Wolfgang Punk and Rachael Bay are students at URI. They originally met in a cake decorating class.

Four years ago they decided to turn their beloved hobby into a business. The two culinary students had

some trouble making cakes and often burned the cakes. The funny thing was that people really liked

the burned cakes, so they decided to purposefully burn the cakes and called their new business

$$Crunchy Cakes.$$ They have come to you for some advice concerning asset purchases during their

four years in business. They provide you with the following information concerning asset purchases

since inception.

$2019$: Crunchy Cakes placed two assets in service during the year. They purchased a computer on

March $17$ for $$80,000.$ In addition, they purchased a commercial oven on November $11$ for $$475,000.$

$2020$: Crunchy Cakes purchased $$549,000$ of furniture and fixtures on September $22.$

$2021$: Business is booming. Punk and Bay decided to purchase land and a building in downtown

Providence. Before the purchase, they were baking Crunchy Cakes in Bay$$s garage. The total purchase

price was $$3,000,000$ and one$-$fourth of the price was allocated to the land. The assets were put into

service on March $6.$

Notes: Assume assets put into service on dates purchased.

The owners will choose to elect $179$ and bonus depreciation whenever possible.

For all years, use amounts and limits from notes & textbook $($chapter posted to BS$)$ for $179.$

Taxable income was approximately $$600,000$ for $2019$ and $2020$ and over $$1,000,000$ for $2021.$

The only assets placed in service each year are the ones presented.

Round to whole dollars.

Ignore any depreciation recapture $($Ch$.11).$ Concentrate on Chapter $10$ information.

$2$

$1.2019$: For each asset purchased, identify the following:

a$.$ personalty or realty

b$.$ cost basis $($$$)$

c$.$ recovery period

d$.$ MACRS convention

PorR COST $($$$)$ RECOVERY MACRS $**$

COMPUTER

OVEN $($i$.$e$.$ machinery$)$

MACRS MY or MQ$?$

e$.$ Assess relevant elections $(179$ and Bonus$)$ for each asset.

f$.$ Calculate the depreciation deduction for Crunchy Cakes.

Use the depreciation steps $($formula$)$ from class notes.

Clearly show your work.

COMPUTER OVEN

COST $80,000475,000$

$179$

Bonus Basis

Bonus Depr

MACRS Basis

MACRS $\%$

MACRS Depr

Total Depr $$ year $1$

$3$

$2.2020$: For each asset purchased, identify the following:

a$.$ personalty or realty

b$.$ cost basis $($$$)$

c$.$ recovery period

d$.$ MACRS convention