Solutions to Homework Assignments: Chapter 9 38. Jose purchased a delivery van for his business through an online auction. His winning bid for the van was $24,500. In addition, Jose incurred the following expenses before using the van: shipping costs of $650; paint to match the other fleet vehicles at a cost of $1,000; registration costs of $3,200 which included $3,000 of sales tax and a registration fee of $200; wash and detailing for $50; and an engine tune-up for $250. What is Jose’s cost basis for the delivery van? $29,150, cost basis in the delivery van, computed as follows:
Amount Explanation*

Description
Purchase price Shipping costs Paint Sales tax Total cost basis $24,500 650 1,000 3,000 $29,150 Business preparation cost Business preparation cost Business preparation cost

*Note that the registration fee, washing and detailing, and engine tune-up are costs for repairs and maintenance that are not required to be capitalized.

41. Brittany started a law practice as a sole proprietor. She owned a computer, printer, desk, and file cabinet she purchased during law school (several years ago) that she is planning to use in her business. What is the depreciable basis that Brittany should use in her business for each asset, given the following information? Asset Purchase Price FMV at Time Converted to Business use $800 $150 $1,000 $225

Computer Printer Desk File cabinet

$2,500 $300 $1,200 $200

The basis of assets converted from personal use to business use is the lesser of (1) fair market value on date of conversion or (2) basis on the date of conversion. The basis of each asset is as follows: 1

(1) FMV Asset

(2) Basis on Date of Conversion

Lesser of (1) or (2) Depreciable Basis

Computer Printer Desk File cabinet

$800 $150 $1,000 $225

$2,500 $300 $1,200 $200

$800 $150 $1,000 $200

45. At the beginning of the year, Poplock