HOMEWORK for remainder of Chapter 8

Due – Tuesday, April 3rd

Turn in a copy of your homework at the beginning of class on Tuesday. Make a copy for
yourself to have while we review it in class.

1. Mary purchased a new car for use in her business during May, 2018. The auto was the
only business asset she purchased during the year and her business was extremely
profitable. Calculate her depreciation deductions for the automobile in 2018 and 2019
in the following alternative scenarios (assuming she doesn’t take bonus depreciation
unless stated otherwise):

a. The vehicle cost $20,000 and business use is 100%.

b. The vehicle cost $20,000 and business use is 70%.

c. The vehicle cost $20,000, business use is 70%, and she elects additional first-year or
bonus depreciation.

d. The vehicle cost $70,000, business use is 100%, and she elects additional first-year or
bonus depreciation.
2. Woodard Inc. has taxable income in 2018 of $5,000,000 before any depreciation
deductions (Section 179, bonus, or MACRS) and acquired the following asset during the
year:
Furniture and fixtures (used) - placed in service March 20 – basis = $1,400,000

If Woodard elects the maximum amount of Section 179 for the year, what is the amount
of deductible Section 179 expense for the year?

What is the total depreciation deduction for 2018 if he elects to take additional (or
bonus) depreciation?

What is the total depreciation deduction for 2018 if he elects not to take additional (or
bonus) depreciation?

3. In 2018, Floppy, Inc. places in service assets eligible for Section 179 expensing costing
$2,850,000. Assuming that Floppy wants to take the maximum Section 179 expense,
how much of these assets would be expensed under Section 179 in the 2018 tax year?

Assuming that Floppy does not elect additional first-year depreciation, how much would
Floppy’s total depreciation deduction be for 2018 assuming the asset is a 7-year asset?

4. Wes acquired a mineral interest during the year for $10 million. A geological survey
estimated that 250,000 tons of the mineral remained in the deposit. During the year,
80,000 were mined, and 45,000 tons were sold for $12 million. Other expenses
amounted to $5 million. Assuming the mineral depletion rate is 22%, calculate Wes’s
lowest taxable income. (You need to calculate cost and percentage depletion).
5. Julie formed a new business to sell sporting goods this year. The business opened its
doors to customers on June 1, 2018. Assuming she makes the election under Section
195, determine the amount of start-up expenditures Julie can deduct in 2018 in the
following instances:

a. She incurs startup expenditures totaling $ 36,000.

b. She incurs startup expenditures totaling $54,000.

c. She incurs startup expenditures totaling $66,000.

6. On September 30, 2018, Joan purchased a business. Of the purchase price, $60,000 is
allocated to a patent and $375,000 is allocated to Goodwill. Calculate her 2018
amortization deduction.