Question.2566 - 1. At the beginning of the year, Dee began a calendar-year business and placed in service the following assets during the year:Asset Date Acquired Cost Basis Computer equipment 3/23 $5,000 Furniture 5/12 $7,000 Pickup (light) Truck 11/15 $10,000 Commercial building 10/11 $270,000 Assuming Dee does not elect §179 expensing or bonus depreciation, answer the following 2 questions: a. What is Dee’s year 1 cost recovery for each asset?AssetPurchase Date QuarterRecovery period(1) Original Basis (2) Rate(1) x (2) Cost RecoveryComputer equip 23-Mar Furniture 12-May Pickup Truck 15-Nov Building 11-OctTotalWhat is Dee’s year 2 cost recovery for each asset?AssetPurchase Date QuarterRecovery period(1) Original Basis (2) Rate(1) x (2) Cost RecoveryComputer equip 23-Mar Furniture 12-May Pickup Truck 15-Nov Building 11-OctTotalb. Now assume that Dee would use any method (e.g., bonus depreciation) to reduce their liability. Recalculate year 1’s depreciation.AssetPurchase Date QuarterRecovery period(1) Original Basis (2) Rate(1) x (2) Cost RecoveryComputer equipment 23-Mar Furniture 12-May Pickup Truck 15-Nov Building 11-OctTotal2. Steve Smith is sole owner of Teton Mountaineering (TM), Inc. Below is a list of assets acquired during the year. Always assume you want the lowest tax liability you can have.Assets Cost Date Computers (5y) $300,000 03/31 Air Conditioning Added to a Building (39y) 2,300,000 03/31 Storage Building 800,000 11/13 1. Assume Section 179 (not Bonus Depreciation) is fully available this year. How much can you expense and what methods would you uses on each asset? Do not calculate MACRS but say what dollar amount of each asset is subject to it (if any).2. Are there any implications for the next year based on the Section 179 expense in this year (i.e., carryforward)? Quantify this. In this phase of the problem, assume TM generated taxable income of $232,500 in the current year.3. As a general rule, should you expense assets with long or short useful lives first?3. In year 1 the bonus depreciation amount is 60%. Belmont Abbey Corp buys $1,761,000 in business personal property evenly throughout the year. What is the maximum amount that can be expensed this year assuming 7-year property?4. Nicole organized a new corporation. The corporation began business on April 1 of year 1 She made the following expenditures associated with getting the corporation started:Expense Date Amount Attorney fees for articles of incorporation February 10 $32,000 March 1 – March 30 wages March 30 $4,500 March 1 – March 30 rent March 30 $2,000 Stock issuance costs April 1 $20,000 April 1 – May 30 wages May 30 $12,000 a. What is the total amount of the start-up costs and organizational expenditures for Nicole’s corporation?b. What amount of the start-up costs and organizational expenditures may the corporation immediately expense in year 1?c. What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 (not including the amount it immediately expensed)?5. Last Chance Mine (LC) purchased a coal deposit for $750,000. It estimated it would extract 12,000 tons of coal from the deposit. LC mined the coal and sold it reporting gross receipts of $1 million, $3 million, and $2 million for years 1 through 3, respectively. During years 1 – 3, LC reported net income (loss) from the coal deposit activity in the amount of ($20,000), $500,000, and $450,000, respectively. In years 1 – 3, LC actually extracted 13,000 tons of coal as follows:Depletio n Tons extracted per year Tons of Coal Basis Rate Year 1 Year 2 Year 3 12,000 $750,000 2,000 7,200 3,800a. What is Last Chance’s cost depletion for years 1, 2, and 3?b. What is Last Chance’s percentage depletion for each year (the applicable percentage for coal is 10 percent)?Year 1 Year 2 Year 3 Explanation(1) Net income from activity (before depletion expense) (2) Gross Income (3) Percentage (4) Percentage Depletion Expense before limit (5) 50% of net income limitation Allowable percentage depletionc. Using the cost and percentage depletion computations from the previous parts, what is Last Chance’s actual depletion expense for each year? Tax Depletion ExpenseYear 1 Year 2 Year 3 Explanation(1) Cost depletion (2) Percentage depletion Deductible depletion expense

Answer Below: