Question

2018 was an exciting year for Avery Brothers, Inc. Their big expansion was completed and their new line went live. The expansion cost $4,000,000. They had some issues in construction but they managed to get those resolved and they were able to go live just before Thanksgiving on November 15, 2018. Because they were late in the year, their profit before depreciation and taxes was only $3,000,000. They told the bank, from whom they borrowed some of the funds, they should show at least $500,000 of profit before tax on their business tax return. So they must make sure there is at least that amount of profit left after depreciation, but they would prefer to still have over $1,000,000 of pre-tax profit.

Here is the breakdown of costs incurred:

Land                      $150,000

Building                  $350,000

Equipment           $2,900,000

Equipment installation $700,000

Avery Brothers is in the business on making cardboard. Their book depreciation policy for equipment is 10 years straight line, no salvage value and a half year book convention. Their book depreciation policy on building is the same as required by tax law. There were no other property additions in 2018.

1) How much of Section 179 expense election can Avery Brothers have in 2018?

2) How much bonus depreciation should Avery Brothers take in 2018?

3) How much is the first year MACRS depreciation for equipment?

4) What is the first year depreciation on the building?

5)What is total tax depreciation for 2018, including any Section 179, bonus depreciation, and MACRS depreciation on the equipment and building?

6) What is the 2018 book depreciation arising from the equipment?

7) What is the total temporary difference between all book depreciation and all tax depreciation for 2018?

8) They also spent $15,000 on the plant expansion feasibility study in January 2018. How much are they allowed to deduct this year of these business investigatory costs?

9) When they formed their corporation in 2016 they spent $10,000 on legal expenses to form their corporation.What is their deduction for amortization of those organization expenses in 2018?

10) The brothers were also curious about how much of the $85,000 meals expense the could deduct in 2018. $15,000 was spent to bring in meals to the construction site so the folks could keep working ten hour days during the week and on Saturdays for the company.

11) Avery Brothers spent $102,000 on entertainment of customers in 2018. How much can they deduct?

12) Avery Brothers are Penn State alumni and members of the Nittany Lion Club. In 2018 the company gave the NLC $4,000 as a contribution in order to be able to buy their company's season tickets to Penn State Football. How much can the company deduct of that expense in 2018?

Answer 1

off Total Deduukion

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