Computing Depreciation
Question:
Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired during 2010:
Asset
Cost
Date Place in Service
Office equipment
$10,000
02/03/2010
Machinery
$560,000
07/22/2010
Used delivery truck*
$15,000
08/17/2010
*Not considered a luxury automobile, thus not subject to the luxury automobile limitations
During 2010, TM had huge success (and had no §179 limitations and Steve acquired more assets the next year to increase its production capacity. These are the assets which were acquired during 2011:
Asset
Cost
Date Place in Service
Computers&Info. System
$40,000
03/31/2011
Luxury Auto**
$80,000
05/26/2011
Assembly Equipment
$475,000
08/15/2011
Storage Building
$400,000
11/13/2011
**Used 100% for business purposes.
TM did extremely well during 2011 by generating a taxable income before any §179 expense of $732,500.
Required
a. Compute 2010 depreciation deductions including §179 expense (ignoring bonus depreciation).
b. Compute 2011 depreciation deductions including §179 expense (ignoring bonus depreciation).
c. Compute 2011 depreciation deductions including §179 expense (ignoring bonus depreciation), but now assume that Steve acquired a new machine on October 2nd for $400,000 plus $20,000 for delivery and setup costs.
d. Ignoring part c, now assume that during 2011, Steve decides to buy a competitor’s assets for a purchase price of $350,000. Steve purchased the following assets for the lump-sum purchase price.
Asset
Cost
Date Placed in Service
Inventory
$20,000
09/15/2011
Office furniture
$30,000
09/15/2011
Machinery
$50,000
09/15/2011
Patent
$98,000
09/15/2011
Goodwill
$2,000
09/15/2011
Building
$130,000
09/15/2011
Land
$20,000
09/15/2011
e. Complete Part I of Form 4562 for part b.
a) 2010 depreciation is $513,003.
Description
Cost
Sec. 179 Expense
MACRS Basis
Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired during 2010:
Asset
Cost
Date Place in Service
Office equipment
$10,000
02/03/2010
Machinery
$560,000
07/22/2010
Used delivery truck*
$15,000
08/17/2010
*Not considered a luxury automobile, thus not subject to the luxury automobile limitations
During 2010, TM had huge success (and had no §179 limitations and Steve acquired more assets the next year to increase its production capacity. These are the assets which were acquired during 2011:
Asset
Cost
Date Place in Service
Computers&Info. System
$40,000
03/31/2011
Luxury Auto**
$80,000
05/26/2011
Assembly Equipment
$475,000
08/15/2011
Storage Building
$400,000
11/13/2011
**Used 100% for business purposes.
TM did extremely well during 2011 by generating a taxable income before any §179 expense of $732,500.
Required
a. Compute 2010 depreciation deductions including §179 expense (ignoring bonus depreciation).
b. Compute 2011 depreciation deductions including §179 expense (ignoring bonus depreciation).
c. Compute 2011 depreciation deductions including §179 expense (ignoring bonus depreciation), but now assume that Steve acquired a new machine on October 2nd for $400,000 plus $20,000 for delivery and setup costs.
d. Ignoring part c, now assume that during 2011, Steve decides to buy a competitor’s assets for a purchase price of $350,000. Steve purchased the following assets for the lump-sum purchase price.
Asset
Cost
Date Placed in Service
Inventory
$20,000
09/15/2011
Office furniture
$30,000
09/15/2011
Machinery
$50,000
09/15/2011
Patent
$98,000
09/15/2011
Goodwill
$2,000
09/15/2011
Building
$130,000
09/15/2011
Land
$20,000
09/15/2011
e. Complete Part I of Form 4562 for part b.
a) 2010 depreciation is $513,003.
Description
Cost
Sec. 179 Expense
MACRS Basis