Question

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

Salaries $225,000
Materials 80,000
Land acquisition costs 10,000
Patent application costs 15,000
Management study costs 5,000
Depreciation of equipment 15,000
During the current year, benefits from the project began being realized in March. If Wright Corporation elects a 60-month deferral and amortization period, the amount of the deduction for the current year is:
a.$53,333.
b.$55,833.
c.$67,000.
d.$225,000.
e.$57,500.

Answer 1

The current year tax deduction for Wright Corporation, with a 60-month deferral and amortization period, is calculated by adding eligible costs, dividing by the amortization period, and adjusting for the month's benefits were realized, resulting in $41,666.70.

Step-by-step explanation:

The student is asking about the calculation of the tax deduction amount for Wright Corporation's expenditures on developing a new plant process during the first year of benefits realization, with a 60-month deferral and amortization period. To calculate this, we must first determine the total costs that are eligible for amortization, excluding land acquisition costs that are not depreciable or amortizable. The eligible costs are salaries, materials, patent application costs, management study costs, and depreciation of equipment, which sum up to $250,000. We then divide this total by 60 months (the period of deferral and amortization) to obtain the monthly amortization amount and multiply by the number of months in the current year that benefits were realized (10 months, from March to December). The monthly amortization amount is $4,166.67 ($250,000 / 60 months), resulting in an annual deduction for the current year of $41,666.70 (10 months x $4,166.67 per month).