A calendar year corporation, placed the following assets into service this year,

Question

A calendar year corporation, placed the following assets into service this year, 2015:

                                                Intital                           Recovery         Date Placed

Asset                                       Cost                             Period              in Service

Heavy Manufacturing Equip   $ 555,000                    7 years             March 9

Furniture                                 $ 230,000                    7 years             June 5

Transportation Equip.              $ 432,000                    5 years             July 29

Office Equipment                    $ 148,000                    5 years             September 25

Compute the corporation’s MACRS depreciation with respect to the assets placed in service this year. The corporation’s objective is to minimize taxes.

In December, James Bond decided to purchase $950,000 of additional equipment. The corporation could buy the equipment and place it into service before year end, or it could postpone the purchase until January. What effect does this decision have on the corporation’s depreciation with respect to the assets already in service?

Explanation / Answer

Half year convention of depreciation is used and so depreciation calculated is as shown below:

Asset Initial Cost Recovery Period Date Placed Heavy Manufacturing Equip   5,55,000 7 Mar-09 Furniture 2,30,000 7 Jun-05 Transportation Equip. 4,32,000 5 Jul-29 Office Equipment 1,48,000 5 Sep-25 Cost of 5 year recovery property 5,80,000 20% 116000 Cost of 7 year recovery property 7,85,000 14.29% 112142.745 MACRS depreciation 228142.745

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