Computing Depreciation

Pages: 6 (567 words) Published: April 17, 2015
Question:

Back in Boston, Steve has been busy creating and managing his new company, Teton Mountaineering (TM), which is based out of a small town in Wyoming. In the process of doing so, TM has acquired various types of assets. Below is a list of assets acquired during 2010: Asset

Cost
Date Place in Service
Office equipment
$10,000
02/03/2010
Machinery
$560,000
07/22/2010
Used delivery truck*
$15,000
08/17/2010
*Not considered a luxury automobile, thus not subject to the luxury automobile limitations During 2010, TM had huge success (and had no §179 limitations and Steve acquired more assets the next year to increase its production capacity. These are the assets which were acquired during 2011: Asset

Cost
Date Place in Service
Computers&Info. System
$40,000
03/31/2011
Luxury Auto**
$80,000
05/26/2011
Assembly Equipment
$475,000
08/15/2011
Storage Building
$400,000
11/13/2011
**Used 100% for business purposes.
TM did extremely well during 2011 by generating a taxable income before any §179 expense of $732,500. Required
a. Compute 2010 depreciation deductions including §179 expense (ignoring bonus depreciation).

b. Compute 2011 depreciation deductions including §179 expense (ignoring bonus depreciation).

c. Compute 2011 depreciation deductions including §179 expense (ignoring bonus depreciation), but now assume that Steve acquired a new machine on October 2nd for $400,000 plus $20,000 for delivery and setup costs.

d. Ignoring part c, now assume that during 2011, Steve decides to buy a competitor’s assets for a purchase price of $350,000. Steve purchased the following assets for the lump-sum purchase price. Asset

Cost
Date Placed in Service
Inventory
$20,000
09/15/2011
Office furniture
$30,000
09/15/2011
Machinery
$50,000
09/15/2011
Patent
$98,000
09/15/2011
Goodwill
$2,000
09/15/2011
Building
$130,000
09/15/2011
Land
$20,000
09/15/2011
e. Complete Part I of Form 4562 for part b.

a) 2010 depreciation is $513,003.
Description
Cost
Sec. 179 Expense
MACRS Basis
Current Expense
EOY
Office Equipment
 10,000
  10,000
   -  
  -  
10,000
Machinery
 560,000
 490,000
  70,000
10,003
500,003
Used Delivery Truck
15,000
 
15,000
3,000
3,000
Totals
585,000
500,000
85,000
10,003
513,003
b) 2011 depreciation is $529,287.
Description
Cost
Sec. 179 Expense
MACRS Basis
Current Expense
EOY
Office Equipment
10,000
 
-  
-  
-
Machinery
560,000
       
70,000
17,143
17,143
Used Delivery Truck
15,000
 
15,000
4,800
4,800
Computers&Info. System
40,000
25,000
15,000  
3,000
28,000
Luxury Auto
80,000
 
80,000
3,060
3,060
Assembly Equipment
475,000
475,000
-  
475,000
475,000
StorageBuilding
400,000
 
400,000
1,284
1,284
Totals
1,580,000
500,000
580,000
504,287
529,287
c) 2011 depreciation is $590,733.
Description
Cost
Additions
Sec. 179 Expense
MACRS Basis
Current Expense
Office Equipment
       10,000
 
 
 
              -  
Machinery
     560,000
 
 
        70,000
17,143
Used Delivery Truck
       15,000
 
 
        15,000
         4,800
Computers&Info. System
       40,000
 
 
        40,000
       8,000
Luxury Auto
       80,000
 
 
        80,000
3,060
Assembly Equipment
     475,000
 
80,000 
      395,000
       136,446
New Machine
     400,000
       20,000
        420,000
-
420,000
StorageBuilding
     400,000
 
 
      400,000
         1,284
Totals
   1,980,000
       20,000
        500,000
      800,000
$590,733

d) 2011 depreciation is $545,343.
Description
Cost
Sec. 179 Expense
MACRS Basis
Current Expense
Office Equipment
10,000
 
               -  
              -  
Machinery
560,000
 
70,000
17,143
Used Delivery Truck
15,000
 
15,000
4,800
Computers&Info. System
40,000
 
40,000
8,000
Luxury Auto
80,000
 
80,000
3,060
Assembly Equipment
475,000
475,000
               -  
475,000...
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