Required information Comprehensive Problem 10-76 (LO 10-1, LO 10-2, LO 10-3, LO 10-4, LO 10-5) [The following information applies to the questions displayed below.] Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2017. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2017: $ Asset Office furniture Machinery Used delivery truck* Cost 150,000 1,560,000 40,000 Date Placed in Service 02/03/2017 07/22/2017 08/17/2017 *Not considered a luxury automobile. During 2017, Karane was very successful and had no $179 limitations) and decided to acquire more assets this next year to increase its production capacity. These are the assets acquired during 2018: Asset Computers & info. system Luxury autot Assembly equipment Storage building Cost $ 400,000 80,000 1,200,000 700,000 Date Placed in Service 03/31/2018 05/26/2018 08/15/2018 11/13/2018 tUsed 100% for business purposes. Karane generated taxable income in 2018 of $1,732,500 for purposes of computing the $179 expense. (Use MACRS Table 1, Table 2, Table 3, Table 4, Table 5, and Exhibit 10-10.) Assume the 2017 $179 limits are the same as those in 2018. (Leave no answer blank. Enter zero if applicable. Input all the values as positive numbers.) Comprehensive Problem 10-76 Part a a. Compute the maximum 2017 depreciation deductions including $179 expense (ignoring bonus depreciation). Answer is complete and correct. Description Cost Cost $179 Expense MACRS Basis $ 0 $ 1,000,000 Office furniture Machinery Delivery truck Totals $ 150,000 | 1,560,000 40,000 $ 1,750,000 150,000 560,000 40,000 750,000 Current MACRS Depreciation $ 21,435 80,024 8,000 $ 109,459 Total Depreciation Deduction $ 21,435 1,080,024 8,000 $ 1,109,459 $ 1,000,000 $ Comprehensive Problem 10-76 Part b Compute the maximum 2018 depreciation deductions including $179 expense (ignoring bonus depreciation). Answer is not complete. Description Cost Cost Sec. 179 Expense MACRS Basis Current MACRS Depreciation Total Depreciation Deduction 2017 Assets Office furniture 0 Machinery 150,000 1,560,000 40,000 Used delivery truck 2018 Assets Computers & Info. System Luxury Auto 400,000 80,000 Assembly Equipment Storage Building 1,200,000 700,000 Totals $ 4,130,000 $ 0 $ Comprehensive Problem 10-76 Part c Compute the maximum 2018 depreciation deductions including $179 expense, but now assume that karane would like to take bonus depreciation. Description Cost Cost Sec. 179 Expense Current Bonus Bonus MACRS Basis MACRS Basis Current MACRS Depreciation Total Depreciation Deduction Dept 2017 Assets Office furniture Machinery Used delivery truck 2018 Assets Computers & Info. System Luxury Auto Assembly Equipment Storage Building Totals 0 $ 0 $ 0 $ 0 $ Comprehensive Problem 10-76 Part d Now assume that during 2018, Karane decides to buy a competitor's assets for a purchase price of $1,350,000. Compute the maximum 2018 cost recovery including $179 expense and bonus depreciation. Karane purchased the following assets for the lump-sum purchase price. (Round your final answers to the nearest whole dollar amount.) Asset Inventory office furniture Machinery Patent Goodwill Building Land Cost $ 220,000 230,000 250,000 198,000 2,000 430,000 20,000 Date Placed in Service 09/15/2018 09/15/2018 09/15/2018 09/15/2018 09/15/2018 09/15/2018 09/15/2018 Description Cost Sec. 179 Expense Bonus MACRS Basis Current MACRS Depreciation Total Depreciation Deduction 2017 Assets Office furniture Machinery Used delivery truck 2018 Assets Computers & Info. System Luxury Auto Assembly Equipment Storage Building Inventory Office Furniture Machinery Patent Goodwill Building Land Totals 0 Comprehensive Problem 10-76 Part e e. Complete Karane Enterprises's Part I of Form 4562 for part (b). (Input all values as positive numbers. Use 2018 tax rules regardless of year on tax form.) OMB No 1545-0172 Form 4562 Depreciation and Amortization (Including Information on Listed Property) Attach to your tax return. Go to www.irs.gov/Form4562 for instructions and the latest information. Business or activity to which this form relates 2018 Department of the Treasury Internal Revenue Service (99) Names) shown on return Attachment Sequence No. 179 Identifying number Parti Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 2 Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . 3 Threshold cost of section 179 property before reduction in limitation (see instructions), . . . 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0-. . 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . 6 (a) Description of property (b) Cost (business use only) (c) Elected cost 7 Listed property. Enter the amount from line 29 . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8. . . . . . . . . . . . . . . . 10 Carryover of disallowed deduction from line 13 of your 2017 Form 4562 . . 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. See instructions. 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 ...... 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12 13 Note: Don't use Part II or Part Ill below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions. . . . . . . . . . . . . . . . . . . . . . . 14 15 Property subject to section 168(1)(1) election. . . 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2018. .... 17 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . Section B-Assets Placed in Service During 2018 Tax Year Using the General Depreciation System bl Month and vear lal Basis for depreciation (a) Classification of property placed in 1 (business/investment used Recovery (e) Convention Method (9) Depreciation deduction service only-see instructions 19a 3-year property b 5-year property C 7-year property d 10-year property e 15-year property f 20-year property g 25-year property h Residential rental property i Nonresidential real property Section C-Assets Placed in Service During 2018 Tax Year Using the Alternative Depreciation System 20a Class life b 12-year c 30-year d 40-year Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28 . . . 21 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations-see instructions . 22 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs. . . . . . . . For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2018) 23 Form 4562 (2018) Page 2 Part V Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.) Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable. Section A-Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? Yes No 24b If "Yes," is the evidence written? Yes No (a) Type of property list Date placed Business/ Basis for depreciation business/investment Recovery Method/ Depreciation Elected section 179 vehicles first) in service privestment use Cost or other basis percentage use only) period Convention deduction cost 25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a qualified business use. See instructions. 25 26 Property used more than 50% in a qualified business use: le) blic) 96 27 Property used 50% or less in a qualified business use: S/L - S/I- S/L- (d) 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 28 29 Add amounts in column (), line 26. Enter here and on line 7. page 1 .......... 29 Section B-Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other more than 5% owner, or related person. If you provided vehicles to your employees, first answer the questions in Section to see if you meet an exception to completing this section f (a) (c) Vehicle 1 Vehicle 2 Vehicle 3 Vehicle 4 30 Total business/investment miles driven during Vehicle 5 Vehicle 6 the year (don't include commuting miles) . 31 Total commuting miles driven during the year 32 Total other personal (noncommuting) miles driven . . . . . . . . . 33 Total miles driven during the year. Add lines 30 through 32 . . . . . . 34 Was the vehicle available for personal Yes No Yes No Yes No Yes No Yes No Yes No use during off-duty hours? ..... 35 Was the vehicle used primarily by a more than 5% owner or related person? . . 36 Is another vehicle available for personal use? DII I IIII III II Section C-Questions for Employers Who Provide Vehicles for Use by Their Employees Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who aren't more than 5% owners or related persons. See instructions. 37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by Yes No your employees? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners .. 39 Do you treat all use of vehicles by employees as personal use? . . . . . . . . . . . . . . . . 40 Do you provide more than five vehicles to your employees, obtain information from your employees about the use of the vehicles, and retain the information received? . . . . . . . . . . . . . 41 Do you meet the requirements concerning qualified automobile demonstration use? See instructions..... Note: If your answer to 37, 38, 39, 40, or 41 is "Yes," don't complete Section B for the covered vehicles. Part VI Amortization Amortization Date amortization Description of costs Amortizable amount Code section Amortization for this year e) (c) begins period or percentage 42 Amortization of costs that begins during your 2018 tax year (see instructions): 43 Amortization of costs that began before your 2018 tax year... 44 Total. Add amounts in column (f. See the instructions for where to report ... Form 4562 (2018) Required information Comprehensive Problem 10-76 (LO 10-1, LO 10-2, LO 10-3, LO 10-4, LO 10-5) [The following information applies to the questions displayed below.] Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2017. In the process of setting up the business, Karane has acquired various types of assets. Below is a list of assets acquired during 2017: $ Asset Office furniture Machinery Used delivery truck* Cost 150,000 1,560,000 40,000 Date Placed in Service 02/03/2017 07/22/2017 08/17/2017 *Not considered a luxury automobile. During 2017, Karane was very successful and had no $179 limitations) and decided to acquire more assets this next year to increase its production capacity. These are the assets acquired during 2018: Asset Computers & info. system Luxury autot Assembly equipment Storage building Cost $ 400,000 80,000 1,200,000 700,000 Date Placed in Service 03/31/2018 05/26/2018 08/15/2018 11/13/2018 tUsed 100% for business purposes. Karane generated taxable income in 2018 of $1,732,500 for purposes of computing the $179 expense. (Use MACRS Table 1, Table 2, Table 3, Table 4, Table 5, and Exhibit 10-10.) Assume the 2017 $179 limits are the same as those in 2018. (Leave no answer blank. Enter zero if applicable. Input all the values as positive numbers.) Comprehensive Problem 10-76 Part a a. Compute the maximum 2017 depreciation deductions including $179 expense (ignoring bonus depreciation). Answer is complete and correct. Description Cost Cost $179 Expense MACRS Basis $ 0 $ 1,000,000 Office furniture Machinery Delivery truck Totals $ 150,000 | 1,560,000 40,000 $ 1,750,000 150,000 560,000 40,000 750,000 Current MACRS Depreciation $ 21,435 80,024 8,000 $ 109,459 Total Depreciation Deduction $ 21,435 1,080,024 8,000 $ 1,109,459 $ 1,000,000 $ Comprehensive Problem 10-76 Part b Compute the maximum 2018 depreciation deductions including $179 expense (ignoring bonus depreciation). Answer is not complete. Description Cost Cost Sec. 179 Expense MACRS Basis Current MACRS Depreciation Total Depreciation Deduction 2017 Assets Office furniture 0 Machinery 150,000 1,560,000 40,000 Used delivery truck 2018 Assets Computers & Info. System Luxury Auto 400,000 80,000 Assembly Equipment Storage Building 1,200,000 700,000 Totals $ 4,130,000 $ 0 $ Comprehensive Problem 10-76 Part c Compute the maximum 2018 depreciation deductions including $179 expense, but now assume that karane would like to take bonus depreciation. Description Cost Cost Sec. 179 Expense Current Bonus Bonus MACRS Basis MACRS Basis Current MACRS Depreciation Total Depreciation Deduction Dept 2017 Assets Office furniture Machinery Used delivery truck 2018 Assets Computers & Info. System Luxury Auto Assembly Equipment Storage Building Totals 0 $ 0 $ 0 $ 0 $ Comprehensive Problem 10-76 Part d Now assume that during 2018, Karane decides to buy a competitor's assets for a purchase price of $1,350,000. Compute the maximum 2018 cost recovery including $179 expense and bonus depreciation. Karane purchased the following assets for the lump-sum purchase price. (Round your final answers to the nearest whole dollar amount.) Asset Inventory office furniture Machinery Patent Goodwill Building Land Cost $ 220,000 230,000 250,000 198,000 2,000 430,000 20,000 Date Placed in Service 09/15/2018 09/15/2018 09/15/2018 09/15/2018 09/15/2018 09/15/2018 09/15/2018 Description Cost Sec. 179 Expense Bonus MACRS Basis Current MACRS Depreciation Total Depreciation Deduction 2017 Assets Office furniture Machinery Used delivery truck 2018 Assets Computers & Info. System Luxury Auto Assembly Equipment Storage Building Inventory Office Furniture Machinery Patent Goodwill Building Land Totals 0 Comprehensive Problem 10-76 Part e e. Complete Karane Enterprises's Part I of Form 4562 for part (b). (Input all values as positive numbers. Use 2018 tax rules regardless of year on tax form.) OMB No 1545-0172 Form 4562 Depreciation and Amortization (Including Information on Listed Property) Attach to your tax return. Go to www.irs.gov/Form4562 for instructions and the latest information. Business or activity to which this form relates 2018 Department of the Treasury Internal Revenue Service (99) Names) shown on return Attachment Sequence No. 179 Identifying number Parti Election To Expense Certain Property Under Section 179 Note: If you have any listed property, complete Part V before you complete Part I. 1 Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 2 Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . 3 Threshold cost of section 179 property before reduction in limitation (see instructions), . . . 4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0-. . 5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . 6 (a) Description of property (b) Cost (business use only) (c) Elected cost 7 Listed property. Enter the amount from line 29 . . . . . . . . . 7 8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . 8 9 Tentative deduction. Enter the smaller of line 5 or line 8. . . . . . . . . . . . . . . . 10 Carryover of disallowed deduction from line 13 of your 2017 Form 4562 . . 11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5. See instructions. 12 Section 179 expense deduction. Add lines 9 and 10, but don't enter more than line 11 ...... 13 Carryover of disallowed deduction to 2019. Add lines 9 and 10, less line 12 13 Note: Don't use Part II or Part Ill below for listed property. Instead, use Part V. Part II Special Depreciation Allowance and Other Depreciation (Don't include listed property. See instructions.) 14 Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year. See instructions. . . . . . . . . . . . . . . . . . . . . . . 14 15 Property subject to section 168(1)(1) election. . . 16 Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . 16 Part III MACRS Depreciation (Don't include listed property. See instructions.) Section A 17 MACRS deductions for assets placed in service in tax years beginning before 2018. .... 17 18 If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . Section B-Assets Placed in Service During 2018 Tax Year Using the General Depreciation System bl Month and vear lal Basis for depreciation (a) Classification of property placed in 1 (business/investment used Recovery (e) Convention Method (9) Depreciation deduction service only-see instructions 19a 3-year property b 5-year property C 7-year property d 10-year property e 15-year property f 20-year property g 25-year property h Residential rental property i Nonresidential real property Section C-Assets Placed in Service During 2018 Tax Year Using the Alternative Depreciation System 20a Class life b 12-year c 30-year d 40-year Part IV Summary (See instructions.) 21 Listed property. Enter amount from line 28 . . . 21 22 Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporations-see instructions . 22 23 For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs. . . . . . . . For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 12906N Form 4562 (2018) 23 Form 4562 (2018) Page 2 Part V Listed Property (Include automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.) Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable. Section A-Depreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) 24a Do you have evidence to support the business/investment use claimed? Yes No 24b If "Yes," is the evidence written? Yes No (a) Type of property list Date placed Business/ Basis for depreciation business/investment Recovery Method/ Depreciation Elected section 179 vehicles first) in service privestment use Cost or other basis percentage use only) period Convention deduction cost 25 Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a qualified business use. See instructions. 25 26 Property used more than 50% in a qualified business use: le) blic) 96 27 Property used 50% or less in a qualified business use: S/L - S/I- S/L- (d) 28 Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 28 29 Add amounts in column (), line 26. Enter here and on line 7. page 1 .......... 29 Section B-Information on Use of Vehicles Complete this section for vehicles used by a sole proprietor, partner, or other more than 5% owner, or related person. If you provided vehicles to your employees, first answer the questions in Section to see if you meet an exception to completing this section f (a) (c) Vehicle 1 Vehicle 2 Vehicle 3 Vehicle 4 30 Total business/investment miles driven during Vehicle 5 Vehicle 6 the year (don't include commuting miles) . 31 Total commuting miles driven during the year 32 Total other personal (noncommuting) miles driven . . . . . . . . . 33 Total miles driven during the year. Add lines 30 through 32 . . . . . . 34 Was the vehicle available for personal Yes No Yes No Yes No Yes No Yes No Yes No use during off-duty hours? ..... 35 Was the vehicle used primarily by a more than 5% owner or related person? . . 36 Is another vehicle available for personal use? DII I IIII III II Section C-Questions for Employers Who Provide Vehicles for Use by Their Employees Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who aren't more than 5% owners or related persons. See instructions. 37 Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by Yes No your employees? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners .. 39 Do you treat all use of vehicles by employees as personal use? . . . . . . . . . . . . . . . . 40 Do you provide more than five vehicles to your employees, obtain information from your employees about the use of the vehicles, and retain the information received? . . . . . . . . . . . . . 41 Do you meet the requirements concerning qualified automobile demonstration use? See instructions..... Note: If your answer to 37, 38, 39, 40, or 41 is "Yes," don't complete Section B for the covered vehicles. Part VI Amortization Amortization Date amortization Description of costs Amortizable amount Code section Amortization for this year e) (c) begins period or percentage 42 Amortization of costs that begins during your 2018 tax year (see instructions): 43 Amortization of costs that began before your 2018 tax year... 44 Total. Add amounts in column (f. See the instructions for where to report ... Form 4562 (2018)