Question

Way Corporation disposed of the following tangible personal property assets in the current year. Assume that the delivery truck is not a luxury auto. Calculate Way Corporation's 2016 depreciation expense.
Asset Date acquired Date sold Convention Original Basis
Furniture (7 year) 5/12/12 7/15/16 HY $60,000
Machinery (7 year) 3/23/13 3/15/16 MQ $72,000
Delivery truck* (5 year) 9/17/14 3/13/16 HY $20,000
Machinery (7 year) 10/11/15 8/11/16 MQ $280,000
Computer (5 year) 10/11/16 12/15/16 HY $80,000
(*Used 100 percent for business.)

Answer 1

Answer:

ASSET   ORIGINAL BASIS   RATE   PROPORTION   DEPRECIATION

Furniture     $60,000              8.93%         50%                           $2679

Machinery   $72,000              10.93%       12.5%                         $983.70

Truck           $20,000              19.20%         50%                         $1920

Machinery  $280,000             7.55%        62.5%                      $48,212.50

Computer    $80,000                                  50%                             -          

TOTAL                                                                                       $53,795.20

Explanation:

Based on the MARCS depreciation table rates:

For a 7-year recovery period under the Half-Year (HY) Convention, in the 5th year rate = 8.93%

For a 7-year recovery period under the Mid-Quarter (MQ) Convention, purchased during the first quarter, in the 4th year rate = 10.93%

For a 5-year recovery period under the Half-Year (HY) Convention, in the 3rd year rate = 19.20%

For a 7-year recovery period under the Mid-Quarter (MQ) Convention, purchased during the fourth quarter, in the 2nd year rate = 27.55%

For disposal during a year,

Under the Half-year convention. The depreciation amount would be half i.e 50% of the total depreciation for the year

Under the Mid-quarter convention the percentage applied to the full year disposal is

12.5% for First Quarter

37.5% for Second Quarter

62.5% for Third Quarter

87.5% for Fourth Quarter