Question

Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired during 2016: Exhibit 10-8 (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Round intermediate calculations and final answer to the nearest whole dollar amount.)

Asset Cost Date Placed in Service Office furniture $ 10,000 02/03/2016

Machinery 560,000 07/22/2016

Used delivery truck* 15,000 08/17/2016

* Not considered a luxury automobile, thus not subject to the luxury automobile limitations. During 2016, TM had huge success (and had no §179 limitations) and Steve acquired more assets the next year to increase its production capacity.

These are the assets acquired during 2017: Date Placed Asset Cost in

Service Computers & info. system $ 40,000 03/31/2017

Luxury auto† 80,000 05/26/2017

Assembly equipment 475,000 08/15/2017

Storage building 400,000 11/13/2017

†Used 100% for business purposes.

TM generated taxable income in 2017 of $732,500 for purposes of computing the §179 expense.

a. Compute the maximum 2016 depreciation deductions including §179 expense (ignoring bonus depreciation).

b. Compute the maximum 2017 depreciation deductions including §179 expense (ignoring bonus depreciation).

c. Compute the maximum 2017 depreciation deductions including §179 expense, but now assume that Steve would like to take bonus depreciation on the 2017 assets.

d. Ignoring part c, now assume that during 2017, Steve decides to buy a competitor’s assets for a purchase price of $350,000.

Compute the maximum 2017 cost recovery including §179 expense (ignoring bonus depreciation). Steve purchased the following assets for the lump-sum purchase price. Date Placed Asset Cost in Service Inventory $ 20,000 09/15/2017

Office furniture 30,000 09/15/2017

Machinery 50,000 09/15/2017

Patent 98,000 09/15/2017

Goodwill 2,000 09/15/2017

Building 130,000 09/15/2017

Land 20,000 09/15/2017

Answer 1

Part A
Particulars	Cost	Sec 179	MACRS	Current Dep Exp	Total Expenses
Funiture	$10,000.00	$10,000.00	$-	$-	$10,000.00
Machinery	$5,60,000.00	$4,90,000.00	$70,000.00	$10,003.00	$5,00,003.00
Trucks	$15,000.00	$-	$15,000.00	$3,000.00	$3,000.00
Total	5,85,000.00	5,00,000.00	85,000.00	13,003.00	5,13,003.00
Part B
Particulars	Cost	Sec 179	MACRS	Current Dep Exp	Total Expenses
Funiture	$10,000.00	$-	$-	$-	$-
Machinery	$5,60,000.00	$-	$70,000.00	$17,143.00	$17,143.00
Trucks	$15,000.00	$-	$15,000.00	$15,000.00	$4,800.00
Computer	$40,000.00	$25,000.00	$15,000.00	$3,000.00	$28,000.00
Auto	$80,000.00	0	$80,000.00	$3,160.00	$3,160.00
Equipment	$4,75,000.00	475000	$-	$-	$4,75,000.00
Building	$4,00,000.00	0	$4,00,000.00	$1,284.00	$1,284.00
Total	$15,80,000.00	$5,00,000.00	$5,80,000.00	$39,587.00	$5,29,387.00
Part C Particulars Cost Sec 179 MACRS Current Dep Exp Bonus Total Expenses Funiture $10,000.00 $-    $-    $-    $-    Machinery $5,60,000.00 $-    $70,000.00 $17,143.00 $17,143.00 Trucks $15,000.00 $-    $15,000.00 $4,800.00 $4,800.00 Computer $40,000.00 $25,000.00 $7,500.00 $1,500.00 $7,500.00 $34,000.00 Auto $80,000.00 0 $72,000.00 $3,160.00 $8,000.00 $11,160.00 Equipment $4,75,000.00 $4,75,000.00 $-    $-    $4,75,000.00 Building $4,00,000.00 0 $4,00,000.00 $1,284.00 $1,284.00 Total $15,80,000.00 $5,00,000.00 $5,64,500.00 $27,887.00 $15,500.00 $5,43,387.00 Part D Particulars Cost Sec 179 MACRS Current Dep Exp Total Expenses Funiture $10,000.00 $-    $-    $-    $-    Machinery $5,60,000.00 $-    $70,000.00 $17,143.00 $17,143.00 Trucks $15,000.00 $-    $15,000.00 $4,800.00 $4,800.00 Computer $40,000.00 $-    $40,000.00 $8,000.00 $8,000.00 Auto $80,000.00 0 $80,000.00 $3,160.00 $3,160.00 Equipment $4,75,000.00 475000 $-    $-    $4,75,000.00 Building $4,00,000.00 0 $4,00,000.00 $1,284.00 $1,284.00 Invnetory $20,000.00 Furniture $30,000.00 25000 $5,000.00 $715.00 $25,715.00 Macinery $50,000.00 $50,000.00 $7,145.00 $7,145.00 Patent $98,000.00 $98,000.00 $2,178.00 $2,178.00 goodwill $2,000.00 $2,000.00 $44.00 $44.00 building $1,30,000.00 $1,30,000.00 $974.00 $974.00 Land $20,000.00 total $19,30,000.00 500000 $8,90,000.00 $45,443.00 $5,45,443.00