Purchase Solution

Columbo Corporation, MACRS and tax deffered exchanges

Not what you're looking for?

Ask Custom Question

Columbo Corporation, a calendar-year corporation, began business in 2003. With the initial capital contributions from its sole shareholder, it purchased a building on March 12 for $250,000. It also purchased the following items for use in the business.

Item Purchase Date Acquisition Cost

Office Furniture April 1 $8,000
Computer April 15 $4,000
Machine A May 2 $15,000
Machine B August 4 $21,000
Machine C August 12 $31,000

Columbo used MACRS accelerated depreciation on all the assets except Machine B, which it expensed under the Section 179 election. In addition, Columbo claimed on bonus depreciation on any of these purchases.

On January 5, 2006, Columbo sold Machine A for $7,000. It purchased an upgraded Machine D for $45,000 on January 20. On May 5, its computer was completely destroyed by a power surge and was replaced. The new computer equipment cost $6,000. In October, their building was condemned by the city and Columbo had to move. The city paid Columbo $275,000 for the building and it purchased a new building for $310,000 and moved in on October 30. Also in October, the sole shareholder purchased the office furniture for $100 (Fair Market Value = $2,000) and Columbo purchased new furniture for the new building for $15,000. Rather than move Machine B (Fair Market Value = $6,000) it traded it in on new Machine E paying and additional $28,000 cash for the Machine.
a. Determine Columbo Corporation's depreciation expense in years 2003 through 2006 if it did not elect Section 179 expensing (except for Machine B).
b. Determine the amount and type of realized and recognized gain or loss on each of the property dispositions in 2006.
c. Determine the net effect of the property transactions on Columbo's taxable income in 2006.
d. Columbo used straight-line depreciation with a 10-yeat life for the office furniture and machines and a 5-year life for the computer, taking a full year's depreciation in the year of acquisition and none in the year of disposal, for financial accounting purposes.

1. Determine its financial accounting depreciation deductions for years 2003 through 2006.
2. Determine its gains and losses on property transactions for financial accounting in 2006.
3. For 2003 through 2006, determine if the differences between financial accounting and tax accounting depreciation and property transactions would result in a deferred tax asset or a deferred tax liability for the corporation (consider each year separately).

Attachments
Purchase this Solution
Solution Summary

Columbo Corporation, a calendar-year corporation, began business in 2003. With the initial capital contributions from its sole shareholder, it purchased a building on March 12 for $250,000. Using appropriate calculations, determine Columbo Corporation's depreciation expense in years 2003 through 2006 if it did not elect Section 179 expensing (except for Machine B), the amount and type of realized and recognized gain or loss on each of the property dispositions in 2006, and the net effect of the property transactions on Columbo's taxable income in 2006. Other questions are answered.

Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

View More Free Quizzes
Related BrainMass Solutions

  • Depreciation using MACRS

    This solution defines the Modified Accelerate Cost Recovery System (MACRS) and how it affects depreciation of an asset and the taxes associated. It also calculates the tax benefits the BC Corporation will realize in Sally and Ed's case.

  • Calculating the net initial investment

    The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is: A) $42,000. B) $52,440.

  • Depreciation Deductions of Rona Inc

    We also recommend that the MACRS system of depreciation be used for tax purposes only, which will drastically minimize the amount of income taxes that the corporation will owe, when Rona files their corporation income tax return.

  • PV of tax savings with MACRS, with Straight line

    332876 PV of Tax Savings with MACRS, with Straight Line Charleston Corporation will acquire a computer system for $1,000,000 on January 1, 2009. The computer system will have a 5-year life for tax purposes.

  • Francis Corp Compute MACRS tax depreciation for 2010, 2011

    322540 Francis Corporation: Compute MACRS tax depreciation for 2010 and 2011 Francis Corporation purchased an asset at a cost of $50,000 on March 1, 2010. The asset has a useful life of 8 years and a salvage value of $4,000.

  • Angiletta Corporation: PV of future cash flows, Book deprec

    476079 Angiletta Corporation: PV of future cash flows, Book depreciation, MACRS Angiletta Corporation is considering a new project requiring a $30,000 investment in test equipment with no salvage value.

  • MACRS Deprication, MACRS Computation, Income Tax Returns

    550389 MACRS Deprication, MACRS Computation, Income Tax Returns Dorothy purchased a car in the current year to be used three-fourths of the time in her business and one-fourth of the time for personal purposes.

  • Income Tax Effects

    The company elects not to take the expense deduction and will depreciate the full cost of the asset for tax purposes under MACRS using a 5-year recovery period and the straight-line method.

  • Reconciling Book To Taxable Income

    C3-59 Reconciling Book Income and Taxable Income.

View More Related Solutions