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ACC/307 ACC307 ACC 307 WEEK 8 HOMEWORK 1

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ACC 307 WEEK 8 HOMEWORK 1 1. Problem 10-39 (LO 10-1) Emily purchased a building to store inventory for her business. The purchase price was $760,000. Beyond this, Emily incurred the following necessary expenses to get the building ready for use: $10,000 to repair the roof (does not extend the roof life), $5,000 to make the interior suitable for her finished goods, and $300 in legal fees. What is Emily’s cost basis in the new building? Cost basis $775,300 2. Problem 10-51 (LO 10-2) Parley needs a new truck to help him expand Parley’s Plumbing Palace. Business has been booming and Parley would like to accelerate his tax deductions as much as possible (ignore §179 expense and bonus depreciation for this problem). On April 1, Parley purchased a new delivery van for $25,000. (Use MACRSTable 1 and Table 2.) Option 1 It is now September 26 and Parley, already in need of another vehicle, has found a deal on buying a truck for $22,000 (all fees included). The dealer tells him if he doesn’t buy the truck, it will be gone tomorrow. Option 2 There is an auction scheduled for October 5 where Parley believes he can get a similar truck for $21,500, but there is also a $500 auction fee. a. Which option allows Parley to generate more depreciation expense deductions this year (the vehicles are not considered to be luxury autos)? Option 1 b. Assume the original facts, except that the delivery van was placed in service one day earlier on March 31 rather than April 1. Which option generates more depreciation expense? Option 2 3. Problem 10-63 (LO 10-2, LO 10-3) Acorn Construction (calendar year-end C-corporation) has had rapid expansion during the last half of the current year due to the housing market’s recovery. The company has record income and would like to maximize its cost recovery deduction for the current year. (Use MACRS Table 2,) Asset Placed in Service Basis New equipment and tools August 20 $ 800,000 Used light duty trucks October 17 1,200,000 Used machinery November 6 525,000 ________________________________________ ________________________________________ Total $ 2,525,000 ________________________________________________________________________________ 4. Problem 10-70 (LO 10-4) Juliette formed a new business to sell sporting goods this year. The business opened its doors to customers on June 1. Determine the amount of start-up costs Juliette can immediately expense (not including amortization) this year in the following alternative scenarios: a. She incurred start-up costs of $2,000. Amount of start-up costs immediately expensed $2,000 b. She incurred start-up costs of $45,000. Amount of start-up costs immediately expensed $5,000 c. She incurred start-up costs of $53,500. Amount of start-up costs immediately expensed $1,500 d. She incurred start-up costs of $63,000.(Leave no answer blank. Enter zero if applicable.) Amount of start-up costs immediately expensed $0 e. How would you answer parts (a) through (d) if she formed a partnership or a corporation and she incurred the same amount of organizational expenditures rather than start-up costs (how much of the organizational expenditures would be immediately deductible)?(Leave no answer blank. Enter zero if applicable.) Amount of Organization Expenditures Immediately Expensed (a) $2,000 (b) $5,000 (c) $1,500 (d) $0

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