Question

Required Information The following information applies to the questions displayed below) 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: (Leave no answer blank. Enter zero If applicable.) Expense Attorney fees for articles of incorporation March 1 - March 30 wages March 1 - March 30 rent Stock issuance costs April 1 - May 30 wages Date Amount February 10 $40,000 March 30 6,400 March 30 2,800 April 1 25,000 May 30 16,000 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 determined in part b)? (Round Intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.) Start-up costs amortized Organizational expenditures amortized

2019

Answer 1

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Nicole
Start-up expenditures include:
-Various investigation expenses involved in entering a new business
-e.g., Travel, market surveys, financial audits, legal fees
-Also includes operating expenses, such as rent and payroll, that are incurred by a corporation before it actually begins to produce any gross income
Allowable Start-up expenditures
Expenditures	Amount	Remarks
March 1- March 30 Wages	6,400.00	This is allowable as per conditions stated above.
March 1- March 30 Rent	2,800.00	This is allowable as per conditions stated above.
April 1- May 30 Wages	-	This is not allowable because Nicole already started business on April 1
Total	9,200.00
A corporation may elect to amortize Start-up expenditures over a 180-month period beginning with the month in which the corporation begins business.
A special exception allows the corporation to immediately expense the first $5,000 of these costs only if the total expenses exceed 50,000.
As the total expenditure does not exceed 50,000 so these expense should be amortized over 180 months.
I am assuming that the company follows calendar year-
Total Start-up expenditures	9,200.00	A
Number of months	180.00	B
Monthly amortization	51.11	C=A/B
Business started in April 1
Months remaining in Year 1 (April to December)	9.00	D
The maximum allowable deduction for Start-up expenditures in Year 1	$     460.00	E=C*D
Organizational expenditures include the following:
-Legal services incident to organization
-Necessary accounting services
-Expenses of temporary directors and of organizational meetings of directors and shareholders
-Fees paid to the state of incorporation
Expenditures connected with issuing or selling shares of stock or other securities or with the transfer of assets to a corporation do not qualify
-Such expenditures reduce the amount of capital raised and are not deductible at all
Allowable Organizational expenditures
Expenditures	Amount	Remarks
Attorney fees for Articles of incorporation	40,000.00	This is allowable as per conditions stated above.
Stock issuance costs	-	This is not allowable as per conditions stated above.
Total	40,000.00
A corporation may elect to amortize organizational expenses over a 180-month period beginning with the month in which the corporation begins business.
A special exception allows the corporation to immediately expense the first $5,000 of these costs only if the total expenses exceed 50,000.
As the total expenditure does not exceed 50,000 so these expense should be amortized over 180 months.
I am assuming that the company follows calendar year-
Total Organizational expenditures	40,000.00	A
Number of months	180.00	B
Monthly amortization	222.22	C=A/B
Business started in April 1
Months remaining in Year 1 (April to December)	9.00	D
The maximum allowable deduction for organizational expenses in Year 1	$ 2,000.00	E=C*D