tax 11

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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, 2010. 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 $250,000 of the acquisition cost under Sec. 179.
Solutions
Required:
a. What is Thad's total depreciation deduction for the machine in 2010?
b. Thad then sells the machine on October 5, 2012 for $80,000. Compute Thad's depreciation deductions for 2010 through 2012, the adjusted basis of the machine on October 5, 2012, and the gain or loss on the sale.

PR 11-2

Luby Corporation acquires a 100% business use automobile (MACRS 5-year recovery) on July 1, 2010 for $36,000. Luby does not elect Sec. 179, but the company otherwise desires to claim the maximum MACRS depreciation.
Required: Solution
a. What are the depreciation deductions for 2010-2012?

PR 11-3

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
Goodwill $ 70,000
Patents (12-year remaining legal life) $ 30,000
Customer list $ 50,000
Required: Solutions
a. How would Vicki's assets be recorded for tax purposes by Palm Corporation?
b. What is the amortization amount for each intangible asset in the current year?