At the beginning of the year, Anna began a calendar-year business and placed in service the...

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At the beginning of the year, Anna began a calendar-year business and placed in service the...

At the beginning of the year, Anna began a calendar-year business and placed in service the following assets during the year:

	Date	Cost
Asset	Acquired	Basis
Computers	1/30	$	28,000
Office desks	2/15	$	32,000
Machinery	7/25	$	75,000
Office building	8/13	$	400,000

Assuming Anna does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

a. What is Anna's year 1 cost recovery for each asset?

b. What is Anna’s year 2 cost recovery for each asset?

business accounting

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Answer 1

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Answer #1

Requirement a: Compute the cost recovery in year one of each asset as follows

Particulars	Purchase Date	Quarter	Recovery Period	Original Basis (a)	Rate (b)	Cost Recovery (a) × (b)
Computers	Jan. 30	1^st	5	$28,000	20.00%	$5,600
Office desks	Feb. 15	1^st	7	$32,000	14.29%	$4,573
Machinery	Jul. 25	3^rd	7	$75,000	14.29%	$10,718
Office building	Aug. 13	3^rd	39	$400,000	0.962%	$3,846
Total cost recovery in year one						$24,736

Note: 0.962% ((1÷39) × 4.5 months ÷ 12 months)

Requirement b: Compute the cost recovery in year two of each asset as follows

Particulars	Purchase Date	Quarter	Recovery Period	Original Basis (a)	Rate (b)	Cost Recovery (a) × (b)
Computers	Jan. 30	1^st	5	$28,000	32.00%	$8,960
Office desks	Feb. 15	1^st	7	$32,000	24.49%	$7,837
Machinery	Jul. 25	3^rd	7	$75,000	24.49%	$18,368
Office building	Aug. 13	3^rd	39	$400,000	2.564%	$10,256
Total cost recovery in year two						$45,421

Note: 2.564% (1÷39)

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