Question

Problem 17-46 (LO. 3)

Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2017. Gull incurred the following expenses during its first year of operations (November 1, 2017–December 31, 2017):

Expenses of temporary directors and organizational meetings $21,000 Fee paid to state of incorporation 3,000 Expenses for printing and sale of stock certificates 11,000 Legal services for drafting the corporate charter and bylaws (not paid until January 2018) 19,000

a. Assuming that Gull Corporation elects under § 248 to expense and amortize organizational expenditures, what amount may be deducted in 2017?

Round the per-month amount to two decimal places. Round the final answer to the nearest dollar.

Gull Corporation's deduction for 2017 is $.

b. Assume the same facts as above, except that the amount paid for the legal services was $28,000 (instead of $19,000). What amount may be deducted as organizational expenditures in 2017?
$

Answer 1

The legal services are used in 2017 although it is not paid till 2018 so it qualifies as organization expenditures. Hence under section 248 all the expenditure incurred by Gull Corporation is deductible.

Expenses for temporary directors and organizational meetings	$21,000
The Fees paid to state of incorporation	$               3,000
The Legal services for drafting	$             19,000
Total organizational structure	$             43,000
Less: Immediate expense	-5000
Total deduction for organizational structure
[$5000+(43000-5000)/180months x 2 months)	5422

The Increase in the amount of legal expenditure of $28,000 increases the organizational expenditures, the total became $52,000 exceeds the organizational expenditures which results in to first year expensing limit to only $3,000 [$5,000-(52,000-50,000)]. So, the total deduction for organizational expenditures would be $4, 63

Expenses for temporary directors and organizational meetings	$21,000
The Fees paid to state of incorporation	$               3,000
The Legal services for drafting	$             28,000
Total organizational structure	$             52,000
Less: Immediate expense	-5000
Total deduction for organizational structure
[$3000+(52000-3000)/180months x 2 months)	$         3,544.00