In: Accounting
DLW Corporation acquired and placed in service the following assets during the year: Date Cost Asset Acquired Basis Computer equipment 3/3 $ 17,000 Furniture 1/19 25,700 Commercial building 9/22 321,000 Assuming DLW does not elect §179 expensing and elects not to use bonus depreciation, answer the following questions: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
b. What is DLW's year 3 cost recovery for each asset if DLW sells all of these assets on 2/2 of year 3?
Asset | Year 3 Cost Recovery |
Computer Equipment | |
Furniture | |
Commercial Building | |
Total |
Based on the information available in the question, we can calculate the Year 3 cost recovery as follows-
Asset | Original cost | Date placed in service | MACRS Asset Life(yrs) | MACRS Depreciation rate | Portion of Year | MACRS cost recovery |
A | B | C | D = A*B*C | |||
Computer Equipment | 17,000 | 01/19 | 5 | 19.20% | 50% | 1,632 |
Furniture | 25,700 | 03/03 | 7 | 17.49% | 50% | 2,247 |
Commercial Building | 321,000 | 09/22 | 39 | 2.564% | 12.50% | 1,029 |
Total | 4,908 |
For Computer equipment and furniture, Please note that the assets are depreciated under MACRS half year convention since the company did not place more than 40% of the assets during the last quarter of the year during the year of purchase. When assets are depreciated under the Half year convention, the depreciation would be limited to 50% during the year of sale. Hence, the portion of the year for Computer equipment would remain to 50% during the year of sale(Year 3) . However, for commercial building, the building would be depreciated using the Mid month convention as applicable for non residential real properties. Under Mid - month convention, any asset placed or disposed off in service would be considered as being placed in service for one half of the month. Since the assets are sold on 02/02 of year 3, the portion of the year for Commercial building is 12.50% ( 1.5 months/12 months). Based on the above calculation, the total MACRS Cost recovery for year 3 for DLW corporation assets is $4,908.
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