Santa, Jr. started a small toy factory, Toys, Inc., in his garage and incorporated it in March of
2019 as a calendar-year corporation. At that time, he began using his personal computer and
tools solely for the business as part of his contribution to start and fund the corporation. The
computer cost $2,700 but had a fair market value of only $900 at conversion and the tools, which
had cost $1,500, were valued at $1,100. During 2019, Toys, Inc. purchased two machines:
Toymaker 1, purchased on May 2, cost $24,000; Toymaker 2, purchased on June 5, cost $40,000.
The corporation expensed Toymaker 1 under Section 179. The computer, tools, and Toymaker 2
were depreciated using MACRS only. The corporation did not take any depreciation on the
garage in 2019 nor did Santa charge the business rent because the business moved to a building
purchased by Toys, Inc. for $125,000 on January 5, 2020.
On January 20, 2020, Toys, Inc. purchased $4,000 of office furniture and on July 7, it purchased
Toymaker 3 for $48,000.
On February 4, 2021, Toys, Inc. bought a new computer system for $5,100. It sold the old
computer the same day for $300. On March 15, it sold Toymaker 1 for $6,000 and purchased a
more versatile machine for $58,000. On August 15, Toys, Inc. sold bonds it had purchased with
$9,800 of the cash Santa had originally contributed to the corporation. The bonds were sold for
$10,400 to pay creditors. On October 31, Toys, Inc. purchased a purple Dodge Durango to use
for deliveries. The vehicle is used 100% for business purposes. The business takes only the
maximum allowable MACRS depreciation deduction on assets purchased in 2021 with no bonus
or Section 179. Toys, Inc. acquired no new assets in 2022.
Assume the depreciation rules for 2021 and 2022 are the same as for 2020, except for the bonus
depreciation rules. Bonus Depreciation allowance should be as written in the Internal Revenue
Code (and as presented in your textbook).
Assume the business has income of $5,000,000 for each year in question. Use the spreadsheet
provided to calculate the following:
1. Determine Toys, Inc.’s depreciation expense deductions for 2019 through 2022.
Calculate the total depreciation expense for each year.
2. Determine the realized and recognized gains or losses on the property sales transactions
Use the drop-down boxes provided to answer the questions about bonus and sect. 179 and to
enter the useful life, depreciation method and convention for each asset. Use Excel to calculate
depreciation expense for each asset for each year (2020-2022), total depreciation expense for
each year and to calculate gains or losses on the assets sold in 2021.
Submit the Excel spreadsheet electronically through Canvas, formatted to one page, no later than
Tuesday, December 1 at midnight. Calculate the realized and recognized gains/losses in the same
spreadsheet, under the depreciation schedule, clearly labeling the answers and the parts of the
calculations. The only thing that needs to be turned in is the Excel spreadsheet.
I worked with: ______________________________________________
Toys, Inc. Assets
Fixed Asset Listing with Depreciation
Toymaker 1 replacement
Sect. 179 depreciation Depreciable
* Useful life by IRS guidelines
^ Eligible for Sect. 179, Bonus?
Sect. 179 taken, Bonus taken
Does this one asset meet the requirements to take Sect. 179 or Bonus Depreciation?
If you took Sect. 179 or Bonus, or both, how much did you take?
What is this asset’s remaining basis for depreciation, after taking Sect. 179 or Bonus?
Calculate the realized and recognized gain or loss for the following assets. Be sure to label each part of your calculation and clearly label gain or loss.
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