Question

	Magnum Construction Company, Inc. bought equipment for $2,250,000 on Jan. 1, 2014.
	The company considered various depreciation methods for financial reporting purposes
	(pro-rated by month). The company estimates the equipment will have a useful life of
	10-years with a residual value of $140,000. For tax purposes the asset falls into the
	seven-year category.
				Hours
	Estimated total hours of usage			50,000
	Actual usage		2014	5,500
			2015	6,000
			2016	4,500
	Instructions
	Calculate the following:
a	Assuming the straight-line method is used:
	(1) The depreciation expense for the year ended Dec. 31, 2014
	(2) The book value of the assets as of December 31, 2015 (2nd year)
	(3) The depreciation expense for the nine-month period ending Sept. 30, 2016
	(4) The gain or loss if the asset is sold on Sept. 30, 2016 for -------->					$1,700,000
b	Assuming double declining balance is used:
	(1) The depreciation expense for the year ended Dec. 31, 2014
	(2) The book value of the assets as of December 31, 2015 (2rd year)
	(3) The depreciation expense for the nine month period ending Sept. 30, 2016
	(4) The gain or loss if the asset is sold on Sept. 30, 2016 for -------->					$1,700,000
c	Assuming sum of the years digits is used:
	(1) The depreciation expense for the year ended Dec. 31, 2014
	(2) The book value of the assets as of December 31, 2015 (2rd year)
	(3) The depreciation expense for the nine month period ending Sept. 30, 2016
	(4) The gain or loss if the asset is sold on Sept. 30, 2016 for -------->					$1,700,000
d	Assuming units of output is used:
	(1) The depreciation expense for the year ended Dec. 31, 2014
	(2) The book value of the assets as of December 31, 2015 (2rd year)
	(3) The depreciation expense for the nine month period ending Sept. 30, 2016
	(4) The gain or loss if the asset is sold on Sept. 30, 2016 for -------->					$1,700,000
e	The tax basis (undepreciated cost) the asset as of December 31, 2017

f	The taxable gain or loss if the asset is sold on Dec. 31, 2017 for ---->					$852,900
		MACRS tax depreciation rates
			Asset classification
		Year	5-year	7-year
		1	20.00%	14.29%
		2	32.00%	24.49%
		3	19.20%	17.49%
		4	11.52%	12.49%
		5	11.52%	8.93%
		6	5.76%	8.92%
		7		8.93%
		8		4.46%

Answer 1