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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.)

Expense Date Amount
Attorney fees for articles of incorporation February 10 $40,500
March 1 – March 30 wages March 30 6,550
March 1 – March 30 rent March 30 2,850
Stock issuance costs April 1 24,000
April 1 – May 30 wages May 30 16,375

Required:
(a) What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation?
(b) What amount of start-up costs and organizational expenditures may the corporation immediately expense in year 1?
(c) What amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 (not including the amount it immediately expensed)? (Round intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.)

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Capricious23

Answer:

Task a:

What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation?

The answer is $49,900.

Task b:

The answer is:

Expense Startup costs of $5,000 and organisational expenditures of $5,000 in year 1

Task c

The answer is:

Organisation expenditure = $1,775

Startup costs = $220

Explanation:

Task a:

What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation?

Solution:

Startup costs are the cost incurred before the business began - i.e. costs to start a business

Startup costs:

March 1 - March 30 wages  = $6,550 (A)

March 1 - March 30 rent = $2,850 (B)

Organisational expenditures:

Attorney fees for articles of incorporation = $40,500 (C)

We will be adding the all three (A+B+C) = $6,500 + $2,850 + $40,500 = $49,900.

Task b:

What amount of start-up costs and organizational expenditures may the corporation immediately expense in year 1?

Solution:

Both organisational expenditures as well as startup costs do not exceed $50,000 each. Hence, the corporation can immediately expense Startup costs of $5,000 and organisational expenditures of $5,000 in year 1 of the business.

  • Organizational expenditure is allowed only for Corporations and partnerships but not for sole proprietorship.
  • Sole Proprietoship shall treat both orgainisational expenditure and startup costs as Startup costs.
  • $5,000 shall be immediately expensed in year 1 and remaining costs shall be amortized over the period of 180 months.

Task c:

hat amount can the corporation deduct as amortization expense for the organizational expenditures and for the start-up costs for year 1 (not including the amount it immediately expensed)?

Solution:

Amount deductible as amortization expense:

Organisation expenditure = $1,775

Startup costs = $220

Note:

Please view the attached file for the complete schedule.

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