Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.] Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: (Leave no answer blank. Enter zero if applicable.) Amount February 10$35,500 4,900 2,350 34,000 12,250 Expense Date Attorney fees for articles of incorporation March 1 - March 30 March 1-March Stock issuance costs April 1 - May 30 wages March 30 March 30 April1 May 30 wages 30 rent a. What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation? Start-up costs Organizational expenditures

Explanation / Answer

a) The only qualifying organizational expenditure is the $35,500 of attorney fees related to the drafting articles of incorporation. The start-up costs are the wages ($4900) and rent ($2,350) before business began. Therefore, total start-up costs are $7,250

Start-up cost - $7,250
Organisational expenditure - $35,500

b)The corporation may immediately expense $5,000 of the organizational expenditure and $5,000 of the start-up costs because the amount of organizational expenditures is under $50,000 and the amount of start-up costs is under $ 50,000

Start-up costs expensed - $5,000
Organisational expenditure expensed- $5,000

C) The corporation will deduct amortization expense of $1,525 for organizational expenditures and $113 of amortization for start-up costs, computed as follow :

                                        Start-up costs
Description                         amount                     explanation
1)maximum
Immediate expense           $5000               §195(b)(1)(A)(ii)
(2) Total start-up
expenditures                    $7,250
(3) Phase-out threshold    50,000             §195(b)(1)(A)(ii)(4) Immediate expense
phase-out                                $0               (2)–(3),not less    
                                                                                     than $0
(5) Allowable immediate
expense                                $5,000           (1) – (4)
(6) Remaining
organizational
expenditures                       $2,250            (2) – (5)
(7) Recovery period
in months                           180         15 years §195(b)(1)(B)
(8) Monthly
straight-line
amortization                         12.5              (6) / (7)
(9)business months
during year 1                          × 9   April through December Year 1 straight-line
amortization for
start-up costs                       $113             (8) × (9)


                                     Organizational expenditure
Description                           Amount              explanation
1)Maximum
immediate
expense                             $5,000                   §248(a)(1)
(2) Total organizational
expenditures                       $35,500          Given in problem
(3) Phase-out
threshold                              50,000            §248(a)(1)(B)
(4) Immediate
expense phase-out                $0                      (2) ? (3)
(5) Allowable immediate
expense                                $5,000                  (1) ? (4)
(6) Remaining
organizational
expenditures                       $30,500                (2) ? (5)
(7) Recovery period
in months                               180           15 years §248(a)(2)
(8) Monthly
straight-line
amortization                         169.44          (6)/(7)
(9)business months
during year 1                        ×9      April through December
Year 1 straight-line
amortization for
organizational
expenditures                      $1,525          (8) × (9)

So,
Start-up cost amortized- $113
Organizational expenditure amortized- $1,525

d.Organizational expenditures are only authorized for corporations (§248) and partnerships (§709). They are not authorized for sole proprietorships. Typically, sole proprietorships do not incur many of the expenses that would qualify as organizational expenditures anyway.

Allowable organizational expenditure = 0

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

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