Betty Boop started a small toy factory, Boopy Doop, Inc., in her garage and incorporated it in March of 2014 as a calendar-year corporation. At that time, she began using her personal computer and tools solely for the business as part of her contribution to the corporation. The computer cost $2,700 but had a fair market value of only $900 at conversion and the tools, which had cost $1,500, were valued at $1,100. During 2014, Boopy Doop, Inc. purchased two machines: Gadget 1, purchased on May 2, cost $24,000; Gadget 2, purchased on June 5, cost $40,000. The corporation expensed Gadget 1 under Section 179. The computer, tools, and Gadget 2 were depreciated using accelerated MACRS only. The corporation did not take any depreciation on the garage nor did Betty charge the business rent because the business moved to a building purchased by Boopy Doop, Inc. for $125,000 on January 5, 2015. On January 20, 2015, Boopy Doop, Inc. purchased $4,000 of office furniture and on July 7, it purchased Gadget 3 for $48,000. It depreciated these assets under MACRS (including allowable bonus depreciation) but did not use Section 179 expensing. Boopy Doop, Inc. acquired no new assets in 2016 or 2017. On February 4, 2018, Boopy Doop, Inc. bought a new computer system for $5,100. It sold the old computer the same day for $300. On March 15, it sold Gadget 1 for $6,000 and purchased a more versatile machine for $58,000 (Gadget 4). On August 15, Boopy Doop, Inc. sold bonds it had purchased with $9,800 of the cash Betty had originally contributed to the corporation for $10,400 to pay creditors. On October 31, Boopy Doop, Inc. purchased a purple Dodge Durango to use for deliveries. The vehicle is used 100% for business purposes. The business takes only the maximum allowable MACRS depreciation or §168 Bonus Depreciation deduction on assets purchased in 2018 with no Section 179. Assume Bonus Depreciation under §168 was 50% for all years except 2018. For 2018, the Bonus Depreciation allowance for purposes of this assignment is as written in the Internal Revenue Code. Assume the business has income of $5,000,000 for each year in question. Use the spreadsheet provided to calculate the following: Determine Boopy Doop, Inc.’s depreciation expense deductions for 2014 through 2018. Determine the realized and recognized gains or losses on the property transactions in 2018. Use the drop-down boxes provided to answer the questions about bonus and sect. 179 and to enter the useful life, depreciation method and convention for each asset. Use Excel to calculate the answers to the above questions. Submit the Excel spreadsheet electronically through Canvas. You may calculate the realized and recognized gains/losses in the same spreadsheet, under the depreciation schedule, clearly labeling the answers and the parts of the calculations. Please note the years referenced. Use the internet if you need to in order to find the correct answers. Boopy Doop, Inc. Assets Fixed Asset Listing with Depreciation For 2014-2018 Depreciation for: Asset Cost Purchase date Useful Life* (in years) Eligible for Sect. 179? ^ Eligible for Bonus? ^ Convention Depreciation Method Sect. 179 taken Bonus depreciation taken Depreciable basis 2014 2015 2016 2017 2018 Personal computer $ 900 3/1/2014 Personal tools $ 1,100 3/1/2014 Gadget 1 $ 24,000 5/2/2014 Gadget 2 $ 40,000 6/5/2014 Building $ 125,000 01/052015 Office furniture $ 4,000 1/20/2015 Gadget 3 $ 48,000 7/7/2015 Computer system $ 5,100 2/4/2018 Gadget 1 replacement $ 58,000 3/15/2018 Dodge Durango $ 55,000 10/31/2018 Total $ 361,100 $ - $ - $ - $ - $ - $ - * Useful life by IRS guidelines ^ Eligible for Sect. 179, Bonus? Does this one asset meet the requirements to take Sect. 179 or Bonus Depreciation? Sect. 179 taken, Bonus taken If you took Sect. 179 or Bonus, or both, how much did you take? Depreciable Basis What is this asset's remaining basis for depreciation, after taking Sect. 179 or Bonus?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Betty Boop started a small toy factory, Boopy Doop, Inc., in her garage and incorporated it in March of 2014 as a calendar-year corporation. At that time, she began using her personal computer and tools solely for the business as part of her contribution to the corporation. The computer cost $2,700 but had a fair market value of only $900 at conversion and the tools, which had cost $1,500, were valued at $1,100. During 2014, Boopy Doop, Inc. purchased two machines: Gadget 1, purchased on May 2, cost $24,000; Gadget 2, purchased on June 5, cost $40,000.
The corporation expensed Gadget 1 under Section 179. The computer, tools, and Gadget 2 were
On February 4, 2018, Boopy Doop, Inc. bought a new computer system for $5,100. It sold the old computer the same day for $300. On March 15, it sold Gadget 1 for $6,000 and purchased a more versatile machine for $58,000 (Gadget 4). On August 15, Boopy Doop, Inc. sold bonds it had purchased with $9,800 of the cash Betty had originally contributed to the corporation for $10,400 to pay creditors. On October 31, Boopy Doop, Inc. purchased a purple Dodge Durango to use for deliveries. The vehicle is used 100% for business purposes. The business takes only the maximum allowable MACRS depreciation or §168 Bonus Depreciation deduction on assets purchased in 2018 with no Section 179.
Assume Bonus Depreciation under §168 was 50% for all years except 2018. For 2018, the Bonus Depreciation allowance for purposes of this assignment is as written in the Internal Revenue Code.
Assume the business has income of $5,000,000 for each year in question. Use the spreadsheet provided to calculate the following:
- Determine Boopy Doop, Inc.’s depreciation expense deductions for 2014 through 2018.
- Determine the realized and recognized gains or losses on the property transactions in 2018.
Use the drop-down boxes provided to answer the questions about bonus and sect. 179 and to enter the useful life, depreciation method and convention for each asset. Use Excel to calculate the answers to the above questions. Submit the Excel spreadsheet electronically through Canvas. You may calculate the realized and recognized gains/losses in the same spreadsheet, under the depreciation schedule, clearly labeling the answers and the parts of the calculations.
Please note the years referenced. Use the internet if you need to in order to find the correct answers.
| Boopy Doop, Inc. Assets | |||||||||||||||
| Fixed Asset Listing with Depreciation | |||||||||||||||
| For 2014-2018 | |||||||||||||||
| Depreciation for: | |||||||||||||||
| Asset | Cost | Purchase date | Useful Life* (in years) | Eligible for Sect. 179? ^ | Eligible for Bonus? ^ | Convention | Depreciation Method | Sect. 179 taken | Bonus depreciation taken | Depreciable basis | 2014 | 2015 | 2016 | 2017 | 2018 |
| Personal computer | $ 900 | 3/1/2014 | |||||||||||||
| Personal tools | $ 1,100 | 3/1/2014 | |||||||||||||
| Gadget 1 | $ 24,000 | 5/2/2014 | |||||||||||||
| Gadget 2 | $ 40,000 | 6/5/2014 | |||||||||||||
| Building | $ 125,000 | 01/052015 | |||||||||||||
| Office furniture | $ 4,000 | 1/20/2015 | |||||||||||||
| Gadget 3 | $ 48,000 | 7/7/2015 | |||||||||||||
| Computer system | $ 5,100 | 2/4/2018 | |||||||||||||
| Gadget 1 replacement | $ 58,000 | 3/15/2018 | |||||||||||||
| Dodge Durango | $ 55,000 | 10/31/2018 | |||||||||||||
| Total | $ 361,100 | $ - | $ - | $ - | $ - | $ - | $ - | ||||||||
| * Useful life by IRS guidelines | |||||||||||||||
| ^ Eligible for Sect. 179, Bonus? | Does this one asset meet the requirements to take Sect. 179 or Bonus Depreciation? | ||||||||||||||
| Sect. 179 taken, Bonus taken | If you took Sect. 179 or Bonus, or both, how much did you take? | ||||||||||||||
| Depreciable Basis | What is this asset's remaining basis for depreciation, after taking Sect. 179 or Bonus? |
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