Question

What is the maximum amount of depreciation deduction Harris Corp. can deduct in its second year of operation?

What is the basis of the office equipment at the end of the second year?

Harris Corp. is a technology start-up and is 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 Service Asset Basis Office equipment Manufacturing equipment Computer system August 14 April 15 $ 10,000 68,000 16,000 June 1 $94,000 Total 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.) (Round your intermediate dollar calculations and final answer to the nearest whole dollar amount.) What is the maximum amount of depreciation deduction Harris Corp. can deduct in its second year of operation? Answer is complete but not entirely correct. Depreciation expense $ 24,222 Table 1 MACRS Half-Year Convention Depreciation Rate for Recovery Period 3-Year 5-Year 7-Year 10-Year 15-Year 20-Year Year 1 5.00% 33.33% 20.00% 14.29% 10.00% 3.750% Year 2 32.00 7.219 44.45 24.49 18.00 9.50 Year 3 14.81 19.20 17.49 14.40 8.55 6.677 7.41 11.52 11.52 6.177 Year 4 12.49 7.70 8.93 5.713 Year 5 11.52 9.22 6.93 Year 6 5.76 8.92 7.37 6.23 5.285 6.55 Year 7 8.93 5.90 4.888 Year 8 4.46 6.55 5.90 4.522 Year 9 6.56 5.91 4.462 Year 10 6.55 5.90 4.461 Year 11 3.28 5.91 4.462 Year 12 4.461 5.90 Year 13 5.91 4.462 Year 14 5.90 4.461 Year 15 4.462 5.91 Year 16 2.95 4.461 Year 17 4.462 Year 18 4.461 Year 19 4.462 Year 20 4.461 Year 21 2.231

Answer 1

1) Maximum amount of depreciation deduction for second year: Depreciation Rate from table (b) 24.49% $2,449.00 24.49% S16,653.20 32% $5,120.00 Placed in Original Basis (a) Depreciatio (a * b) Class 7 Years August 14 7 Years April 15 5 Years June 1. Asset Service n Office Equipment Manufacturing Equipment $10,000 $68,000 Computer System S16,000 Total Depreciation Expense $24,222.20 2) Basis of office equipment at second year: Cost of Office Equipment Less: First year depreciation expense ($10,000*14.29% from the table) Less: First year depreciation expense as $10,000 ($1,429) calculated ($2,449) Basis of office equipment at second year S6,122