Question

Barbara's Bakery purchased three new 7-year assets during the current year. She chose NOT to use Section 179 immediate expensing or take bonus depreciation. The furnishings were purchased for $15,000 in April, the equipment for $6,000 in July, and the appliances for $40,000 in November. Using the appropriate MACRS depreciation tables in the Appendix, what amount of depreciation expense is allowable in the current year?

$2,178

$4,429

$4,748

$8,717

Answer 1

Solution: The answer is $4,748

Depreciation Expense = ($15,000* 17.85% ) + ($6,000* 10.71% ) + ($40,000* 3.57% ) = $2677.50 + $642.6 + $1428

=$ 4748.1 ( $4,748 Approx )

Note:

1) Normally we use half year convention for the assets purchased during the year but in this case we used mid quarter convention because of more than 40% of assets are purchased in the last quarter of the year.

= (Asset purchased in last quarter / total assets purchased in the year) *100

= ( $40,000 / $61,000) *100 = 65.57% (more than 40%)

So we used mid quarter convention macrs depreciation rates for 7 year assets purchased in this year