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Assignment 6 (Chapter 10)

ACCT 351/551

In this assignment, assume that the Sec. 179 and bonus depreciation tax apply to the 2016 tax year where applicable.

For a-d, determine the total depreciation amount for 2017 assuming the taxpayer opted out of Sec. 179 and bonus if they were available in the year of purchase. In addition, assume all taxpayers use a calendar year tax period and that the property mentioned was the only property purchased in the year of acquisition. (20 points total, 5 points each)

	Details at purchase	Total depreciation
a	A bank purchased a new building for its headquarters, totaling $2 million on April 1, 2014.
b	A dentist purchased 10 new chairs and a couch for it waiting room, which cost $3,000 on October 15, 2017.
c	A restaurant purchased booths and chairs totaling $15,000 on November 1, 2017 and kitchen equipment costing $4,000 on June 15, 2017.
d	A telemarketing company purchased a separate computer, office chair, and desk for each of its new staff on January 15, 2016. The total costs for the computers, office chairs, and desks was $30,000, $3,000, and $8,000, respectively.

A hair salon purchases a new computer for the checkout desk on October 21, 2015 for $1,500, which was the only property it purchased that year. The firm sells the equipment on October 3, 2017. Assume the firm always opts out of Sec. 179 and bonus if available and uses a calendar year tax period. How much total depreciation does the firm have for the computer in 2017? (10 points)

A textile company purchased the following assets throughout 2017:

Asset	Placed in service	Initial Basis
Land for mill	January 1	$1,000,000
Mill building	January 1	$300,000
Equipment (new)	March 4	$1,800,000
Small used truck for deliveries	June 8	$25,000
Total		$3,125,000

What is the maximum total depreciation expense possible that the corporation may deduct in 2017? Assume that the land and mill building do not qualify as qualified real property for Sec. 179 and that the company has sufficient taxable income that it creates no binding limitation on any potential Sec. 179 expense (if applicable). To allow better potential for partial credit, please out the following table fully like we did with the in-class exercise (e.g. the Sec. 179 expense, bonus, regular depreciation rates, etc.). Note that you will not be given this table on the Midterm. (30 points)

Asset	Orig. Basis	179 Expense	Remain. Basis	Bonus	Remain. Basis	Reg. Deprec Rate	Reg. Deprec Expense
Land
Equipment
Used truck
Building
Total 179 Expense
Total Bonus depreciation
Total Depreciation Expense

Part a. Google acquired the assets of a small company on May 1, 2017 for $20 million where $3 million of it was ultimately allocated to the tax basis of a patent the small company had held. At the date of purchase, the patent had a remaining life (until the patents expiration date) of exactly 5 years (60 months). What was the total amount of amortization that Google can recognize in 2017 for the patent? (10 points) Part b. Based on the discussion in your text (and my notes), would your answer to part a. change if Google had instead directly purchased the patent alone from the company for $3 million instead of purchasing it along with the rest of the assets of the small company for a single purchase price? If so, what is the appropriate amortization for 2017 in this alternative scenario? If not, why doesnt the amortization amount change? (10 points)

Robert started an accounting firm in 2017 and organized as a partnership. Performance of services began on July 1, 2017. The following expenditures were associated with the partnerships activities in 2017:

Expense	Date	Amount
April 1-June 30 rent	March 1	$15,000
June 1-June 30 wages	June 30	$25,000
April 1-June 30 utilities	June 30	$800
Legal fees for partnership agreements	June 25	$12,500
July 1-Sept. 30 rent	July 1	$15,000
July 1-July 31 wages	July 31	$50,000
July 1-Sept. 30 utilities	Sept. 30	$1,600

a. What is the total amount of the start-up costs expenditures? What is the total amount of organizational expenditures? (5 points)

b. What amount of the start-up costs may the partnership immediately expense in 2017? What amount of the organizational expenditures may the partnership immediately expense in 2017? (5 points)

c. What amount can the partnership deduct as amortization expense for the organizational expenditures for 2017 (not including the amount it immediately expensed)? What amount can the partnership deduct as amortization expense for the start-up costs for 2017 (not including the amount it immediately expensed)? (5 points)

d. What would be the total amount of deduction allowed for organizational expenses in 2017 (including both the portion immediately expensed and relevant amortization of remaining expenses) if Robert started a sole proprietorship instead of a partnership? What would be the total amount of deduction allowed for start-up costs in 2017 (including both the portion immediately expensed and relevant amortization of remaining expenses) if Robert started a sole proprietorship instead of a partnership? (5 points)