Question

In: Accounting

Karl Inc. purchased only the following properties in Year 1. (1) Machine A of $1,100,000 used...

Karl Inc. purchased only the following properties in Year 1.

(1) Machine A of $1,100,000 used for business on Jan 1 (2) Machine B of $1,200,000 used for business on Oct 10

Questions: a) What is the maximum CRA for Machine A in Year 1?

b) What is the maximum CRA for Machine A in Year 2?

c) What is the maximum CRA for Machine B in Year 1?

d) What is the maximum CRA for Machine B in Year 2?

CRA= Cost recovery allowance

Solutions

Expert Solution

Requirement 1: Compute maximum cost recovery allowance as follows

The company should use seven year recovery period and mid-quarter convention because the value of machine placed in service in the fourth quarter represents 52% of the total value of machinery placed in service during the year.

Particulars Amount Percentage
Machine A $1,100,000 48%
Machine B $1,200,000 52%
Total $2,300,000 100%

The maximum cost recovery allowance of Machine A in year one is = $275,000 ($1,100,000 × 25%).

Requirement 2: Compute maximum cost recovery allowance as follows

The maximum cost recovery allowance of Machine A in year two is = $235,730 ($1,100,000 × 21.43%).

Requirement 3: Compute maximum cost recovery allowance as follows

The maximum cost recovery allowance of Machine B in year one is = $42,840 ($1,200,000 × 3.57%).

Requirement 4: Compute maximum cost recovery allowance as follows

The maximum cost recovery allowance of Machine B in year two is = $330,600 ($1,200,000 × 27.55%).

Note: Use 7 year cost recovery rates in Table A-2 for Machine A as it is placed in service in the first quarter of the period.

Use 7 year cost recovery rates in Table A-5 for Machine B as it is placed in service in the fourth quarter of the period.

Assumed that the company has not elected section 179 expense and bonus depreciation as nothing is mentioned in the question.


Related Solutions

1)Cane Inc purchased a machine costing $80,000 on January 2nd of year 1. The machine is...
1)Cane Inc purchased a machine costing $80,000 on January 2nd of year 1. The machine is expected to last 9 years with a salvage value of $8,000. Cane sold the machine for $65,000 on July 1st of year 3. What was the gain or loss recognized on the sale? $7,222 loss $5,000 loss $7,222 gain $5,000 gain 2.)Rider Inc purchased a machine costing $70,000 on January 3rd. The machine is expected to last 10 years and 10,000 hours with a...
Carl purchased an apartment complex for $1,100,000 million on March 17 of year 1. $300,000 of...
Carl purchased an apartment complex for $1,100,000 million on March 17 of year 1. $300,000 of the purchase price was attributable to the land the complex sits on. He also installed new furniture into half of the units at a cost of $60,000. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) a. What is Carl's allowable depreciation expense for his real property for years 1 and 2? b. What is Carl's allowable depreciation expense for...
1. A business purchased a machine for $60,000. The machine is expected to be used for...
1. A business purchased a machine for $60,000. The machine is expected to be used for 8 years, after which it is expected to be sold for $6,000. Using the straight-line depreciation method, how much is the annual depreciation amount? 2. An entity’s financial year ends on 31 December. On 1 October it pays a 24-month magazine subscription of $600. Under the accrual system of accounting how much of the subscription will be recognized as an expense for the current...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $138,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $8,000. The company reports on a calendar year basis. Required: a-2. Prepare a complete depreciation schedule, beginning with the current year, using the 200 percent declining-balance method. (Assume that the half-year convention is used). a-3. Prepare a complete depreciation schedule, beginning...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $160,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. The company reports on a calendar year basis. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used). a-2. Prepare a complete depreciation schedule, beginning with the...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $170,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. The company reports on a calendar year basis. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used). a-2. Prepare a complete depreciation schedule, beginning with the...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $149,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $9,000. The company reports on a calendar year basis. Please help me with the equations how to work this problem. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $108,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $8,000. The company reports on a calendar year basis. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used). a-2. Prepare a complete depreciation schedule, beginning with the...
wanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
wanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $108,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $8,000. The company reports on a calendar year basis. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used) a-2. Prepare a complete depreciation schedule, beginning with the...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at...
Swanson & Hiller, Inc., purchased a new machine on September 1 of the current year at a cost of $130,000. The machine’s estimated useful life at the time of the purchase was five years, and its residual value was $10,000. The company reports on a calendar year basis. Required: a-1. Prepare a complete depreciation schedule, beginning with the current year, using the straight-line method. (Assume that the half-year convention is used). a-2. Prepare a complete depreciation schedule, beginning with the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT