Question

Suvi, Inc. purchased two assets during the current year. Suvi placed in service computer equipment (5-year property) on August 10 with a basis of $20,000 and machinery (7-year property) on November 18 with a basis of $10,000. Calculate the maximum depreciation expense, rounded to a whole number (ignoring §179 and bonus depreciation):

A. $857
B. $3,357
C. $5,429
D. $6,000
E. None of these

Answer 1

The maximum depreciation expense for the computer equipment and machinery, considering the half-year convention for assets placed in service mid-year, is $2,714.

Step-by-step explanation:

The question pertains to calculating the maximum depreciation expense for two assets under MACRS (Modified Accelerated Cost Recovery System). Depreciation for assets placed in service in the middle of the tax year is calculated using the half-year convention unless otherwise specified. For the computer equipment which is 5-year property, the first-year depreciation rate is 20%. For the machinery which is 7-year property, the first-year depreciation rate is 14.29%. However, each will be subject to a half-year of depreciation since they were both placed in service in the middle of the year.

Calculating the depreciation for each:

• Computer Equipment: $20,000 × 20% × 0.5 (half-year convention) = $2,000
• Machinery: $10,000 × 14.29% × 0.5 (half-year convention) = $714

The total maximum depreciation is therefore $2,000 (Computer Equipment) + $714 (Machinery) = $2,714.