Question

Harris Corp. is a technology start-up in its second year of operations. The company didn’t purchase any assets this year but purchased the following assets in the prior year:

	Placed in
Asset	Service		Basis
Office equipment	August 14	$	12,000
Manufacturing equipment	April 15		88,000
Computer system	June 1		36,000
Total		$	136,000

Harris did not know depreciation was tax deductible until it hired an accountant this year and didn’t claim any depreciation deduction in its first year of operation. (Use MACRS Table 1 and Table 2.)

a. What is the maximum amount of depreciation deduction Harris Corp. can deduct in its second year of operation? (Leave no answer blank. Enter zero if applicable.)

Depreciation Deduction =

b. What is the basis of the office equipment at the end of the second year? (Leave no answer blank. Enter zero if applicable.)

Basis of Office Equipment =
TABLE 1 MACRS Half-Yoar Convention Year 3-Year 33.33% 44.45 14.51 7.41 Depreciation Rate for Recovery Period 5-Year 7-Year 10-Year 15-Year | 20-Year 20.00% 14.29% 10.00% 5.00% 3.750% 32.00 24.49 15.00 9.50 7.219 19.20 14.40 S.55 6.677 11.52 12.49 11.52 6.177 11.52 8.93 5.713 5.255 17.49 7.70 8.93 4.888 4.46 4.522 501 4.462 5.90 4.461 5.91 4.462 4.461 4.462 4.461 4.462 2.95 4.461 4.462 4.461 4.462 4.461 2.231

    

Answer 1

1)
Asset	Service	Basis	MACRS Rate	Depreciation
Office equipment (7 years)	14-Aug	12,000	24.49%	$   2,938.80
Manufacturing equipment (7 years)	15-Apr	88,000	24.49%	$ 21,551.20
Computer system (5 years)	1-Jun	36,000	32%	$ 11,520.00
Total		136,000		$ 36,010.00	Maximum depreciation deduction
Harris is required to use the half year convention  of 2nd year rates
2)
Cost of Office Equiment	$ 12,000.00
Less: Depreciation 1st year (12000 x 14.29%)	$   1,714.80
Less: Depreciation 2ndt year (12000 x 24.49%)	$   2,938.80
Basis in the second Year	$   7,346.40