Question

Purple Company acquires a copy machine on January 15, 2017, at a cost of $50,000. Purple Also acquires another new machine (seven-year property) on November 5, 2017, at a cost of $10,000. No election is made to use the straight-line method. The company does not make the 179 election. Determine the total deductions in calculating taxable income related to the machines for 2017, 2018 and 2019.

Answer 1

The tax depreciation shall be calculated using Modified Accelerated Cost Recovery System (MACRS) depreciation Table. The machine purchsed has a seven year recivery period.

Straight line method is not to be used as given in question. Hence,we will choose the 200% declining balance method since we want to recover the cost as quickly as possible.

Mid-Year Convention will be used. Mid Quarter Convetion is not applicable because 40% or more of total annual depreciable property was not placed in service in the last quarter of the year.

Depeciation of Copy Machine purchased on January 15, 2017:

Year	Basis	Depreciation Rate %	Depreciation expense	Accumulated Depreciation	Closing Book Value
						2017	$50,000	14.29%	$7,143	$7,143	$42,857
2018	$50,000	24.49%	$12,245	$19,388	$30,612
2019	$50,000	17.49%	$8,746	$28,134	$21,866

Depeciation of Copy Machine purchased on November 05, 2017:

Year	Basis	Depreciation Rate %	Depreciation expense	Accumulated Depreciation	Closing Book Value
						2017	$10,000	14.29%	$1,429	$1,429	$8,571
2018	$10,000	24.49%	$2,449	$3,878	$6,122
2019	$10,000	17.49%	$1,749	$5,627	$4,373

Year	Total Depreciation
		2017	8572
2018	14694
2019	10495