Question

Wheeler LLC purchased two assets during the current year. Wheeler placed in service computer equipment (5-year property) on November 16 with a basis of $15,000 and furniture (7-year property) on April 20 with a basis of $11,000. Calculate the maximum depreciation expense, rounding to a whole number (ignoring §179 and bonus depreciation):

A. $1,285
B. $2,714
C. $4,572
D. $5,200
E. None of these

Answer 1

The maximum depreciation expense for the two assets (computer equipment and furniture) under MACRS for the current year, rounding to a whole number and ignoring §179 and bonus depreciation, is $4,572.

Step-by-step explanation:

The student's question involves calculating the maximum depreciation expense for two assets using the Modified Accelerated Cost Recovery System (MACRS). The computer equipment with a 5-year life placed in service on November 16 and the furniture with a 7-year life placed in service on April 20 must be depreciated separately.

For the computer equipment (5-year property), we use the half-year convention and reference the IRS MACRS table to find the depreciation rate for the first year, which is 20%. Therefore, the depreciation expense for the computer equipment is: $15,000 * 20% = $3,000.

For the furniture (7-year property), we also apply the half-year convention for the first year, with a depreciation rate according to the IRS MACRS table for 7-year property at 14.29%. The depreciation expense for the furniture would be: $11,000 * 14.29% = $1,571.90, which rounds to $1,572.

Adding these two amounts gives us the total depreciation expense for the year: $3,000 (computer equipment) + $1,572 (furniture) = $4,572.