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Mid-Quarter vs. Half-Year Convention. (Obj. 1) A calendar-year taxpayer acquired four new machines in 2019 on the dates shownFrials of Federal Income Taxation b. Same as in Part a., except that the third machine was acquired on September 30 (instead

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Answer #1

Answer to part a :

Depreciation = [Purchase cost - Salvage value] / Life of machine

Since these machines have no salvage value & life of 7 years

  • Depreciation of machine 1 of 1 year = 50000 / 7 = 7142.86

since machine 1 acquired on 1 febuary, so depreciation is charged for 11 months i.e.  

7142.86 *11 /12 = $ 6548

  • Depreciation of Machine 2 for 1 year = 70000 / 7 = 10000   Since Machine 2 acquired on 1 april, so depreciation is charged for 9 months i.e. 10000 * 9/12 = $ 7500
  • Depreciation of Machine 3 for 1 year = 60000/7 = 8571.43 since machine 3 acquired on 1 october, so depreciation is charged for 3 months only i.e. 8571.43 * 3/12 = $ 2143
  • Depreciation of Machine 4 for 1 year = 80000 / 7 = 11428.57 since Machine 4 acquired on 1 december, so depreciation is charged for 1 month only i.e. 11428.57 * 1/12 = $ 952

Total Depreciation expense reported in Schdule C = 6548 + 7500 + 2143 + 952 = $ 17143

Answer to part b:

Since third machine acquired on sept 30 instead of 1 oct, depreciation of 1 more day is charged Total days machine is in use after purchase is :

sept 1 days

oct 31 days

nov 30 days

dec 31 days

total 93 days

depreciation of machine 3 for 1 year = $ 8571.43

so depreciation of 93 days = 8571.43 * 93/365 = $2188 Total depreciation reported in schdule C = 6548 + 7500 + 2188 + 952 = $ 17188

Difference between answers of part a nd part b = 17188 - 17143 = $45

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