Homework #3

Problem #1
a. Feb 1, 2010 New Machine Bonus 50%: $25,000 MACRS Basis 25,000
April 1, 2010 new machine bonus 50%: $35,000 MACRS basis 35,000
October 1, 2010 used machine, no bonus MACRS basis 30,000
December 1, 2010 used machine, no bonus MACRS basis 40,000
First nine months of the year: 25,000 +35,000 = 60,000 less than 60% of the total: 130,000 – NO Half year convention
For mid-quarter convention we verify 30,000+40,000=70,000 more than 40% in the last quarter
Depreciation for 2010: (all 7 year table)
Feb 1, New machine: 25% x 25,000 = 6,250 plus bonus: 25,000. Total $31,250
April 1, 2010 New machine: 17.85% of 35,000 = 6,247.5 plus bonus 35,000 Total $41,247.5
October 1, 2010 used machine 3.57% of 30,000= 1,071
December 1, 2010 used machine 3.57% of 40,000 = 1,428
Total 2010 Depreciation: $74,996.5
b.
This changes the convention to half year convention: more than 60% in the first 9 months.
New Calculations:
Feb 1, 2010 machine 14.29% of 25,000 = 3,572.5 plus bonus 25,000. Total 28,572.5
April 1, 2010 machine 14.29 % of 35,000 = 5,001.5 plus bonus 35,000 Total 40,001.5
Sep 1, 2010 machine 14.29% of 30,000 = 4,287
Dec 1, 2010 machine 14.29% of 40,000 = 5,716
Total 2010 Depreciation: $78,577
Problem #2
a.
Computer:
MACRS Basis 16,000, 5 year table, half year, year two: 32% of 16,000 = 5,120
Machine: MACRS Basis 60,000, mid quarter convention, 7 year table, year three: 19.68% of 60,000= 11,808
Furniture: MACRS basis: 29,400 (70% of 42,000), mid quarter convention, 7 year property, first quarter, year 7: 8.75% of 29,400= 2,572.5
Total 2010 depreciation: 19,500.50
b.
Furniture: January 16, 2010 $42,000 Bonus 21,000 MACRS Basis 21,000 7 year
Computer August24, 2010 $32,000 Bonus 16,000 MACRS Basis 16,000 5 year
Machine: December 11, 2010 $120,000 Bonus $120,000 MACRS Basis $0
We apply half year convention, at least 60% of property is placed in the first nine months.
Furniture: 14.29% of 21,000= 3000.9 plus bonus 21,000 Total 24,000
Computer: 20% of 16,000 = 3200 plus bonus 16,000 Total 19200
Machine Bonus only!
Total for 2010 24,000+19,200+120000 = 163,200

Problem #3
a. 500,000- (2,400,000-2,000,000)=100,000 maximum that Sand could elect for 2010. But his income is $67,000 therefore the maximum that he could take for 2010 is $67,000. He can carryover $33,000 in the next year, subject to income.
b. Sec 179: $67,000
No bonus (used)
Half year convention (June2)
MACRS Basis 2,300,000
2010 Depreciation: 14.29% of 2,300,000= 328,670 plus Section 179 Total 395,670

Problem #4
Automobile maximum: 11,060 Bonus 11,000 MACRS Basis 11,000
Copier: Bonus $14,200 MACRS Basis 14,200 5 years
Furniture: Bonus $42,000 MACRS Basis 42,000 7 years
Equipment: Bonus $270,000 Macrs Basis $270,000 7 years
Warehouse: Commercial Property 39 years MACRS basis 110,250
All property is placed in service in the first nine months: Half year convention.
Depreciation:
Automobile: 11,060
Copier: 14,200 x 20%= 2,840 plus bonus Total 17040
Furniture: 42,000 x14.29%= 6001.80 plus bonus 48,001.80
Equipment 270,000 x 14.29%= 38,583 plus bonus 308,583
Warehouse: 110,250 x 1/39 x 5.5/12=1,295.67

Total for 2010 374,920.47
b.
Equipment $540,000, 6/30/2010
Section 179.
Total property for Section 179: 674,400 (no real property) Maximum that Redwood could take is $500,000, less that the taxable income of $950,000
If Redwood applies the maximum to the equipment, remainder of $540,000-500,000=$40,000.
Bonus $20,000 MACRs Basis $20,000 14.29% x 20,000 = 2,858 plus bonus plus Section 179:
Depreciation for Equipment for 2010: $522,858
Depreciation for 2011: 24.49% x 20,000 = 4,898.00

c.
500,000-28,400-84,000=387,600 of Section 179 available for equipment.
540,000-387,600= 152,400
Bonus : 76,200 MACRS Basis $76,200
Depreciation 2010; 14.29% x 76,200 = 10,888.98 plus Section 179 plus Bonus
Total 2010: 464,888.98
2011 Depreciation 76,200 x 24.49% = 18,661.38

Done!