Question

Realizing that bacon toothpaste probably wasn’t the best invention, Mr. Bacon's business Module 2 Problem Set 4 What amount of R&E expenditures can Bacon Co. deduct in 2019 if Bacon Co. prefers to accelerate deductions as much as possible? (Bacon Co.) developed a new product – bacon-scented sunscreen. Bacon Co. spent 6 months (January 2019 – Sept. 2019) and $100,000 developing the sunscreen. The product launched October 1, 2019, and initially it was a huge success. Bacon-scented sunscreen generated over $600,000 in sales in 2019. Sales tapered off quickly, and the sunscreen only generated sales of $10,000 in 2020. It is anticipated that there will be no bacon-scented sunscreen sales after 2020.

What amount of R&E expenditures can Bacon Co. deduct in 2019 if Bacon Co. prefers to accelerate deductions as much as possible?

Same facts as previous question except Bacon Co. believes that tax rates will be higher in future years and thus wants to defer some of their R&E expense deduction until 2020 (but not the entire amount). What amount of R&E expenditures can Bacon Co. deduct in 2019 if Bacon Co. elects to amortize R&E expenditures over the shortest allowable period of time beginning on October 1, 2019 (the month Bacon Co. first sells the sunscreen to generate income)?

Answer 1

Ans -1. Bacon Co deduct R&D expenditure in 2019 on the basis of sales 2019 2020 Total Sales 600000 10000 610000 R&D expenses in 2019=100000/610000*600000 $ 98,361 Ans 2019 Bacon Co deduct R&D expenditure in 2019 on the basis of allowable period of time. 2020 Tota Period (Months) 3. AMMA MAIOR 12 M 15 R&D expenses in 2019=100000/15173 120000