Question

Problem 8-36 (b) (LO. 2)

Starnell acquired the following new assets during 2017:

Date Asset       Cost January 4 Computers and peripheral equipment $10,000 June 2 Truck (not subject to any depreciation limitations) 22,000 October 31 Office equipment 40,000

Starnell does not elect immediate expensing under § 179 or any additional first-year depreciation for 2017.

If required, round your answers to the nearest dollar. Click here to access the depreciation table to use for this problem.

a. What MACRS convention applies to the assets?

b. What class of property is each asset for MACRS?

c. The cost recovery for the current year is:

Computers and peripheral equipment: $ Truck: $ Office equipment: $

Answer 1

Answer a:

Mid-Quarter Convention is applicable to the assets here since depreciable base of MACRS property placed in service during the last 3 months of the tax year is more than 40% of the total depreciable bases ( as shown below) of all MACRS property placed in service during the entire year.

Depreciable base of Office equipment placed in service in last quarter = $40,000

Total depreciable bases of all MACRS property placed in service during the entire year = $10,000 + $22,000 + $40,000 = 72,000

% of asset placed in service in last quarter to entire year = $40,000 / $72,000 = 55.56%

Answer b:

Computers and peripheral equipment: 5 year class Truck 5 year class Office equipment 5 year class

Answer c:

cost recovery for the current year is:

Detailed calculations are as follows: