Question

Please Solve the following problems

In 2015, Firm A paid $50,000 cash to purchase a tangible business asset. In 2015 and 2016, it deducted $3,140 and $7,200 depreciation with respect to the asset. Firm A’s marginal tax rate in both years was 35 percent.  a. Compute Firm A’s net cash low attributable to the asset purchase in each year.  b. Compute Firm A’s adjusted basis in the asset at the end of each year.

Ryland Company, a calendar year taxpayer, purchased commercial realty for $2 million and allocated $200,000 cost to the land and $1.8 million cost to the building. Ryland placed the real estate in service on May 21.  a. Compute Ryland’s MACRS deprecoiation with respect to the realty for the year of purchase.  b. How would your answer change if Ryland placed the realty in service on September 2 instead of May 21?  c. How would your answer to part a change if the building was a residential apartment complex instead of a commercial ofice?

Mr. and Mrs. FB, a retired couple, decided to open a family restaurant. During March and April, they incurred the following expenses.

Prepaid rent on commercial real estate  

($2,100 per month from April through December) $ 18,900  

Prepaid rent on restaurant equipment  

($990 per month from April through December) 8,910  

Advertising of upcoming Grand Opening 900  

Staff hiring and training 11,500  

TOTAL $ 40,210

Mr. and Mrs. FB served their first meal to a customer on May 1. Determine the tax treatment of the above expenses on their tax return.

Answer 1

Answer;-

a. Compute Firm A’s net cash flow attributable to the asset purchase in each year.

Particulars	2015	2016
Cost of Assets	($50000)	0
Tax Savings :-
Annual Depreciation @ 35%	$1099	$2520
Net Cash Flow	($48,901)	$2520

b. Compute Firm A’s adjusted basis in the asset at the end of each year.

Intial Cost of Assets $50000

1st Year Depreciation ($ 3140)

Adjusted Basis at the end of 2015 $ 46,860

Year 2 Depreciation ($7200)

Adjusted Basis at the end of 2016 $ 39,660 Answer