Question

Last year, Embargo Corporation incurred the following expenditures in the development of a new plant process:

Salaries $200,000
Materials 80,000
Utilities 10,000
Patent fees 30,000
Management study costs 5,000
Depreciation of equipment 15,000
During the current year, benefits from the project began being realized in May. If Embargo Corporation elects a 60-month deferral and amortization period, the amount of the deduction for the current year is:____

Answer 1

The total cost incurred by Embargo Corporation for the development of a new plant process is $340,000, which is amortized over 60 months. Since benefits were realized starting in May, the deduction for the current year, covering 8 months, amounts to $45,333.36.

Step-by-step explanation:

Last year, the Embargo Corporation incurred various expenditures in the development of a new plant process. To determine the amount of the deduction for the current year, we must first add up all the development costs to calculate the total cost that will be amortized. These costs include:

• Salaries: $200,000
• Materials: $80,000
• Utilities: $10,000
• Patent fees: $30,000
• Management study costs: $5,000
• Depreciation of equipment: $15,000

The total amount to be amortized is $340,000. Since the company begins realizing benefits in May and opts for a 60-month deferral and amortization period, we need to calculate the amortization for the current year from May to December, which is 8 months of the year.The monthly amortization amount is $340,000 divided by 60 months, which equals $5,666.67 per month. For 8 months, the deduction is $5,666.67 multiplied by 8, yielding a total deduction of $45,333.36 for the current year.