Timothy Purchased a New Computer for His Consulting Practice on October

question 38

Essay

Timothy purchased a new computer for his consulting practice on October 15ᵗʰ of the current year. The basis of the computer was $4,000. During the Thanksgiving holiday, he decided the computer didn't meet his business needs and gave it to his college-aged son in another state. The computer was never used for business purposes again. Timothy had $50,000 of taxable income before depreciation. What is Timothy's total cost recovery expense with respect to the computer during the current year?

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Definitions:

Direct Labor

Labor costs directly traceable to the production of specific goods or services, such as wages for assembly line workers.

Overhead

Expenses that are not directly associated with the production of goods or services but are required for the company's operations, such as rent, utilities, and administrative salaries.

Book Value

The net value of a company's assets found on the balance sheet, calculated by subtracting liabilities from the total value of assets.

Variable Costs

Expenses that change in proportion to the activity of a business, such as materials and labor costs that increase with production volume.