Question

Lax, LLC purchased only one asset during the current year. Lax placed in service computer equipment (5-year property) on August 26 with a basis of $20,000. Calculate the maximum depreciation expense for the current year (ignoring §179 and bonus depreciation):

A. $2,000
B. $2,858
C. $3,000
D. $4,000
E. None of these

Answer 1

The maximum depreciation expense for the current year is $1,333.33.

Step-by-step explanation:

In this case, the computer equipment is considered 5-year property. To calculate the maximum depreciation expense for the current year, you can use the Modified Accelerated Cost Recovery System (MACRS) method. For 5-year property, the depreciation rate is 20% per year. Since the equipment was placed in service on August 26, it has been in service for 4/12 of the year. Therefore, the maximum depreciation expense for the current year would be:

(20,000 * 20% * 4/12) = $1,333.33

Therefore, the correct answer is none of the provided options.