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PROBLEM 1 COST RECOVERY 20 POINTS Phister Inc. (EIN: 89-3492004), a small mechanical engineering firm, began its first year of operations in 2013. Phister also has a mid-size machine shop in which it manufactures replacement machine parts for industrial machines used by area manufacturers. Phister, Inc. incurred $43,000 in start-up costs prior to starting business. During 2013, Phister placed the following assets into service: Asset Land Building Two Series \"W\" Lathes 2008 Ford Flatbed Truck Saginaw Upright Band Saw Various Office Furniture Computer System Total Date Placed in Service 2/23/13 2.23/13 3/4/13 4/27/13 7/1/13 10/29/13 11/8/13 Cost $200,000 $1,500,000 $600,000 $45,000 $25,000 $70,000 $48,000 $2,488,000 Assume Phister's net income before cost recovery for 2013 was $5,050,000. Also, if Phister qualifies for the 179 deduction, they will elect to use it on the lathes. Additional Information: The corporation will NOT be taking additional depreciation reported in Part II of Form 4562. The corporation has no qualifying real property The corporation has no listed property. Corporation will not be grouping the above assets placed in service in 2013. Corporation has no carryover 179 (2013 is first year). None of the assets placed in service in 2013 are under 263A. Revenue Procedure 87-56 Tables found on Blackboard COMPLETE AND TURN IN 2013 FORM 4562 and stapled to the COMPUTATION SHEET with the form on top. The form along with its instructions may be found on Blackboard. It's acceptable to handwrite form and computation sheet as long as I can read it. If I can't read it, I will deduct points. ACC 537 TAX PROBLEM 1 - SPRING 2014 COMPUTATION SHEET Date in Service MACRS Life MACRS Convention Cost Land 2/23/13 No Life No Convention $200,000 Building 2.23/13 31.5 MM $1,500,000 Two Series \"W\" Lathes 3/4/13 5 MQ $600,000 2008 Ford Flatbed Truck 4/27/13 5 MQ $45,000 Saginaw Upright Band Saw 7/1/13 5 MQ $25,000 Various Office Furniture 10/29/13 7 MQ $70,000 Computer System 11/8/13 5 MQ $48,000 Asset Depreciation Percentage from Rev. Proc 87-56 Depreciation Amount Table 2. General Depreciation System Applicable Depreciation Method: 200 or 150 Percent Declining Balance Switching to Straight Line Applicable Recovery Periods: 3, 5, 7, 10, 15, 20 years Applicable Convention: Mid-quarter (property placed in service in first quarter) If the Recovery Period is: Recovery 3-year 5-year 7-year 10-year 15-year 20-year Year is: the Depreciation Rate is: 1 58.33 35.00 25.00 17.50 8.75 6.563 2 27.78 26.00 21.43 16.50 9.13 7.000 3 12.35 15.60 15.31 13.20 8.21 6.482 4 1.54 11.01 10.93 10.56 7.39 5.996 5 11.01 8.75 8.45 6.65 5.546 6 1.38 8.74 6.76 5.99 5.130 7 8.75 6.55 5.90 4.746 8 1.09 6.55 5.91 4.459 9 6.56 5.90 4.459 10 6.55 5.91 4.459 11 0.82 5.90 4.459 12 5.91 4.460 13 5.90 4.459 14 5.91 4.460 15 5.90 4.459 16 0.74 4.460 17 4.459 18 4.460 19 4.459 20 4.460 21 0.557 Table 3. General Depreciation System Applicable Depreciation Method: 200 or 150 Percent Declining Balance Switching to Straight Line Applicable Recovery Periods: 3, 5, 7, 10, 15, 20 years Applicable Convention: Mid-quarter (property placed in service in second quarter) If the and the Recovery Period is Recovery 3-year 5-year 7-year 10-year 15-year 20-year Year is: the Depreciation Rate is: 1 41.67 25.00 17.85 12.50 6.25 4.688 2 38.89 30.00 23.47 17.50 9.38 7.148 3 14.14 18.00 16.76 14.00 8.44 6.612 4 5.30 11.37 11.97 11.20 7.59 6.116 5 11.37 8.87 8.96 6.83 5.658 6 4.26 8.87 7.17 6.15 5.233 7 8.87 6.55 5.91 4.841 8 3.33 6.55 5.90 4.478 9 6.56 5.91 4.463 10 6.55 5.90 4.463 11 2.46 5.91 4.463 12 5.90 4.463 13 5.91 4.463 14 5.90 4.463 15 5.91 4.462 16 2.21 4.463 17 4.462 18 4.463 19 4.462 20 4.463 21 1.673 Table 4. General Depreciation System Applicable Depreciation Method: 200 or 150 Percent Declining Balance Switching to Straight Line Applicable Recovery Periods: 3, 5, 7, 10, 15, 20 years Applicable Convention: Mid-quarter (property placed in service in third quarter) If the and the Recovery Period is: Recovery 3-year 5-year 7-year 10-year 15-year 20-year Year is: the Depreciation Rate is: 1 25.00 15.00 10.71 7.50 3.75 2.813 2 50.00 34.00 25.51 18.50 9.63 7.289 3 16.67 20.40 18.22 14.80 8.66 6.742 4 8.33 12.24 13.02 11.84 7.80 6.237 5 11.30 9.30 9.47 7.02 5.769 6 7.06 8.85 7.58 6.31 5.336 7 8.86 6.55 5.90 4.936 8 5.53 6.55 5.90 4.566 9 6.56 5.91 4.460 10 6.55 5.90 4.460 11 4.10 5.91 4.460 12 5.90 4.460 13 5.91 4.461 14 5.90 4.460 15 5.91 4.461 16 3.69 4.460 17 4.461 18 4.460 19 4.461 20 4.460 21 2.788 Table 5. General Depreciation System Applicable Depreciation Method: 200 or 150 Percent Declining Balance Switching to Straight Line Applicable Recovery Periods: 3, 5, 7, 10, 15, 20 years Applicable Convention: Mid-quarter (property placed in service in fourth quarter) If the and the Recovery Period is: Recovery 3-year 5-year 7-year 10-year 15-year 20-year Year is: the Depreciation Rate is: 1 8.33 5.00 3.57 2.50 1.25 0.938 2 61.11 38.00 27.55 19.50 9.88 7.430 3 20.37 22.80 19.68 15.60 8.89 6.872 4 10.19 13.68 14.06 12.48 8.00 6.357 5 10.94 10.04 9.98 7.20 5.880 6 9.58 8.73 7.99 6.48 5.439 7 8.73 6.55 5.90 5.031 8 7.64 6.55 5.90 4.654 9 6.56 5.90 4.458 10 6.55 5.91 4.458 11 5.74 5.90 4.458 12 5.91 4.458 13 5.90 4.458 14 5.91 4.458 15 5.90 4.458 16 5.17 4.458 17 4.458 18 4.459 19 4.458 20 4.459 21 3.901 Table 7. General Depreciation System Applicable Depreciation Method: Straight Line Applicable Recovery Period: 31.5 years Applicable Convention: Mid-month If the Recovery And the Month in the First Recovery Year Year is: the Property is Placed in Service is: 1 2 3 4 5 6 7 8 9 10 the Depreciation Rate is: 1 3.042 2.778 2.513 2.249 1.984 1.720 1.455 1.190 0.926 0.661 2 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 4 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 5 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 6 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 7 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 8 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.175 3.175 3.175 9 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 10 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 11 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 12 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 13 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 14 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 15 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 16 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 17 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 18 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 19 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 20 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 21 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 22 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 23 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 24 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 25 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 26 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 27 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 28 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 29 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 30 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 31 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 32 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 33 0.000 0.000 0.000 0.000 0.000 0.000 0.132 0.397 0.661 0.926 11 12 0.397 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 1.190 0.132 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 3.175 3.174 1.455