Question

A large profitable corporation purchased a small jet plane for use by the firm's engineers. The plane cost $1,600,000. Use Tables 11-2 and 11-3 in the text or slides. Compute the depreciation for year 2 using MACRS.

Answer 1

Answer:

depreciation expense for year 2 = $512,000

Explanation:

The IRS allows qualifying aircraft that is used solely for private use to depreciate on a 5 year period. Depreciation rate for year 2 is 32%, so total depreciation expense during year 2 = $1,600,000 x 32% = $512,000

Other ways of depreciating aircraft used for private purposes is bonus depreciation, and straight line depreciation under the alternative depreciation system. Bonus depreciation increases depreciation expense during year 1 which is better for tax purposes, but not all companies choose it. If straight line depreciation is used, the depreciation period is 6 years.