Evergreen Corporation (calendar-year-end) acquired the following assets during the current year (ignore §179 expense and bonus depreciation for this problem): (Use MACRS Table 1 and Table 2.)
Date Placed | Original | ||
Asset | in Service | Basis | |
Machinery | October 25 | $ | 70,000 |
Computer equipment | February 3 | 10,000 | |
Used delivery truck* | August 17 | 23,000 | |
Furniture | April 22 | 150,000 | |
*The delivery truck is not a luxury automobile.
a. What is the allowable MACRS depreciation on Evergreen’s property in the current year?
b. What would be the allowable MACRS depreciation on Evergreen’s property in the current year if the machinery had a basis of $170,000 rather than $70,000?
a) | |||||
Placed in | Original | ||||
Asset | Service | Basis | Rate | Depreciation | |
(a) | (b) | (a)*(b) | |||
Machinery (7 year) |
Oct-25 |
$70,000 |
14.29% |
$10,003 |
|
Computer equipment (5 year) | Feb-03 | $10,000 | 20.00% | $2,000 | |
Used delivery truck (5 year) | Aug-17 | $23,000 | 20.00% | $4,600 | |
Furniture (7 year) | Apr-22 | $150,000 | 14.29% | $21,435 | |
Total | $ 2,53,000 | $38,038 |
Evergreen is not required to use the mid quarter convention because only 27.67% of its tangible personal property was placed in service during the 4th quarter (70,000/253,000). The delivery truck is not considered to be a luxury auto. |
b)
Placed in | Quarter | Original | |||
Asset | Service | Basis | Rate | Depreciation | |
(a) | (b) | (a)*(b) | |||
Machinery (7 year) |
Oct-25 |
4th |
$170,000 |
3.57% |
$6,069 |
Computer equipment (5 year) | Feb-03 | 1st | $10,000 | 35.00% | $3,500 |
Used delivery truck (5 year) | Aug-17 | 3rd | $23,000 | 15.00% | $3,450 |
Furniture (7 year) | Apr-22 | 2nd | $150,000 | 17.85% | $26,775 |
Total | $ 2,53,000 | $39,794 |
$ 39,794, under the mid quarter convention, as computed above. Evergreen is required to use the mid quarter convention because greater than 40 percent of tangible personal property was placed in service during the 4th quarter. Evergreen placed 48.2% [$170,000 / ($10,000 + $23,000 + $150,000 + $170,000)] of its tangible personal property in service during the 4th quarter.
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