[The following information applies to the questions displayed below.] Bob and Michael started a technology support company called eSys Answers. During year 1, they bought the following assets (placed in service on date of purchase) and incurred the following start-up fees: Year 1 Assets Purchase Date Basis Computers (5-year) October 30, Y1 $ 15,000 Office equipment (7-year) October 30, Y1 10,000 Furniture (7-year) October 30, Y1 3,000 Start-up costs October 30, Y1 17,000 In year 1, they elected to expense the start-up costs to the maximum extent possible. Note: immediate expensing reduces basis. On April 30, year 2, they purchased a customer list (a Section 197 intangible) for $10,000 from a company providing virtually the same services. During the summer of year 2, they purchased a small van (for transportation, not considered a luxury auto) and a business-use machine (7-year life). They bought the van and placed it in service on June 15, Y2, for $18,000. The machine cost $4,000 and was placed in service on July 1, Y2. Year 2 Assets Purchase Date Basis Van June 15, Y2 $ 18,000 Machine (7-year) July 1, Y2 4,000 Customer list April 30, Y2 10,000 Assume that eSys Answers does not claim any §179 expense or bonus depreciation. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) Required: a. What are the maximum cost recovery deductions for eSys Answers for Y1 (including immediate expensing) and Y2? Note: start with completing the table for Part C. Year 1 maximum cost recovery will be the Immediate Expense column total (C10) plus the Year 1 Cost Recovery column total (D10). Year 2 maximum cost recovery will be the Year 2 Cost Recovery column total (E10). c. What is eSys Answers’s basis in each of its assets at the end of Y2?

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter18: Comparative Forms Of Doing Business

Section: Chapter Questions

Problem 1BD

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[The following information applies to the questions displayed below.]

Bob and Michael started a technology support company called eSys Answers. During year 1, they bought the following assets (placed in service on date of purchase) and incurred the following start-up fees:

Year 1 Assets	Purchase Date	Basis
Computers (5-year)	October 30, Y1	$	15,000
Office equipment (7-year)	October 30, Y1		10,000
Furniture (7-year)	October 30, Y1		3,000
Start-up costs	October 30, Y1		17,000

In year 1, they elected to expense the start-up costs to the maximum extent possible. Note: immediate expensing reduces basis.

On April 30, year 2, they purchased a customer list (a Section 197 intangible) for $10,000 from a company providing virtually the same services. During the summer of year 2, they purchased a small van (for transportation, not considered a luxury auto) and a business-use machine (7-year life). They bought the van and placed it in service on June 15, Y2, for $18,000. The machine cost $4,000 and was placed in service on July 1, Y2.

Year 2 Assets	Purchase Date	Basis
Van	June 15, Y2	$	18,000
Machine (7-year)	July 1, Y2		4,000
Customer list	April 30, Y2		10,000

Assume that eSys Answers does not claim any §179 expense or bonus depreciation. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Required:

a. What are the maximum cost recovery deductions for eSys Answers for Y1 (including immediate expensing) and Y2? Note: start with completing the table for Part C. Year 1 maximum cost recovery will be the Immediate Expense column total (C10) plus the Year 1 Cost Recovery column total (D10). Year 2 maximum cost recovery will be the Year 2 Cost Recovery column total (E10).
c. What is eSys Answers’s basis in each of its assets at the end of Y2?

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