What are the maximum cost recovery deductions for eSys Answers for Year 1 and Year 2? Recovery Deduction Year 1 Year 2 Asset Computer Equipment Office Equipment Furniture Start-up costs Van Pinball machine Customer List Totals Adjusted Basis Original Immediate Basis Expense Year 1 Cost Recovery Year 2 Cost Year 2 Ending Basis Recovery
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While completing undergraduate schoolwork in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the following assets and incurred the following start-up fees:
| Year 1 Assets | Purchase Date | Basis |
|---|---|---|
| Computers (5-year) | October 30, Year 1 | $ 16,000 |
| Office equipment (7-year) | October 30, Year 1 | 10,000 |
| Furniture (7-year) | October 30, Year 1 | 5,000 |
| Start-up costs | October 30, Year 1 | 18,800 |
In April of year 2, they decided to purchase a customer list from a company providing virtually the same services, started by fellow information systems students preparing to graduate. The customer list cost $11,800, and the sale was completed on April 30. During their summer break, Dallin and Michael passed on internship opportunities in an attempt to really grow their business into something they could do full time after graduation. In the summer, they purchased a small van (for transportation, not considered a luxury auto) and a pinball machine (to help attract new employees). They bought the van on June 15, Year 2, for $25,000 and spent $4,000 getting it ready to put into service. The pinball machine cost $5,000 and was placed in service on July 1, Year 2.
| Year 2 Assets | Purchase Date | Basis |
|---|---|---|
| Van | June 15, Year 2 | $ 29,000 |
| Pinball machine (7-year) | July 1, Year 2 | 5,000 |
| Customer list | April 30, Year 2 | 11,800 |
Assume that eSys Answers does not claim any §179 expense or bonus depreciation. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)
Note: Round your intermediate calculations and final answers to the nearest whole dollar amount.
Required:
a. What are the maximum cost recovery deductions for eSys Answers for Year 1 and Year 2?
c. What is eSys Answers' basis in each of its assets at the end of Year 2?
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