Chapter 10, Problem 3AP

Colin, a self-employed consultant, uses a room of his home as a business office. This room represents 10 percent of the home’s square footage. This year, Colin incurred the following expenses in connection with his home.

Colin purchased the home in 2000 for $225,000. For MACRS depreciation purposes, he allocated $185,000 to the building and $40,000 to the land.

1. a. If Colin’s gross business income exceeded his operating expenses by $75,000, compute his net profit for the year.
2. b. If Colin’s gross business income exceeded his operating expenses by $1,800, compute his net profit for the year.