediately expense? Assume the 2014 §179 expense limits and bonus depreciation are extended to this year.

c. What is Burbank’s maximum cost recovery deduction this year assuming it elects §179 expense and bonus depreciation?

Solutions

Expert Solution

a) Assuming no bonur or 179 expense

Burbank has to use mid quarter convention method for calculating the cost recovery of the asset since more than 40% of it asset were purchased in the last quarter i.e (70000+19000)=89000/142800*100=62.32%. For luxury vehicle as per IRS the maximum deduction in the first year is 3,160 however can take addition bonus depreciation. Since in the question no bonus to be taken hence only 3,160 is allowed.

Asset Amount Convention rate Depreciation expense
User Copier (5 years) 7,800 Q1 35% 2,730

New Computer equipment (5 year)

14,000 Q2 25% 3,500
Furniture (7 year) 32,000 Q3 10.71% 3,427
New delivery truck (5 year) 19,000 Q4 5% 950
Luxury auto (5 year) 70,000 Q4 3,160
$13,767

b) Since Burbank is not coming under the section 179 limitation so it can expense all of its asset except the luxury auto.

c) maximum cost recovery of Burbank if elects section 179 expense and bonus depreciation

Asset Original basis 179 expense Remaining Bonus Remaining Depreciation
User Copier (5 years) 7,800 7,800 0 0 0 0
New Computer equipment(5 year) 14,000 14,000 0 0 0 0
Furniture (7 year) 32,000 32,0000 0 0 0 0
New delivery truck (5 years) 19,000 19,000 0 0 0 0
Luxury auto ( 5 years) 70,000 0 70,000 8,000 62,000 3,160
72,800 8,000 3,160

Total cost recovery would be = $83,960

Please note the amount will change following the change in the tax laws

The amount of first year deprecition of luxury vehicle has been increased to 10,000 in first year and with bonus it is 18,100.

so the answer of point a changes to $13,767-3160+10,000=20,607

and the answer of point c changes to $83,960-11,160+18000=$90,800


Related Solutions

Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year:...
Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year: Machinery: original basis = $84,000; placed in service on October 25 Computer equipment: original basis = $24,000; placed in service on February 3 Used delivery truck*: original basis = $37,000; placed in service on March 17 Furniture: original basis = $164,000; placed in service on December 22 *The delivery truck is not a luxury automobile. What is the applicable depreciation convention for the assets...
Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year:...
Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year: Machinery: original basis = $84,000; placed in service on October 25 Computer equipment: original basis = $24,000; placed in service on February 3 Used delivery truck*: original basis = $37,000; placed in service on March 17 Furniture: original basis = $164,000; placed in service on December 22 *The delivery truck is not a luxury automobile. What is the applicable depreciation convention for the assets...
Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year:...
Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year: Machinery: original basis = $84,000; placed in service on October 25 Computer equipment: original basis = $24,000; placed in service on February 3 Used delivery truck*: original basis = $37,000; placed in service on March 17 Furniture: original basis = $164,000; placed in service on December 22 *The delivery truck is not a luxury automobile. What is the applicable depreciation convention for the assets...
DLW Corporation acquired and placed in service the following assets during the year: Asset Date Acquired...
DLW Corporation acquired and placed in service the following assets during the year: Asset Date Acquired Cost Basis Computer equipment 3/1 $18,300 Furniture 1/16 18,800 Commercial building 8/26 323,000 Assuming DLW does not elect S179 expensing or bonus depreciation, answer the following question: 1. What is DLW's year 3 cost recovery for each asset if DLW sells all of these assets on 2/22 of year 3?
DLW Corporation acquired and placed in service the following assets during the year: Date Cost Asset...
DLW Corporation acquired and placed in service the following assets during the year: Date Cost Asset Acquired Basis Computer equipment 3/3 $ 17,000 Furniture 1/19 25,700 Commercial building 9/22 321,000 Assuming DLW does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) b. What is DLW's...
Sun Corporation ( a calendar -year corporation) purchased and placed in service the following assets during...
Sun Corporation ( a calendar -year corporation) purchased and placed in service the following assets during 2018 Date Acquired Asset Description Cost February 18 Warehouse Building $ 2,450,00 June 2 Used Automobile $ 30,000 August 18 New computer equipment 220,000 September 20 New machinery 1,050,000 December 15 Used office equipment $ 885,000 All assets are used 100% for business use. The warehouse building does not include the cost of the land on which it is located which was an additional...
Dog Co. acquired and placed in service the following assets during the year: Date Cost Asset...
Dog Co. acquired and placed in service the following assets during the year: Date Cost Asset Placed in Service Basis Computer equipment 2/22 $ 10,500 Furniture 3/5 21,000 Commercial building 7/6 315,000 Assuming Dog Co. does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.) b....
Margo, a calendar year taxpayer, paid $580,000 for new machinery (seven-year recovery property) placed in service...
Margo, a calendar year taxpayer, paid $580,000 for new machinery (seven-year recovery property) placed in service on August 1, 2017. Use Table 7-2. Assuming that the machinery was the only tangible property placed in service during the year, compute Margo’s maximum cost recovery deduction. How would your answer to part a change if the machinery was purchased in 2018 instead of 2017? COnsider section179, bonus and MACRS depreciation.
Convers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and...
Convers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1, Table2,and Table 5.) Date Placed Original Asset in Service Basis Machinery 25-Oct $ 100,000 Computer equipment 03-Feb $ 40,000 Used delivery truck* 17-Mar $ 53,000 Furniture 22-Apr $ 180,000 Total $ 373,000 *The delivery truck is not a luxury automobile. In addition to these assets, Convers installed new flooring (qualified improvement property) to its office...
Convers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and...
Convers Corporation (calendar-year-end) acquired the following assets during the current tax year: (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1, Table2,and Table 5.) Asset Date Placed in Service Original Basis Machinery October 25 $110,000 Computer Equipment February 3 $50,000 Used delivery Truck* March 17 $63,000 Furniture April 22 $190,000 Total $413,000 *the delivery truck is not a luxury automobile In addition to these assets, Convers installed new flooring (qualified improvement property) to its office building...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT