Avery and Henry each own 50% of Animals LLC a limited liability company located in Orlando, Florida which was created in April of 2016.Animals LLC provides veterinary services and uses the cash method of accounting.Avery and Henry have come to you on December 30, 2018 to ask your advice on some transactions they are considering.

Animals' financial information is provided below:

Profit and Loss Statement January 1, 2018-December 30, 2018:

Gross Receipts:

Veterinary Services

$675,000

Expenses:

Salaries

$400,000

Utilities

$17,000

Depreciation

$15,000

Supplies

$75,000

Interest

$20,000

Total Expenses

$557,000

Net Income

$148,000

Balance Sheet - 12/30/2018

Assets:

Cash

$ 8,500

Equipment

$50,000

A/D - Equipment

(21,500)

Building

$250,000

A/D - Building

(100,000)

Total Assets

$187,000

Liabilities & Equity:

Mortgage - Building

$25,000

Member Capital - Avery

$81,000

Member Capital - Henry

$81,000

Total Liabilities & Equity

$187,000

Please provide Animals LLC advice on the following transaction:

1.They would like to purchase additional equipment for their business, they have not purchased any other fixed assets in 2018.

Asset

Cost

Examination Table

$15,000

X-Ray Machine

$250,000

(a). Calculate the tax depreciation assuming these assets are purchased and placed in service on 12/31/2018 assuming that they have electednotto take Section 179 expense and bonus depreciation on these assets.

(b). Calculate tax depreciation assuming these assets are purchased on 12/31/2018 assuming that they have not made any elections out of 179 or bonus depreciation. In each calculation assume Animals LLC would like to take the maximum allowable deduction.

2.Animals LLC isconsidering whether or not they should expand their business to sell flea & tick medications, dog and cat food, pet toys and collars beginning on 1/1/2019.Discuss the tax issues that we have covered so far this semester that may result from Animals LLC maintaining inventory in addition to providing veterinary services.

3.In order to accommodate the inventory required from #2 above, they believe they would need to relocate to a new space. The fair market value of Animals LLC's building is $425,000, the cost, A/D and mortgage on the building are on the balance sheet above.They recently met with two potential buyers for the building:

Tony Nordstrom, who owns a building which would suit their needs. Tony would like to enter into a like kind exchange with Animals LLC.Tony has agreed to assume Animals' mortgage on the building as part of the like kind exchange.The relevant information on Tony's building is as follows:

FMV$400,000

Cost$200,000

A/D-Tax($125,000)

Jane Paulson also has a building that would suit Animals LLC's needs with a FMV of $430,000. Separately, Animals LLC's real estate agent has a buyer interested in purchasing Animals LLC's building for its FMV of $425,000.

Determine whether it is betterfrom a tax perspectivefor Animals LLC to enter into a like kind exchange with Tony or if they should buy the building from Jane and sell their building to the buyer their real estate agent identified.

When making your determination consider both the gain on sale of the Animals LLCbuilding (if any) as well as the tax depreciation expense allowable on the new building acquired by Animals LLC.You must show your calculations for each scenario as support for your conclusion.

4.Detail for the fixed assets on the balance sheet above is as follows:

Date Acquired

Description

Cost

Tax A/D

4/1/2016

Furniture & Fixtures

$15,000

$8,000

4/1/2016

Veterinary Equipment

$31,000

$12,500

4/1/2016

Copier

$4,000

$1,000

Animals LLC plans to sell all of these assets on 12/31/2018, the proceeds are as follows:

Furniture & Fixtures

$10,000

Veterinary Equipment

$35,000

Copier

$2,000

Calculate the amount and character of the gain or loss on the sale of these assets.