Including IDCs of $100,000) (300,000) Taxable income (before depletion) $200,000 Cost depletion (if IDCs are expensed) $ 20,000 Cost depletion (if IDCs are capitalized) $ 30,000 * What is the percentage depletion amount if the IDC are expensed? b. What is the percentage depletion amount if the IDC are capitalized? c. What is the depletion deduction amount assuming that the ID Ca are expensed? d. Based on the information above, which method should be used for the IDCs? Explain. 10.47 COMPREHENSIVE PROBLEM John and Ellen Brite are married, bile a joint return, and are less than 65 years old. They have no dependents and claim the standard deduction. John owns an unincorporated specialty elec- trical lighting retail store, Brite-On. Brite-On had the following assets on January 1, 2019: Assets Cost Old store building purchased April 1, 2004 $100,000 Equipment (7-year recovery) purchased January 10, 2014 30,000 Inventory valued using FIFO method: 4,000 light bulbs $S/bulb Brite-On purchased a competitor's store on March 1, 2019, for $206,000. The purchase price included the following: New store building $115,000 (FMV) Land 28,000 (FMV) Equipment (5-year recovery) 45,000 (FMV) Inventory: 3,000 light bulbs $6/bulb (cost) On June 30, 2019, Brite-On sold the 7-year recovery period equipment for $12,000. Brite-On leased a car for $860/month beginning on June 1, 2019. The car is used 100% for business and was driven 14,000 miles during the year. Brite-On sold 8,000 light bulbs at a price of $15/bulb during the year. Also, Brite-On made additional purchases of 4,000 light bulbs in August 2019 at a cost of $7/bulb. Brite-On had the following revenues (in addition to the sales of light bulbs) and additional expenses: Service revenues $94,000 Interest expense on business loans 6,000 Auto expenses (gas, oil, etc.) 4,800 Taxes and licenses 3,300 Utilities 2,800 Salaries 36,000 Ellen receives $42,000 of wages from employment elsewhere, from which $4,000 of fed- eral income taxes were withheld. John and Ellen made four $3,100 quarterly estimated tax payments. For self-employment tax purposes, assumie John spent 100% of his time at the store while Ellen spends no time at the store. Additional Facts: - Equipment acquired in 2014: The Brites elected out of bonus depreciation and did not elect Sec. 179. Equipment acquired in 2019: The Brites elected Sec. 179 to expense the cost of the 5-year equipment. Assume that the lease inclusion rules require that Brite-On reduce its annual deduct ible lease expense by $41. Compute the Brite's taxable income and balance due or refund for 2019. ROBLEMS any eligible amounts exceeding the Sec. 179 maximum. 1:10-51 Refer to the facts in Problem I:10-47 for John and Ellen Brite. The following information is also available for them: John and Ellen live at 111 Maple Street, Johnsonville, Colorado 81733. Brite-On is located at 3900 Market Street, Johnsonville, Colorado 81733. Its employer identification number is 44-1357924. The business uses the accrual method and did not make any payments that would require Form 1099 to be filed. It has used the cost method to value inventory for many years. John started using his automobile in his business on July 1, 2012. During 2019, it was used 7,000 miles for John's business, 1,800 miles for commuting, and 6,500 miles for other reasons. The automobile and Ellen's automobile were available for personal use and during off-duty hours. John has written evidence to support his deduction for automobile expenses. Complete the Brites 2019 Form 1040, Schedules 1, 2, 3, C, and SE, and Forms 4562 and 4797. CASE STUDY PROBLEMS Including IDCs of $100,000) (300,000) Taxable income (before depletion) $200,000 Cost depletion (if IDCs are expensed) $ 20,000 Cost depletion (if IDCs are capitalized) $ 30,000 * What is the percentage depletion amount if the IDC are expensed? b. What is the percentage depletion amount if the IDC are capitalized? c. What is the depletion deduction amount assuming that the ID Ca are expensed? d. Based on the information above, which method should be used for the IDCs? Explain. 10.47 COMPREHENSIVE PROBLEM John and Ellen Brite are married, bile a joint return, and are less than 65 years old. They have no dependents and claim the standard deduction. John owns an unincorporated specialty elec- trical lighting retail store, Brite-On. Brite-On had the following assets on January 1, 2019: Assets Cost Old store building purchased April 1, 2004 $100,000 Equipment (7-year recovery) purchased January 10, 2014 30,000 Inventory valued using FIFO method: 4,000 light bulbs $S/bulb Brite-On purchased a competitor's store on March 1, 2019, for $206,000. The purchase price included the following: New store building $115,000 (FMV) Land 28,000 (FMV) Equipment (5-year recovery) 45,000 (FMV) Inventory: 3,000 light bulbs $6/bulb (cost) On June 30, 2019, Brite-On sold the 7-year recovery period equipment for $12,000. Brite-On leased a car for $860/month beginning on June 1, 2019. The car is used 100% for business and was driven 14,000 miles during the year. Brite-On sold 8,000 light bulbs at a price of $15/bulb during the year. Also, Brite-On made additional purchases of 4,000 light bulbs in August 2019 at a cost of $7/bulb. Brite-On had the following revenues (in addition to the sales of light bulbs) and additional expenses: Service revenues $94,000 Interest expense on business loans 6,000 Auto expenses (gas, oil, etc.) 4,800 Taxes and licenses 3,300 Utilities 2,800 Salaries 36,000 Ellen receives $42,000 of wages from employment elsewhere, from which $4,000 of fed- eral income taxes were withheld. John and Ellen made four $3,100 quarterly estimated tax payments. For self-employment tax purposes, assumie John spent 100% of his time at the store while Ellen spends no time at the store. Additional Facts: - Equipment acquired in 2014: The Brites elected out of bonus depreciation and did not elect Sec. 179. Equipment acquired in 2019: The Brites elected Sec. 179 to expense the cost of the 5-year equipment. Assume that the lease inclusion rules require that Brite-On reduce its annual deduct ible lease expense by $41. Compute the Brite's taxable income and balance due or refund for 2019. ROBLEMS any eligible amounts exceeding the Sec. 179 maximum. 1:10-51 Refer to the facts in Problem I:10-47 for John and Ellen Brite. The following information is also available for them: John and Ellen live at 111 Maple Street, Johnsonville, Colorado 81733. Brite-On is located at 3900 Market Street, Johnsonville, Colorado 81733. Its employer identification number is 44-1357924. The business uses the accrual method and did not make any payments that would require Form 1099 to be filed. It has used the cost method to value inventory for many years. John started using his automobile in his business on July 1, 2012. During 2019, it was used 7,000 miles for John's business, 1,800 miles for commuting, and 6,500 miles for other reasons. The automobile and Ellen's automobile were available for personal use and during off-duty hours. John has written evidence to support his deduction for automobile expenses. Complete the Brites 2019 Form 1040, Schedules 1, 2, 3, C, and SE, and Forms 4562 and 4797. CASE STUDY PROBLEMS