Homework Answers
Answer -
Step - (1) - Information Given -
Ajax Inc. was formed on April 25 and elected a calendar year for tax purposes.
Ajax paid $12400 to the attorney who drew up the articles of incorporation and $6300 to the CPA who advised the corporation concerning the accounting and tax implications of its organization. Ajax began business operations on July 15.
Total organizational costs ($6300 + $12400) = $18700.
.
Step - (2) - Calculation of Ajax's Deductible organizational costs on its first tax return -
Ajax Inc. can deduct $5000 of its $18700 organizational costs, and must capitalize the $13700 remainder.
It can elect to amortize the capitalized cost over 180 months at the rate of $76.11 per month [ $13700 / 180 months ].
If it makes this election, Ajax can also deduct $457 amortization (6 months × $76.11). With the election, Ajax can deduct $5457 [$5000 + $457] organizational cost on its first tax return.
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