Question

Barbara's Bakery purchased three new 7-year assets last year. She chose NOT to use Section 179 immediate expensing or take bonus depreciation. The furnishings were purchased for $15,000 in April, the equipment for $6,000 in July, and the appliances for $40,000 in November. Using the appropriate MACRS depreciation tables in the Appendix, what amount of depreciation expense is allowable in the current (second) year of ownership?

a) $16,806
b) $14,939
c) $16,163
d) $16,072

Answer 1

$ 4,748

Step-by-step explanation:

The depreciation expenses =
`$(\$ 15000 * 17.85 \%) + (\$ 6000 * 10.71 \%)+(\$ 40000 * 3.57 \%)$`

`$= \$ 2677.50 + \$ 642.6 + \$ 1428$`

= $ 4748

Generally we have use half year convention for assets that are purchased during the year but here we used the mid quarter as of more than the 40% of the assets are being purchased in last quarter of the year

`$=\frac{\text{assets purchased in last quarter}}{\text{total assets purchased in the year}} * 100$`

`$=(40000)/(61000) * 100$`

`$=65.57 \%$` (it is more than 40%)

Thus we can use the mid quarter mars depreciation rates for the 7 years assets that are purchased this year.