Daschle LLC completed some research and development during June of the current year. The related costs were $69,600. If Daschle wants to capitalize and amortize the costs as quickly as possible, what is the total amortization amount Daschle may deduct during the current year?
A) $0
B) $7,540
C) $8,120
D) $13,920
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Research and development costs may be expensed or capitalized, with the latter option allowing for amortization over a period of time. The maximum period over which these costs can be amortized is five years. Therefore, if Daschle LLC wants to amortize the costs as quickly as possible, they would choose to amortize the full $69,600 over five years, resulting in an annual amortization amount of $13,920 ($69,600/5). However, since the costs were incurred in June of the current year, only half of this amount ($6,960) can be amortized in the current year. Therefore, the total amortization amount Daschle may deduct during the current year is $8,120 ($6,960 + $1,160 [half-year convention]).

Daschle LLC Completed Some Research and Development During June of the Current