Q1. On January 1 of the existing year, Palm Corporation purchases the net assets of Vicki's unincorporated business for $600,000. The tangible net assets have a $300,000 book value and a $400,000 FMV. The purchase agreement states that Vicki may not compete with Palm Corporation by starting a new business in the same area for a period of five years. The stated consideration received by Vicki for the covenant not to compete is $50,000. Other intangible assets included in the purchase agreement are as follows:

Item     

Goodwill              $70,000

Patents (12-year remaining legal life)      $30,000

Customer list     $50,000

a. How would Vicki's assets be recorded for tax purposes by Palm Corporation?

b. What is the amortization amount for each intangible asset in the current year?

Q2. Luby Corporation acquires a 100% business use automobile (MACRS 5-year recovery) on July 1, 2010 for $36,000. Luby does not elect Sec. 179, but the corporation otherwise desires to claim the maximum MACRS depreciation. What are the depreciation deductions in 2010-2012?

Q3. Thad acquires a machine at a cost of $502,000 for use in his business and places it in service on April 1, 2010. The machine is depreciated under MACRS, with a 7-year recovery period. This machine was his only acquisition of the year. Thad elects to expense $250,000 of the acquisition cost under Sec. 179.

a. What is Thad's total depreciation deduction for the machine in 2010?

b. Thad then sells the machine on October 5, 2012 for $80,000. Compute Thad's depreciation deductions for 2010 through 2012, the adjusted basis of the machine on October 5, 2012, and the gain or loss on the sale.