Question

Tax Drill - Compute Deduction for Research and Experimental Expenditures Sandstorm Corporation decides to develop a new line of paints. The project begins in 2019. Sandstorm incurs the following expenses in 2019 in connection with the project: Salaries: $85,000 Materials: $30,000 Depreciation on equipment: $12,500 The benefits from the project will be realized starting in July 2020. If an amount is zero, enter "0". If Sandstorm Corporation elects a 60-month deferral and amortization period, there is a $ for 2019 and a $ deduction for 2020.

Answer 1

2019 - Nil, 2020 - $12,750

Step-by-step explanation:

To compute how much deduction is in 2019 and 2019, we have to first compute the total expenses held in 2019 which is shown below:

Total Expenses = Salaries expenses + material expenses + Depreciation on equipment

= $85,000 + $30,000 + $12,500

= $127,500

Since this amortization expenditure is for 60 month, so for one month it would be

= Total expenses ÷ number of months

= $127,500 ÷ 60 months

= $2,125

Now as in 2019 all expenditure is done so no benefit or deduction is allowed

And, for 2020, the deduction would equal to

= Monthly amortization cost × number of months

= $2,125 × 6 months

= $12,750

The 6 months is calculated from July 1 to December 31. We assume that the books were closed on December 31