Question

Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: (Leave no answer blank. Enter zero if applicable.)

Expense	Date	Amount
Attorney fees for articles of incorporation	February 10	$	32,000
March 1 – March 30 wages	March 30		4,500
March 1 – March 30 rent	March 30		2,000
Stock issuance costs	April 1		20,000
April 1 – May 30 wages	May 30		12,000

c. What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 [not including the amount determined in part (b)]? (Do not round intermediate calculations.)

Answer 1

A) Startup cost- the cost incurred by the owner before establishing the Organization.

Wages (A) $ 4,500

Rent    (B) $ 2,000

Total Startup cost $ 6,500

Allowed as Immediate Expense $ 5,000

Remaining Startup Expense to Be Amortized over 180 months = $ 6,500 - $ 5,000 = $ 1,500

Amount to be Amortized Per Month = $ 1,500 / 180 = $ 8.33 per months

Startup Expense to Be Amortized in First year (9 months April to December) = $ 8.33 X 9 = $ 75

(B) Organizational Expenditure to be Amortized in Year 1

Total Organizational Expenditure 3 $ 32,000 ie. Attorney fees for articles of incorporation

Allowed as Immediate Expense $ 5,000

Remaining Organizational Expense to Be Amortized over 180 months = $ 32,000 - $ 5,000 = $ 27,000

Amount to be Amortized Per Month = $ 27,000 / 180 = $ 150 per months

Startup Expense to Be Amortized in First year (9 months April to December) = $ 150 X 9 = $ 1,350

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