While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a

Question:

While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the following assets 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 April of year 2, they decided to purchase a customer list from a company providing virtually the same services, started by fellow information systems students preparing to graduate. The customer list cost $10,000, and the sale was completed on April 30. During their summer break, Dallin and Michael passed on internship opportunities in an attempt to really grow their business into something they could do full time after graduation. In the summer, they purchased a small van (for transportation, not considered a luxury auto) and a pinball machine (to help attract new employees). They bought the van on June 15, Y2, for $15,000 and spent $3,000 getting it ready to put into service. The pinball 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

Pinball 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.

a. What are the maximum cost recovery deductions for eSys Answers for Y1 and Y2?

b. Complete eSys Answers’ Form 4562 for Y1 (use the most current form available).

c. What is eSys Answers’ basis in each of its assets at the end of Y2?

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Taxation Of Individuals And Business Entities 2021

ISBN: 9781260247138

12th Edition

Authors: Brian Spilker, Benjamin Ayers, John Barrick, Troy Lewis, John Robinson, Connie Weaver, Ronald Worsham

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