Question

Required information

[The following information applies to the questions displayed below.]

Phil owns a ranch business and uses four-wheelers to do much of his work. Occasionally, though, he and his boys will go for a ride together as a family activity. During year 1, Phil put 765 miles on the four-wheeler that he bought on January 15 for $6,500. Of the miles driven, only 175 miles were for personal use. Assume four-wheelers qualify to be depreciated according to the five-year MACRS schedule and the four-wheeler was the only asset Phil purchased this year. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. Calculate the allowable depreciation for year 1 (ignore the §179 expense and bonus depreciation).

b. Calculate the allowable depreciation for year 2 if total miles were 930 and personal use miles were 400 (ignore the §179 expense and bonus depreciation).


    

Answer 1

Since the assets purchased on 15th Jan, we need to use half yearly convention table
a). Allowable Depreciation for Year 1
Depreciation	1002.56
(6500*20%*77.12%)
Business Use Miles %	(765-175)/765
i.e.	77.12%
First year Dep rate as per MACRS Table	20%
b). Allowable Depreciation for Year 2
Depreciation	1185.39
(6500*32%*56.99%)
Business Use Miles %	(930-400)/930
i.e.	56.99%
Second year Dep rate as per MACRS Table	32%