Comprehensive Problem 7-1

Sherry Hopson owns a retail family clothing store. Her store is located at 4321 Heather Drive, Henderson, NV 89002. Her employer identification number is 95-1234321 and her Social Security number is 123-45-6789. Sherry keeps her books on an accrual basis. The income and expenses for the year are:

Gross sales

$351,700

Returns and allowances

4,000

Expenses:

Beginning inventory (at cost)

$ 84,300

Add: purchases

100,700

Cost of goods available for sale

185,000

Less: ending inventory (at cost)

75,000

Cost of goods sold

$110,000

Rent

23,800

Insurance

1,500

Legal and accounting fees

2,800

Payroll

37,200

Payroll taxes

3,440

Utilities

1,850

Office supplies

750

Advertising

2,100

On June 1 of this year, Sherry purchased the following new assets for the store:

Depreciable Basis

Recovery Period

Heavy-duty truck

$31,000

5 years

Desk and file cabinets

17,000

7 years

Computer

3,000

5 years

The truck is not considered a passenger automobile for purposes of the luxury automobile limitations. No Section 179 election is made.

Required:

The business has MACRS depreciation of $3,651 on assets placed in service prior to 2016. Sherry uses bonus depreciation but does not make the election to expense, complete her 2016 Schedule C and Form 4562.