Reference no: EM132420218
In December of Year 1, Luis purchased an olive oil business for $380,000 in an asset deal. He received the following assets:
Equipment to produce olive oil appraised at a value of $50,000 (hint: Asset Class 20.3) A warehouse appraised at a value of $150,000 A delivery truck appraised at a value of $75,000 (hint: Asset Class 42) A customer list appraised at a value of $15,000 A computer appraised at a value of $5,000 (hint: Qualified Technological Equipment)
In January of Year 2, after purchasing the business, Luis makes the following payments:
Paints the exterior of the warehouse for $15,000
A television commercial for $10,000 Builds an adjacent office to the warehouse for $50,000 Purchases another piece of equipment to produce olive oil from his friend Odette for $35,000 (even though the appraised value is $50,000)
Assume he does not make a Section 179 election.
In February of Year 4, Luis sells the business in an asset deal for $500,000
Both Equipments are appraised at a value of $40,000 each The warehouse is appraised at a value of $320,000 The delivery truck is appraised at a value of $5,000 The customer list is appraised at a value of $8,000 The computer is appraised at a value of $500
Question 1: What items can Luis expense currently (i.e. not through depreciation/amortization) in Year 2?
Question 2: Identify the acquisition basis, depreciation method, property class/recovery period and depreciation convention (i.e. mid-quarter, mid-month...) for each of the items?
Question C: What is the Amount Realized on the goodwill at the time of sale?
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