Question

Cork Oak Corporation purchased a heavy-duty truck (not considered a passenger automobile for purposes of the listed property and luxury automobile limitations) on May 1,2015 for use in its business. The truck, with a cost basis of $24,000, has a 5-year estimated life. It also is 5-year recovery property. How much depreciation should be taken on the truck for the 2015 calendar tax year using the conventional( for financial accounting purposes) stratight-line depreciation method?

Answer 1

To calculate the straight-line depreciation of the truck for the 2015 tax year, divide the cost ($24,000) by the useful life (5 years) to find the annual depreciation, then prorate for the 8 months the truck was in use during that year, resulting in $3,200 of depreciation for 2015.

Step-by-step explanation:

The student is asking about how depreciation for a heavy-duty truck purchased by Cork Oak Corporation should be calculated using the straight-line depreciation method for the 2015 calendar tax year.

To calculate straight-line depreciation, you divide the cost of the asset by the years of useful life. Since the truck is identified as 5-year recovery property with a cost basis of $24,000 and was purchased on May 1, we'll be calculating depreciation for 8 months of the first year (May to December).

First, find annual depreciation: $24,000 (cost) ÷ 5 (years) = $4,800 depreciation per year.

Then, calculate the pro-rated amount for the partial year: $4,800 ÷ 12 (months) x 8 (months) = $3,200.

So, the depreciation taken on the truck for the 2015 calendar tax year would be $3,200.