A calendar-year taxpayer acquired four new machines in 2019 on the dates shown below. Section 179...
A calendar-year taxpayer acquired four new machines in 2019 on the dates shown below. Section 179 is not elected, but regular MACRS is used to depreciate the machines. The machines have a recovery period of 7 years. The taxpayer elects out of taking bonus depreciation.
February 1 $50,000
April 1 70,000
October 1 60,000
December 1 80,000
a. compute total MACRS depreciation expense for 2019 that would be reported on Schedule C, using the appropriate averaging convention.
b. Same as in part A., except that the third machine was acquired on September 30 (instead of October 1) Comment on the significance of the difference between this amount and your answer to part a.
Homework Answers
a) Depreciation = (Purchased cost - salvage value)/ Life of asset
Life of the machine1 is 7 years and salvage value is nill
Depreciation = 50000/ 7 years = 7142.86
As the machinery 1 was purchased on feb1 depreciation will be charged for 11 months
=(7142.86/12)*11 = 6,548
* Machinery 2 is purchased on 1 April, therefore its depreciation will be calculated for 9 months
=((70000/7 years)/12)*9 months
= 7,500
* Machinery 3 is purchased on 1 October, therefore its depreciation will be calculated for 3 months
=((60000/7years)/12)*3 months
=2,143
* Machinery 4 is purchased on 1 December, therefore its depreciation will be calculated for 1 months
=((80000/7 years)/12)*1 month
=952
Therefore, total depreciation to be reported in schedule C = 6548 + 7500 + 2143 + 952
= 17,143
b) Here third machine is considered as aquired on 30 september instead of 1 october, which means that there will be 1 more additional day of use of machine in the year
Total days in each month for current year is calculated as follows:
September = 1 day
October = 31 days
November = 30 days
December = 31 days
Total = 93 days
Therefore depreciation will be calcualted for machinery 3 for 93 days as follows:
= (8,571.43/3650*93 days = 2,188
Total depreciation reported in schedule C will be = 6548 + 7500 + 2188 + 952 = 17,188
Therefore total difference between pat a and part b = 17,188 - 17,143 = $45.
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