Question

Sienna Company acquires a new machine (ten-year property) on January 15, 2015, at a cost of 200,000. Sienna also acquires another new machine (seven-year property) on November 5, 2015, at a cost of 40,000. No election is made to use the straight-line method. The company does not make the § 179 election. Sienna does not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2015.

1) 25,716
2) 132,858
3) 102,000
4) 24,000
5) None of these choices are correct.

Answer 1

The total depreciation deductions for Sienna Company's machinery for 2015 is $25,716, by applying the MACRS depreciation rates of 10% for the ten-year property and 14.29% for the seven-year property to their respective costs.

Step-by-step explanation:

The question involves calculating the depreciation deductions for two pieces of machinery acquired by Sienna Company in 2015, using the Modified Accelerated Cost Recovery System (MACRS). To determine the total deductions for 2015, we must consider the MACRS depreciation rates for property with different recovery periods and apply them to the respective costs of the machines.

For the ten-year property ($200,000 machine), the MACRS depreciation rate is 10% for the first year. For the seven-year property ($40,000 machine), the rate is 14.29%. Since the ten-year property machine was acquired in January and the seven-year in November, they are both eligible for a full year's depreciation in the first year.

Calculating the depreciation for each:

Ten-year property: $200,000 x 10% = $20,000Seven-year property: $40,000 x 14.29% = $5,716

Adding these together gives us the total deductions for 2015: $20,000 + $5,716 = $25,716.