I dont know how to solve...these difficult questions

Problem Set #5: Cost Recovery ACCT 307, Fall 2016 Due in Class on Wednesday, October 5 1. Recovery Periods and MACRS. The taxpayers in each of the following scenarios have a December 31 year-end. For this problem, do not use 179 and do not claim any \"bonus depreciation\" per 168(k). For each scenario below, answer for the following three questions with respect to the underlined asset. What is the \"Asset Class\" (per Table B-1 of IRS Publication 946, see https://www.irs.gov/pub/irspdf/p946.pdf). In particular, consider asset classes 00.11, 00.21, 00.3, 20.4, 36.0, 37.32, 45.0, 48.2, 79.0 and 80.0. The correct asset class for each underlined asset will be one of these. What is the MACRS recovery period (in years)? What is the first-year tax depreciation deduction? Be sure to apply the proper methods and conventions and to show your calculations. a. World Media, Inc. (WMI) is a publicly-traded holding company that owns significant portions of 28 different communications, entertainment and media companies scattered around the world. Although its financial interests span the globe, WMI itself is incorporated in Delaware and headquartered in Bethlehem, Pennsylvania. During the first 11 months of the year WMI placedin-service depreciable personal property with a total cost of $500,000, consisting mostly of office equipment and automobiles. On December 19, WMI placed-in-service a new Gulfstream 650ER that cost $65 million! This aircraft's capabilitiesa range of 7,500 nautical miles at 650 miles per hourenables WMI's executives to fly almost anywhere in the world on a moment's notice (strictly for business reasons, of course). b. Hawk Air Corporation (HAC) is a regional airline serving passengers in the northeastern states. On March 15 HAC purchased and placed-in-service a new Canadair CRJ-900 regional jet that cost $40 million. c. Hawk's Nest Beer, Inc. (HNB) brews beer in the tradition of the finest Belgian brewers. HNB purchased and placed-in-service new brewing equipment on August 15 for $200,000. This was HNB's only equipment purchase for the year. d. Kent Island Resort, Inc. (KIR) operates a golf course resort on Kent Island in the Chesapeake Bay. This year KIR completed a new dock for the convenience of customers arriving at the resort by boat. The dock was placed-in-service on May 1 at a cost of $2 million. e. Pop-eye's Shipyard, Inc. (PSI) operates a boat repair business on Kent Island in the Chesapeake Bay. This year PSI completed a new dock for use in its boat repair business. The dock was placed-in-service on September 1 at a cost of $2 million. ACCT307 Problem Set #5 2. Start-up Expenditures. George is successful engineer with an idea to start his own business. He wants to build cogeneration plants that produce both steam and electricity. The engineering is relatively simple. Coal or natural gas is burned to fire a large boiler. Steam from the burner turns a turbine connected to a 50 mega-watt generator that produces electricity sold directly to the local public utility. Excess steam is piped to a host manufacturing plant that uses the steam in some manufacturing process (e.g., textiles). Each cogeneration plant will cost about $50 million to build, but once the plant running it is virtually guaranteed to make a profit if George can ensure that his coal/gas costs are low enough. Each plant's revenue stream is assured by the Public Utilities Regulatory Policy Act of 1978, which requires the local public utility to the purchase the plant's electricity at the utility's own \"avoided cost\" of production. George is convinced that his idea will work. He only needs to pull together a few essential items: a. b. c. d. A suitable host manufacturer that needs steam. Vacant land located near the host manufacturer. A coal/gas supplier who will enter into a long-term supply contract at guaranteed prices. $50 million of financing for each plant. It takes George 18 months and $500,000 in travel costs and professional fees to nail-down the above items for his first cogeneration plant. And, along the way, he found five additional host manufactures ideally suited for future plants. George signs a $50 million financing agreement with the lender on June 1, 2014. The next day he received his first loan distribution and pays an engineering firm $1 million to prepared construction drawings. George also hires a manager to oversee construction at the first plant while he continues to structure deals for additional plants. Over the course of the next 18 months, George spends another $45 million to actually build the plan. By December 29, 2015, the first plant is fully operational and producing electricity. Required. a) Which of the cost described above, if any, are \"start-up expenditures\"? b) When can George begin to amortize his start-up expenditures? [Hint: Base your answer on I.R.S. Letter Ruling 9027002 (May 16, 1990)]. 2|Page