Question

In: Accounting

Dog Co. acquired and placed in service the following assets during the year: Date Cost Asset...

Dog Co. acquired and placed in service the following assets during the year:

Date Cost
Asset Placed in Service Basis
Computer equipment 2/22 $ 10,500
Furniture 3/5 21,000
Commercial building 7/6 315,000

Assuming Dog Co. 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 Dog Co.'s year 3 cost recovery for each asset if Dog Co. sells all of these assets on 4/10 of year 3?

Solutions

Expert Solution

Based on the information available in the question, we can calculate the Year 3 cost recovery for Dog co as follows:-

Asset Original cost Date placed in service MACRS Asset Life(yrs) MACRS Depreciation rate Portion of Year MACRS cost recovery
C A B D = A*B*C
Computer Equipment 10,500 02/22/Year 1 5 19.20% 50%                      1,008
Furniture 21,000 03/05/Year 1 7 17.49% 50%                      1,836
Commercial Building 3,23,000 07/06/Year 1 39 2.564% 29.17%                      2,416
Total                      5,260

The total Year 3 cost recovery for Dog company is $5,260(Rounded) based on the calculations above.

Please note that computer equipment and furniture are depreciated using the Half Yearly convention as the assets placed in service during the year of purchase did not exceed 40% during the last quarter of the year.

Commercial building is depreciated using the Mid-month convention. Under the mid month convention, any asset placed or disposed in service during the month will be considered to be in service for one half of the month of such sale/purchase. Hence, the commercial building's portion in service will be calculated as 3 months (January to march) + 0.5 month(April) = 3.5 months/12 months = 29.17% is the portion of the year the asset was in service.

Please let me know if you have any questions via comments and all the best :)


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