home / study / questions and answers / business / accounting / blue corporation,

Question

home / study / questions and answers / business / accounting / blue corporation, a manufacturing company, decided ...

Question

Blue Corporation, a manufacturing company, decided to develop anew line of merchandise. The project began in 2015. Blue had thefollowing expenses in connection with the project:

                                                                 2015 2016

Salaries                                                    $500,000           $600,000

Materials                                                    90,000               70,000

Insurance                                                      8,000              11,000

Utilities                                                         6,000                8,000

Cost of inspection of material

For qualitycontrol                                        7,000                 6,000

Promotionexpenses                                    11,000              18,000    

Advertising                                                       -0-                20,000

Equipmentdepreciation                                 15,000            14,000

Cost of marketsurvey                                     8,000                 -0-

The new product will be introduced for sale beginning in July 2017. Determine the amount of the deduction for research andexperimental expenditures for 2015, 2016 and 2017 if:

a.    Blue Corporation elects to expense theresearch and experimental expenditures.

b.     Blue Corporation elects to amortize theresearch and experimental expenditures over 60 months.

Explanation / Answer

Answer a. Particulars 2015 2016 Salaries $500,000 $600,000 Materials $90,000 $70,000 Insurance $8,000 $11,000 Utilities $6,000 $8,000 Equipment dep. $15,000 $14,000 Total Expenses $619,000 $703,000 For 2015: Cost of inspection of materials for quality control ($7,000), promotion expenses ($11,000), and cost of market survey ($8,000) are not included as research and experimental expenditures For 2016: Cost of inspection of materials for quality control ($6,000), promotional expenses ($18,000) and advertising ($20,000) are not included as research and experimental expenditures. Answer b. The research and experimental expenditures are amortized over a 60-month period beginning with the month in which the taxpayer first realizes benefits from the experimental expenditures (i.e., July 2017 for Blue Corporation). The monthly amortization is $22033.33    ($1322000 ÷ 60) For 2015: No deduction for research and experimental expenditures. For 2016: No deduction for research and experimental expenditures. For 2017: Deduction for research and experimental expenditures: $22,033.33 X 6 months = $132200

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.