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11 May, 02:06

Tax Drill - Compute Deduction for Research and Experimental Expenditures 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.

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  1. 11 May, 03:06
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    2019 - Nil, 2020 - $12,750

    Explanation:

    To compute how much deduction is in 2019 and 2019, we have to first compute the total expenses held in 2019 which is shown below:

    Total Expenses = Salaries expenses + material expenses + Depreciation on equipment

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

    = $127,500

    Since this amortization expenditure is for 60 month, so for one month it would be

    = Total expenses : number of months

    = $127,500 : 60 months

    = $2,125

    Now as in 2019 all expenditure is done so no benefit or deduction is allowed

    And, for 2020, the deduction would equal to

    = Monthly amortization cost * number of months

    = $2,125 * 6 months

    = $12,750

    The 6 months is calculated from July 1 to December 31. We assume that the books were closed on December 31
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