Question

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

Salaries $200,000
Materials 80,000
Utilities 10,000
Quality control testing costs 30,000
Management study costs 5,000
Depreciation of equipment 15,000

During the current year, benefits from the project began being realized in March. If Raleigh Corporation elects a 60-month deferral and amortization period, the amount of the deduction for the current year is:
a. $56,667.
b. $50,833.
c. $55,833.
d. $61,000.
e. None of these choices are correct.

Answer 1

The correct answer is option a. Raleigh Corporation, with a total expenditure of $340,000 and a 60-month deferral and amortization period, has a monthly deduction of $5,666.67. Since benefits started in March, the deduction for the current year includes 10 months, resulting in an annual deduction of $56,667.

Step-by-step explanation:

Calculating the Deduction for Raleigh Corporation

To calculate the annual deduction Raleigh Corporation can claim, we must first total the expenditures from the development of the new plant process. These expenditures include:

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

We sum these figures to get the total expenditure: $200,000 + $80,000 + $10,000 + $30,000 + $5,000 + $15,000 = $340,000.

Since Raleigh Corporation is opting for a 60-month deferral and amortization period, we divide the total expenditure by 60 to find the monthly deduction: $340,000 / 60 months = $5,666.67 per month.

Because benefits began being realized in March of the current year, Raleigh Corporation can claim the deduction for 10 months of the current year (March through December).

Therefore, the annual deduction for the current year is: $5,666.67/month * 10 months = $56,667.

The correct choice is a. $56,667.