Question

In: Accounting

Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM),...

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.

Date Placed
Asset Cost in Service
Inventory $ 20,000 09/15/2016
Office furniture 30,000 09/15/2016
Machinery 50,000 09/15/2016
Patent 98,000 09/15/2016
Goodwill 2,000 09/15/2016
Building 130,000 09/15/2016
Land 20,000 09/15/2016

Solutions

Expert Solution

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

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