At the beginning of 2017, Joshua began a calendar year end business and placed i

Question

At the beginning of 2017, Joshua began a calendar year end business and placed in service the following assets during the year. He does not use section 179 or first year (bonus) depreciation Compute the cost recovery (Depreciation) for the first 2 years of service Year 1 Year 2 5 Computer Equipment 2/01/17 $100,000 aD, ooo 7Office Furniture STruck (not listed property) 9/30/17 6/30/17 $170,000 $40,000 10/11/17 $200,000 $300,000 Commercial Building Residential Rental Property 4/1/17 8 Points On April 11, 2017 Orange Corporation purchased and placed in service- seven year class assets co $540,000 and five years class assets costing $140,000. Orange does not use Section 179 Deprecia Orange does take additional first year depreciation (bonus). Assume taxable income is not a limit Determine Orange Corporation's 2016 cost recovery. (show work) (no work, no credit)

Explanation / Answer

Solution:

Depriciation in case of Orange Corporation:

*Note: As company take additional Ist year Depriciation @ 50% and the assets also qualify for such, so Depriciation base reduced by 50%. Asset qualify when asset was new purchased and Useful life less than 20 Years. The both is completed in our case.

so,

Additional Depriciation 140000*50%=70000

now, base for Depriciation will be 140000-70000= 70000

**As Asset life is five years, rate of Depriciation will be 20% in Ist year and 32% in 2nd Year.

in the same way,

*In case of 7 Year Furniture, the above note remain same (i.e. Depriciation base reduced to 50%) except Depriciation rate at the rate of 14.29% in Ist year and 24.49% in 2nd Year. so Depriciation will be calculated on remaining 50% value i.e. 540000*50%= 270000.

Note:

As question mention calculation of orange corporation's Depriciation for the year year 2016 which makes no sence in the interoertation of question as the whole question belongs to year 2017. so, it is assumed to be interprated as Year 2017 in place of 2016.

   Depriciation Namae of Asset Life in Years Original Cost $ 1 Year 2nd Year computer equipment 5 100000   20000 32000 Office furniture 7 170000 24293 41633 Truck ( not Listed) 5 40000   8000 12800 Commercial building 27.5 200000 Residential rental property 39 300000

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