[The following information applies to the questions displayed below.] On January

Question

[The following information applies to the questions displayed below.]

On January 8 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,399,500; $322,000 was allocated to the basis of the land and the remaining $1,077,500 was allocated to the basis of the building. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

a. Using MACRS, what is Javier’s depreciation expense on the building for years 1 through 3?

       

Explanation / Answer

Solution:

Year

Method

Recovery Period

Date Placed in service

Original Basis

(1)

Rate of depreciation

(2)

Amount of depreciation ($)

(1)X (2)

1

Straight Line (SL)

39

January 8

$1,077,500

2.247%

24,212

2

$1,077,500

2.564%

27,627

3

$1,077,500

2.564%

27,627

Refer to Tables for rate of depreciation.

Year

Method

Recovery Period

Date Placed in service

Original Basis

(1)

Rate of depreciation

(2)

Amount of depreciation ($)

(1)X (2)

1

Straight Line (SL)

39

January 8

$1,077,500

2.247%

24,212

2

$1,077,500

2.564%

27,627

3

$1,077,500

2.564%

27,627

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