Question

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

$0 and $12,750

Step-by-step explanation:

To check deductions for 2019 and 2020, we need to check total expenses:

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

= $127,500

Since it has a 60 month deferral and amortization period, we need to check for each month. Therefore we have:

=Total expenses / 60months

= $127,500 ÷ 60 months

= $2,125

Therefore, in 2019 there's no benefit or deduction since all expenditures are made.

To get the 2020 the deduction we use:

= Monthly amortization or defferal cost * number of months

= $2,125 × 6 months

= $12,750

The 6 months is calculated assuming books are closed on December 31. It is from July 1 to December 31.