Question

Asset	Depreciable basis	placed in service	service life
furniture	$88,000	1/15/x0	3 years
computer equipment	22,600	6/30/x1	5 years
office machinery	68,000	11/1/x3	7 years
manufacturing equipment	108,000	2/15/x2	10 years
year ending	12/31/x3

use the MACRS Table

a. Calculate current year depreciation expense on the furniture:

b. Calculate current year depreciation expense on the computer:

c. Calculate current year depreciation expense on the office machine:

d. Assume the office machinery remains in service throughout the next two calendar years. Calculate depreciation for 20X4.

e. Calculate the basis (net tax value) of the office machinery at the end of year three assuming it remains in service until that date:

f. Calculate current year depreciation expense on the mfg. equipment:

Answer 1

Straight line depreciation is calculated by following formula:

(Depreciable Value - Scrap Value)/ Service Life

If the asset is used for a part of the year, then the depreciation shall be pro-rated accordingly.

a. Calculation of depreciation expense on furniture for the year ended 12/31/x3

Depreciable Value - $ 88000

Depreciation Date start - 1/15/x0

Now, furniture was in use for 351 days in year ended 12/31/x0 and for full in year ended 12/31/x1 and 12/31/x2. hence the remaining useful life of furniture is 14 days.

The depreciation is ($88000/3 years)*15 days/365 days = $ 1205

Journal entry

Depreciation in Furniture A/c Dr $1205

To Furniture A/c $1205

b. Calculation of depreciation expense on computer for the year ended 12/31/x3

Computer was bought in the year x1 and has a useful lie of 5 years. As the computer was in use throughout in the year x3, depreciation for the full year.

The depreciation is $22,600/5 years = $ 4520

Journal Entry

Depreciation in Computer A/c Dr $ 4520

To Computer Equipment A/c $4520

c. Calculation of depreciation expense on office machinery for the year ended 12/31/x3

Office Machinery was bought on 11/1/x3. Hence depreciation for this asset shall be prorated.

The depreciation is ($68000/7 years) * 2 months/12 months = $ 1619

Journal Entry

Depreciation in Office Machinery A/c Dr. $1619

To Office Machinery A/c $1619

d. Calculation of depreciation expense on manufacturing equipment for the year ended 12/31/x3

It was bought on 2/15/x2 and hence was in use for the full year ended on 12/31/x3. The depreciation shall be provided in full

The depreciation is $108000/10 years = $ 10800

Journal Entry

Depreciation in Manufacturing Equipment A/c Dr. $10800

to Manufacturing Equipment A/c $10800

e. Manufacturing equipment is also in use in the year 20x4. As the company follows straight line depreciation, the depreciation value will remain the same and so will the journal entry.

Deprecaition = $ 10800

Journal Entry

Depreciation in Manufacturing Equipment A/c Dr. $10800

to Manufacturing Equipment A/c $10800