In: Accounting
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 2015: (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 | 02/03/2015 |
Machinery | 560,000 | 07/22/2015 | |
Used delivery truck* | 15,000 | 08/17/2015 |
* Not considered a luxury automobile, thus not subject to the luxury automobile limitations.
During 2015, 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 2016:
Date Placed | |||||||||||||||||||||||||||||||||||||||||||
Asset | Cost | in Service | |||||||||||||||||||||||||||||||||||||||||
Computers & info. system | $ | 40,000 | 03/31/2016 | ||||||||||||||||||||||||||||||||||||||||
Luxury auto† | 80,000 | 05/26/2016 | |||||||||||||||||||||||||||||||||||||||||
Assembly equipment | 475,000 | 08/15/2016 | |||||||||||||||||||||||||||||||||||||||||
Storage building | 400,000 | 11/13/2016 | |||||||||||||||||||||||||||||||||||||||||
†Used 100% for business purposes. TM generated taxable income in 2016 before any §179 expense of $732,500. a. Compute the maximum 2015 depreciation deductions including §179 expense (ignoring bonus depreciation). b. Compute the maximum 2016 depreciation deductions including §179 expense (ignoring bonus depreciation). c. Compute the maximum 2016 depreciation deductions including §179 expense, but now assume that Steve would like to take bonus depreciation on the 2016 assets. d. Ignoring part (c), now assume that during 2016, Steve decides to buy a competitor’s assets for a purchase price of $350,000. Compute the maximum 2016 cost recovery including §179 expense (ignoring bonus depreciation). Steve purchased the following assets for the lump-sum purchase price.
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Answer:(a) 2015 depreciation is $513,003 | |||||
Description | Cost | Sec179 expense | MACRS Basis | Current MACRS expense | Total expense |
Office equipment | 10000 | 10000 | 0 | 0 | 10000 |
Machinery | 560000 | 490000 | 70000 | 10003 | 500,003 |
Used delivery truck | 15000 | 15000 | 3000 | 3000 | |
Totals | 585000 | 500,000 | 85000 | 13003 | 513003 |
Answer:(b)2016 depreciation is $529387 | |||||
Description | Cost | Sec179 expense | MACRS Basis | Current MACRS expense | EOY |
Office equipment | 10000 | - | |||
Machinery | 560000 | 70000 | 17143 | 17,143 | |
Used delivery truck | 15000 | 15000 | 4800 | 4800 | |
Computers & info. system | 40000 | 25,000 | 15000 | 3000 | 28000 |
Luxury auto | 80000 | 80000 | 3160 | 3160 | |
Assembly equipment | 475000 | 475000 | 475000 | ||
Storage building | 400000 | 400000 | 1284 | 1284 | |
Totals | 1580000 | 500000 | 580000 | 29387 | 529287 |
Answer:c 2016 depreciation is $543387 | ||||||
Description | Cost | Sec179 expense | Bonus | MACRS Basis | Current MACRS expense | Total Expense |
Office equipment | 10000 | - | ||||
Machinery | 560000 | 70000 | 17143 | 17143 | ||
Used delivery truck | 15000 | 15000 | 4800 | 4800 | ||
Computers & info. system | 40000 | 25000 | 7500 | 7500 | 1500 | 34000 |
Luxury auto | 80000 | 8000 | 72000 | 3160 | 11160 | |
Assembly equipment | 475000 | 475000 | 475000 | |||
Storage building | 400000 | 400000 | 1284 | 1284 | ||
Totals | 1580000 | 500000 | 15500 | 564500 | 27887 | 543387 |
Answer:d 2016 depreciation is $545,443. | |||||
Description | Cost | Sec179 expense | MACRS Basis | Current MACRS expense | Total Expense |
Office equipment | 10000 | - | |||
Machinery | 560000 | 70000 | 17143 | 17143 | |
Used delivery truck | 15000 | 15000 | 4800 | 4800 | |
Computers & info. system | 40000 | 40000 | 8000 | 8000 | |
Luxury auto | 80000 | 80000 | 3160 | 3160 | |
Assembly equipment | 475000 | 475000 | 475000 | ||
Storage building | 400000 | 400000 | 1284 | 1284 | |
Inventory | 20000 | n/a | - | ||
Office furniture | 30000 | 25000 | 5000 | 715 | 25715 |
Machinery | 50000 | 50000 | 7145 | 7145 | |
Patents | 98000 | 98000 | 2178 | 2178 | |
Goodwill | 2000 | 2000 | 44 | 44 | |
Building | 130000 | 130000 | 974 | 974 | |
Land | 20000 | n/a | - | ||
Totals | 1930000 | 500000 | 890000 | 45443 | 545443 |