Question

On June 1, 2022, Cork Oak Corporation purchased a passenger automobile for 100 percent use in its business. The auto, with a cost basis of $22,000, has a 5-year recovery period. How much depreciation (half-year convention) should be taken for 2022, assuming Cork Oak Corporation uses the accelerated depreciation method under MACRS but does not choose to make the election to expense or take bonus depreciation?

Select answer from the options below:

a. $10,200.

b. $3,160.

c. $4,400.

d. $18,200.

e. None of the above.

Answer 1

The first-year depreciation for Cork Oak Corporation's passenger automobile under MACRS with a half-year convention is 10% of its $22,000 cost basis, which amounts to $2,200. This option is not listed, so the correct answer is e. 'None of the above.'

Step-by-step explanation:

The question pertains to the calculation of depreciation using the Modified Accelerated Cost Recovery System (MACRS) with a half-year convention for a passenger automobile that has a 5-year recovery period. Under MACRS for a 5-year property, the first-year depreciation rate is 20%. However, with the half-year convention, you apply half of the year's depreciation in the first year. Therefore, the depreciation expense for the first year would be 10% of the cost basis.

Here is the calculation for Cork Oak Corporation's passenger automobile:

• Cost Basis: $22,000
• First-Year MACRS Rate: 10%
• Depreciation Expense: 0.10 x $22,000 = $2,200

Since the calculated depreciation does not match any of the provided options and the closest one which is the correct answer would be option (c) $2,200, which is not listed. Therefore, the correct answer is (e) None of the above.