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:

$ 4,748

Explanation:

The depreciation expenses = [tex]$(\$ 15000 \times 17.85 \%) + (\$ 6000 \times 10.71 \%)+(\$ 40000 \times 3.57 \%)$[/tex]

[tex]$= \$ 2677.50 + \$ 642.6 + \$ 1428$[/tex]

= $ 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

[tex]$=\frac{\text{assets purchased in last quarter}}{\text{total assets purchased in the year}} \times 100$[/tex]

[tex]$=\frac{40000}{61000} \times 100$[/tex]

[tex]$=65.57 \%$[/tex] (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.

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