fixed assets / income tax

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use ch10/ch11 book: Spilker, Taxation of Individuals and Business Entities, 9e (eBook) Spilker, Taxation of Individuals and Business Entities, 9e

Santa’s elf, Bernard, has sent you a list of the assets purchased in 2017 for the workshop and Toyland property, all part of Santa’s Workshop LLC.

All property was purchased new except for the four-wheeler. Santa owned the four-wheeler personally and transferred ownership of the vehicle to the LLC in June of this year. He paid $15,000 when it was new. It’s current fair market value (and at the time of the transfer) is $12,000.

The workbench was delivered to the North Pole workshop at a cost of $5,000. Santa’s elves were too busy to install it, so Santa’s Workshop LLC paid $3,000 to have it professionally installed on the day it was delivered.

Date Purchased Asset Description Cost Basis

Official Transportation

10/20/17 Sleigh 120,000

10/31/17 New Reindeer 5,000

11/12/17 New Reindeer 7,000

Workshop Equipment

01/30/17 hammer 20

02/28/17 Workbench 65,000

03/14/17 Table saw 3,000

04/01/17 Conveyor System 82,000

06/15/17 Air conditioning unit replacement 17,000

Property Transportation

06/05/17 Used four-wheeler

In addition to the fixed asset additions, the LLC disposed of the following assets in 2017.

The old work bench, purchased at a cost of $50,000, was sold to an unrelated party for $45,000. The workbench had accumulated depreciation of $38,000 at the time of the sale.

Santa’s brother Fred is starting a new delivery venture of his own, so the LLC sold him the old sled. The old sled cost the LLC $100,000 when it was new and had accumulated depreciation of $30,000 at the time of the sale. Fred purchased the sled for its fair market value, $80,000. Unfortunately, Fred was unable to get a loan to buy the sled and did not have enough cash to purchase it outright. Santa, as the CEO of the LLC, agreed to sell the sled to Fred on an installment plan. The agreement calls for Fred to pay the LLC over 10 years with $8,000 paid each year.

Please answer the following questions and provide the requested information for Santa. (And be sure to follow the directions and answer the questions to the best of your ability to avoid getting coal in your stocking this year.)

1. Complete the fixed asset schedule with the new assets.

2. Using the functions embedded in the spreadsheet, the IRS tables and using formulas to complete the calculations figure the amount of depreciation for each asset. Your finished fixed asset schedule should have depreciation for 2017 and 2018 for each asset. You should also total the depreciation expense for the assets for each year. Print out the fixed asset schedule, formatted to one page, and turn in on December 5 in class. Also upload your electronic Excel file to Canvas before class.

3. Calculate the gain or loss for the two disposals in 2017. Be sure to include gain or loss for each year reporting is required for the sale of both assets.

4. Assuming Santa has adequate income, which of the assets obtained this year by the LLC are eligible for Sect. 179? Does Santa have any limitations on the amount of Sect. 179 he would be allowed to take? If so, what are they? If not, why not?

5. Which of Santa’s new assets are eligible for 50% bonus depreciation treatment?

6. Should all the new assets purchased be added to the fixed asset schedule? If not, identify any that should not be added and explain why.

7. Santa has still not named his two new reindeer. If you have any ideas, please share them.

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