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11.xlsx

Solution PR 11-1

Thad acquires a machine at a cost of $502,000 for use in his business and places it in service on April 1, 2013. The machine is depreciated under MACRS, with a 7-year recovery period. This machine was his only acquisition of the year. Thad elects to expense $500,00 of the acquisition cost under Sec. 179 but elects out of bonus depreciation.
Section 179 Expensing & MACRS Depreciation
Pages 10-4 - 10-10
See Table 10-1 on page 10-6. Remember these are percentages.
14.29 = 14.29% or .1429
Solutions
Required:
a. What is Thad's total depreciation deduction for the machine in 2013?	a. Thad's 2010 depreciation deduction is computed as follows:
Sec. 179 expense	$
MACRS depreciation	$
Total	$
b. Thad then sells the machine on October 5, 2015 for $80,000. Compute Thad's depreciation deductions for 2013 through 2015, the adjusted basis of the machine on October 5, 2015, and the gain or loss on the sale.	b. Depreciation for the three years is as follows:
2013 (see above)	$
2014	$
2015	$
Accumulated depreciation	$
Adjusted basis and loss on sale are computed as follows:
Sales price	$
Adjusted basis:
Cost	$
Accumulated depreciation	$
Gain on sale	$

Luby Corporation acquires a 100% business use automobile (MACRS 5-year recovery) on July 1, 2013 for $36,000. Luby does not elect Sec. 179 or bonus depreciation.	Luxury Automobile Limitations
Pages 10-13 - 10-14	Example 10-23 on page 10-14
See Table 6 in Appendix C
Required:	Solution
a. What are the depreciation deductions for 2013 - 2015?	Year	MACRS Deduction (5-year recovery)	Ceiling Limit	Allowed Deduction
Year 1	2013	$36,000 *	$	$
Year 2	2014	$36,000 *	$	$
Year 3	2015	$36,000 *	$	$

On January 1 of the current year, Palm Corporation purchases the net assets of Vicki's unincorporated business for $600,000. The tangible net assets have a $300,000 book value and a $400,000 FMV. The purchase agreement states that Vicki will not compete with Palm Corporation by starting a new business in the same area for a period of five years. The stated consideration received by Vicki for the covenant not to compete is $50,000. Other intangible assets included in the purchase agreement are as follows:
Item	Amount	Amortization of Intangibles
Goodwill	$ 70,000	Pages 10-17 - 10-19
Patents (12-year remaining legal life)	$ 30,000	Example 10-29
Customer list	$ 50,000
Required:	Solutions
a. How would Vicki's assets be recorded for tax purposes by Palm Corporation?	a. Vicki's assets would be recorded by Palm Corporation as follows:
Tangible assets:	$
Intangible assets:
Covenant not to compete	$
Goodwill	$
Patents	$
Customer list	$
Total	$ - 0
b. What is the amortization amount for each intangible asset in the current year?	b. All except the tangible assets are Sec. 179 intangible assets and are amortized as follows:
Covenant:	$
Goodwill:	$
Patent:	$
Customer list:	$