F and G Formed a Corporation on March 1 This

question 5

Multiple Choice

F and G formed a corporation on March 1 this year.F transferred equipment worth $40,000 (basis $15,000) in exchange for 40 shares of stock, and performed services worth $10,000 in exchange for 10 shares of stock.In exchange for 50 shares of stock, G contributed land worth $70,000 (basis $9,000) subject to a mortgage of $20,000, which the corporation assumed.The following statements concern the computation of depreciation of the equipment contributed by F.In which statement is the computation of depreciation correctly described?

• A)Assuming F and G were incorporating their partnership, the partnership will report no depreciation and the corporation will report all the depreciation allowable.
• B)Assuming F and G had never before been in business, the corporation will compute its depreciation deduction for the entire year by applying the depreciation percentage to the adjusted basis of the property.
• C)Assuming F contributed the equipment that she had used in her sole proprietorship business for two years (which is continued by the corporation), the corporation may treat the asset as newly acquired property, use the first year depreciation percentage, and claim 10/12 of the amount so determined in computing depreciation.
• D)Assuming F transferred equipment that she had used in her own business, the corporation will merely step into the shoes of F and claim the deduction she would otherwise be able to claim, and
• E)None of the above

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Definitions:

Unit Costs

The cost incurred by a company to produce, store, and sell one unit of a particular product or service.

Production

The process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output).

Average Total Cost

The total cost of production divided by the quantity produced, representing the per unit cost of goods or services.

Output

The amount of products or services generated by a company, sector, or economic system within a specific timeframe.